<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: September 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 November 13, 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
Months and Nine Months Ended September 30, 1995 and 1994 3
Condensed Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales
Systems and Services $41,008 $25,348 $99,953 $83,891
Field Engineering 8,411 8,771 24,949 26,040
Consulting Services 6,710 6,644 19,790 17,958
56,129 40,763 144,692 127,889
Costs and expenses
Cost of sales 46,987 34,683 120,141 105,644
Selling, general and
administrative expenses 6,778 7,291 17,890 19,737
Goodwill amortization 525 794 2,114 2,383
Operating income (loss) 1,839 (2,005) 4,547 125
Other income (expenses)
Other income 7 30 16 44
Interest expense (1,428) (984) (4,043) (2,619)
Income (loss) before taxes 418 (2,959) 520 (2,450)
Income tax benefit 0 400 0 0
Income (loss) before
extraordinary item 418 (2,559) 520 (2,450)
Extraordinary item
Loss from early debt retirement 0 (196) 0 (196)
Net income (loss) $ 418 $(2,755) $ 520 $(2,646)
</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)
(amounts in thousands)
ASSETS
<CAPTION>
September 30, 1995 December 31, 1994
<S> <C> <C>
Current assets
Cash and cash equivalents $ 462 $ 441
Accounts receivable, net 37,722 40,345
Inventories, net 9,468 8,696
Other current assets 2,333 3,918
Total current assets 49,985 53,400
Property and equipment, net of
accumulated depreciation of $18,255
and $16,769 respectively 2,496 3,483
Goodwill 24,709 26,822
Other assets 3,299 3,167
$80,489 $86,872
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Accounts payable $21,053 $20,302
Other current liabilities 6,041 10,174
Accrued compensation and benefits 9,430 10,272
Senior credit facility 32,037 0
Senior subordinated notes 0 6,414
Total current liabilities 68,561 47,162
Senior credit facility 0 34,000
Subordinated notes 7,120 0
Other long-term liabilities 1,518 2,941
Total liabilities 77,199 84,103
Redeemable preferred stocks
Senior redeemable preferred stock 4,410 4,192
Class B redeemable preferred stock 10,042 9,497
Redeemable preferred stock 15,114 14,263
Total preferred stock 29,566 27,952
Stockholders' investment
Common stock 78 78
Capital in excess of par 11,002 12,095
Retained earnings (deficit) (37,356) (37,356)
Total stockholders' investment (26,276) (25,183)
$80,489 $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>
Nine Months
Ended September 30,
1995 1994
<S> <C> <C>
Operating activities:
Net income (loss) $ 520 $(2,646)
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,409 3,641
Goodwill amortization 2,114 2,383
Loss on early debt repayment 0 196
Other noncash items (450) 754
Changes in assets and liabilities that used cash (2,685) (8,772)
Cash provided by (used in) operating activities 1,908 (4,444)
Investing activities:
Proceeds from sales of property and equipment 3 7
Purchase of property and equipment (621) (914)
Cash (used in) investing activities (618) (907)
Financing activities:
(Repayment of) Proceeds from senior credit facility (1,963) 7,430
Proceeds from issuance of subordinated bridge notes 6,494 0
Repayment of senior subordinated notes (5,800) (1,825)
Cash (used in) provided by financing activities (1,269) 5,605
Increase in cash and cash equivalents 21 254
Cash and cash equivalents at beginning of period 441 744
Cash and cash equivalents at end of period $ 462 $ 998
</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 September 30, 1995 and December 31, 1994,
and the results of its operations and its cash flows for the nine
months ended September 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 nine months ended
September 30, 1995 are Product Sales of $46.1 million.
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>
September 30, 1995 December 31, 1994
<S> <C> <C>
Billed accounts receivable $28,597 $32,483
Unbilled accounts receivable 9,790 9,149
38,387 41,632
Allowance for doubtful accounts (665) (1,287)
$37,722 $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. As the maturity date
of the Facility is less than one year, at September 30, 1995 the
Company has classified the Facility as a current liability. See
Note 5. Subsequent Events, below.
Senior Subordinated Note, Series A
At September 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 September 30, 1995. Porter has agreed to waive
such non compliance.
Senior Subordinated Notes, Series B
On June 8, 1995 the Company paid Union de Banques Suisses
(Luxembourg) S. A. ("UBS") $5.8 million in outstanding principal,
$500,000 of accrued interest and $200,000 of legal and other fees
to retire the outstanding Series B-1 and B-2 notes and settle the
related claims of UBS.
The funds to pay UBS were loaned to the Company by certain
of the Company's common shareholders. In replacement of the
notes held by UBS, the lenders were issued Senior 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%. See Note 5. Subsequent Events, below.
<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. From July 1, 1995 through June 30,
1997, the Series A-1 and A-2 each carry a cumulative dividend
rate equal to 11.125% per annum of its liquidation value, and
increases to 14.125% per annum thereafter. The dividends are
payable semi-annually on June 30 and December 31 of each year.
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 Company is required to redeem all of the
outstanding shares of the Series A-1 and A-2 on December 31,
2001, subject to the legal availability of funds. At September
30, 1995 and December 31, 1994 undeclared, unpaid dividends
relating to Series A-1 and A-2 Preferred Stock were accrued for
financial reporting purposes in the amount of $1,410,000 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 payable
semi-annually at June 30 and December 31. From July 1, 1995
through June 30, 1997, the dividend is calculated at a rate equal
to 11.125% per annum of its liquidation value, and increases 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 September 30, 1995 and
December 31, 1994 undeclared, unpaid dividends relating to the
Class B Redeemable Preferred Stock were accrued for financial
reporting purposes in the amount of $2,542,000 and $1,997,000
respectively.
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 has issued 3,595,586 shares
of 12% Cumulative Exchangeable Redeemable Preferred Stock (the
"Preferred Stock"). 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.
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 and is able to pay
dividends under its charter, 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 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 have
been accrued for financial reporting purposes in the amount of
$2,871,000, under the assumption that such dividends will be paid
in additional shares of stock valued at an average market value.
The Company has accrued these dividends for the periods although
the Company is uncertain when or if these dividends will be
declared or paid. Had the Company accrued cash dividends on the
outstanding shares of stock such an accrual would approximate
$12.9 million.
Note 5. Subsequent Events
On October 13, 1995, the Company issued to certain of its
shareholders $14.4 million of Senior Subordinated Notes ("Notes")
in exchange for the $6.5 million Senior Subordinated Bridge Notes
held by these shareholders, as well as the transfer to the
Company of certain shareholders' deposits with the Company's
bank. The Notes are classified as either Series B or Series C.
Series B Notes, which total $6.5 million and replace the Senior
Subordinated Notes - Series B held by UBS, are collateralized by
certain assets of the Company. Series C Notes which total $7.9
million are unsecured.
Both the Series B and Series C Notes have a maturity date of
October 1, 2000 and have interest rates ranging from 14% to 17%.
Additionally, these notes have a cumulative payment premium of
13.5% per annum payable only upon certain circumstances. These
circumstances include an initial public offering of the Company's
common stock or a significant refinancing, to the extent that net
proceeds from either of the above events are received and are
sufficient to pay the premium. Due to the contingent nature of
the premium payment, the associated premium expenses will only be
recorded after occurrence of a triggering event. However the
interest portion of the notes will be treated as a period
expense.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
In the first nine months of 1995, the Company had higher
revenues and operating profit when compared to the first nine
months of 1994. The higher revenue and operating profit resulted
from improved performance of the Company's system integration
division as well as declines in selling, general and
administrative expense.
Total backlog from existing contracts was $1.3 billion as of
September 30, 1995, of which approximately $1 billion represented
the maximum value from awarded indefinite delivery, indefinite
quantity contracts for computer equipment and services. The
Company's total backlog at December 31, 1994 was $328 million.
The significant increase in the backlog resulted from the award
to the Company of the Small Multi-user Computer II (SMC II)
contract by the U.S. Army in September 1995. The contract has a
maximum potential value of $907 million. Also in September, the
Company was awarded two additional system integration contracts,
totaling approximately $20 million, with the Defense Supply
Service and U.S. House of Representatives.
As of September 30, 1995, the funded backlog of the Company
totaled $97 million, an increase of $4 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 (collectively, "the
Company"). The major elements of the Company's operating expenses
as a percentage of sales for the three and nine month periods
ended September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.7 85.1 83.0 82.6
SG&A expenses 12.1 17.9 12.4 15.4
Goodwill amortization .9 1.9 1.5 1.8
Operating income 3.3 (4.9) 3.1 0.2
Other income 0 0.1 0 0
Interest expense (2.5) (2.4) (2.8) (2.1)
Income tax provision 0 1.0 0 0
Extraordinary item 0 (0.5) 0 (0.2)
Net income 0.8% (6.7)% 0.3% (2.1)%
</TABLE>
<PAGE>
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 Services Group").
Sales, gross profit, and gross margin by market segment for
the periods designated below are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(amounts in thousands)
<S> <C> <C> <C> <C>
Sales:
Systems and Services $41,008 $25,348 $ 99,953 $ 83,891
Field Engineering 8,411 8,771 24,949 26,040
Consulting Services 6,710 6,644 19,790 17,958
Total $56,129 $40,763 $144,692 $127,889
Gross Profit:
Systems and Services $7,250 $3,248 $18,326 $14,294
Field Engineering 661 1,441 2,567 4,876
Consulting Services 1,231 1,391 3,658 3,075
Total $9,142 $6,080 $24,551 $22,245
Gross Margin:
Systems and Services 17.7% 12.8% 18.3% 17.0%
Field Engineering 7.9% 16.4% 10.3% 18.7%
Consulting Services 18.4% 20.9% 18.5% 17.1%
Total 16.3% 14.9% 17.0% 17.4%
</TABLE>
For the three month period ended September 30, 1995 sales
increased by $15.4 million, or 37.7%, to $56.1 million from $40.8
million for the comparable 1994 period. Sales increased $16.8
million, or 13.1%, from $127.9 million to $144.7 million for the
nine months ended September 30, 1995 as compared to the same 1994
period. These increases for the three and nine month periods are
primarily attributable to the Systems and Services Group, which
reported increases in sales of $15.7 million and $16.1 million
for the three and nine month periods, and to the Consulting Group
which reported increased sales of $66,000 and $1.8 million for
the three and nine month periods, respectively. These increases
were offset by declines in sales in the Field Engineering Group
of $360,000 and $1.1 million for the respective three and nine
month periods.
Within the Systems and Services Group, systems integration
sales accounted for the majority of the increase, as sales
improved $16.1 million and $19.8 million in the three and nine
month periods, respectively, due to increased order volume in the
first three quarters of 1995.
<PAGE>
Increased orders in systems integration were due to the INS
contract, which has provided the Company with increased revenue
and enhanced profitability, as well as increased sales in other
business lines of the division. Software services sales
experienced declines of $400,000 and $3.7 million for the three
and nine month periods, respectively. These decreases in sales
were due to declines in contract activity on existing contracts
as well as certain contracts not being renewed during 1995.
The revenue decline in the Field Engineering Group is primarily
due to lower warranty revenue resulting from the low 1994 system
integration sales as well as delayed starts on certain of the
Group's recent contract awards.
Cost of sales increased by $12.3 million, or 35.5%, to $47.0
million in the three month period ended September 30, 1995, from
$34.7 million in the comparable 1994 period. For the nine months
ended September 30, 1995, cost of sales increased $14.5 million,
or 13.7%, to $120.1 million from $105.6 million for the same
period in 1994. These increases are the result of the increases
in sales for both periods.
Gross profit increased $3.1 million in the three month
period to $9.1 million, from $6.1 million in the comparable 1994
period. For the nine month period, gross profit increased by
$2.3 million to $24.5 million from $22.2 million. The increase
in both periods is primarily attributable to the higher sales
volume previously discussed within the Systems and Services Group
and the Consulting Services Group. These increases were offset
by declines in gross profit for the Field Engineering Group,
attributable primarily to start-up costs associated with recent
contract awards. Gross margins were 16.3% and 17.0% for the
three and nine month periods of 1995 as compared to 14.9% and
17.4% for the comparable periods of 1994.
Selling, general, and administrative expense ("SG&A")
decreased for the three month period by approximately $500,000,
to $6.8 million in 1995 from $7.3 million in 1994 for the three
month period. For the nine month period, SG&A decreased from
$19.7 million to $17.9 million, approximately $1.8 million.
These decreases were primarily due to reduced expenses associated
with product initiatives, lower contract rebid efforts in 1995 as
compared to 1994, and reduced expenses in certain administrative
cost areas. SG&A as a percentage of sales decreased to 12.1% for
the third quarter of 1995 from 17.9% in the comparable 1994
period. SG&A as a percentage of sales for the nine month period
ended September 30, 1995 decreased to 12.4% from 15.4% in the
comparable 1995 period. The decreases for both periods are due
to the higher sales volume and decreased costs.
Goodwill amortization expense was $525,000 and $2.1 million
for the three and nine month periods ended September 30, 1995
compared to $794,000 and $2.4 million for the three and nine
month periods ended September 30, 1994. The reduction in
goodwill amortization is attributable to the completion of the
amortization of the goodwill created by the 1989 leveraged buyout
of the Company. The Company continues to amortize its goodwill
balance which resulted from the acquisition of Telos Corporation
(California).
<PAGE>
Operating income increased by $3.8 million to $1.8 million
in the three month period from $(2.0) million in the comparable
1994 period and increased $4.4 million to $4.5 million from
$125,000 for the nine month period, as a result of the
aforementioned increases in sales and gross profit.
Other non-operating income was approximately $7,000 in the
three month period of 1995 compared to approximately $30,000 of
other non-operating income in the comparable 1994 period. For
the 1995 nine month period, non-operating income was $16,000 as
compared to income of $44,000 for the comparable 1994 period.
Interest expense increased approximately $444,000 to $1.4
million in the third quarter of 1995 from $984,000 in the
comparable 1994 period. Interest expense for the nine month
period ended September 30, 1995 increased $1.4 million to $4.0
million from $2.6 million in the 1994 period. The variance is a
result of the increase in the outstanding balance of the senior
credit facility and related interest rate, as well as an increase
in the outstanding balance of the subordinated debt and related
interest rate.
The Company did not have an income tax provision for the
three month and nine month periods ended September 30, 1995 as a
result of utilization of net operating loss carryforwards. For
the comparable periods of 1994, the Company had a tax benefit of
$400,000 for the three month period and no tax provision for the
nine month period.
Liquidity and Capital Resources
For the nine months ended September 30, 1995, the Company's
operating activities provided $1.9 million of cash to the
Company. This was primarily the result of increased net income
and the Company's effort to improve receivable collections. This
improvement in cash collections also resulted in the $2.0 million
reduction of the senior credit facility balance from December 31,
1994 to September 30, 1995.
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>
Recent contract awards will ultimately require the Company
to expand its financial capability. The short term financing
requirement from these contract awards can be met with its
current facility. The Company expects to address the
requirements of longer term financing and a larger credit
facility in 1996.
At September 30, 1995, the Company had outstanding debt of
$39.1 million, consisting of $32.0 million under the secured
senior credit facility ("Facility") and $7.1 million in
subordinated debt. The Facility was refinanced on April 17, 1995
and has a maturity date of July 1, 1996. While the Company has
classified the Facility as a current liability as of September
30, 1995 due to the maturity date, the Company believes that the
Facility will be extended once such discussions with its lender
have been completed.
Subsequent Events
On October 13, 1995, the Company issued to certain of its
shareholders $14.4 million of Senior Subordinated Notes ("Notes")
in exchange for the $6.5 million Senior Subordinated Bridge Notes
held by these shareholders, as well as the transfer to the
Company of certain shareholders' deposits with the Company's
bank. The Notes are classified as either Series B or Series C.
Series B Notes, which total $6.5 million and replace the Senior
Subordinated Notes - Series B held by UBS, are collateralized by
certain assets of the Company. Series C Notes which total $7.9
million are unsecured.
Both the Series B and Series C Notes have a maturity date of
October 1, 2000 and have interest rates ranging from 14% to 17%.
Additionally, these notes have a cumulative payment premium of
13.5% per annum payable only upon certain circumstances. These
circumstances include an initial public offering of the Company's
common stock or a significant refinancing, to the extent that net
proceeds from either of the above events are received and are
sufficient to pay the premium. Due to the contingent nature of
the premium payment, the associated premium expenses will only be
recorded after occurrence of a triggering event. However the
interest portion of the notes will be treated as a period
expense.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part II, Item 1 in the Company's June
30, 1995 Form 10-Q and Part I, Item 3 in the Company's December
31, 1994 Form 10-K. No reportable legal events or material legal
developments have occurred during the third quarter of 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.58 Series B Senior Subordinated Secured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Drayton English
and International Investment Trust
10.59 Series B Senior Subordinated Secured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and J. O. Hambro
Investment Management, Ltd.
10.60 Series B Senior Subordinated Secured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and North Atlantic
Smaller Companies Investment Trust, PLC
10.61 Series B Senior Subordinated Secured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Mr. John R.C.
Porter
10.62 Series B Senior Subordinated Secured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Sir Leslie Porter
10.63 Series B Senior Subordinated Secured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Second
Consolidated Trust, PLC
10.64 Series B Senior Subordinated Secured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Toxford Corp.
10.65 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Drayton English
and International Investment Trust
10.66 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and J.O. Hambro
Investment Management, Ltd.
<PAGE>
10.67 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and North Atlantic
Smaller Companies Investment Trust, PLC
10.68 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Mr. John R.C.
Porter
10.69 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Sir Leslie Porter
10.70 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Second
Consolidated Trust, PLC
10.71 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Toxford Corp.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
<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
November 14, 1995 /s/ Lorenzo Tellez
Lorenzo Tellez
(Principal Financial Officer &
Principal Accounting Officer)
<PAGE>
Telos Corporation
Exhibit Index
Exhibit
Number Exhibit Name Page
10.58 Series B Senior Subordinated Secured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and Drayton English and International Investment
Trust 20-25
10.59 Series B Senior Subordinated Secured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and J. O. Hambro Investment Management, Ltd. 26-31
10.60 Series B Senior Subordinated Secured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and North Atlantic Smaller Companies Investment
Trust, PLC 32-37
10.61 Series B Senior Subordinated Secured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and Mr. John R.C. Porter 38-43
10.62 Series B Senior Subordinated Secured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and Sir Leslie Porter 44-50
10.63 Series B Senior Subordinated Secured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and Second Consolidated Trust, PLC 51-56
10.64 Series B Senior Subordinated Secured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and Toxford Corp. 57-62
10.65 Series C Senior Subordinated Unsecured Note
due October 1, 2000 as of October 13,
1995 between Telos Corporation (Maryland)
and Drayton English and International Investment
Trust 63-68
10.66 Series C Senior Subordinated Unsecured Note
due October 1, 2000 as of October 13, 1995
between Telos Corporation (Maryland) and J.O
Hambro Investment Management, Ltd. 69-74
10.67 Series C Senior Subordinated Unsecured Note
due October 1, 2000 as of October 13, 1995
between Telos Corporation (Maryland) and North
Atlantic Smaller Companies Investment Trust, PLC 75-80
<PAGE>
Telos Corporation
Exhibit Index (cont'd)
Exhibit
Number Exhibit Name Page
10.68 Series C Senior Subordinated Unsecured Note
due October 1, 2000 as of October 13, 1995
between Telos Corporation (Maryland) and
Mr. John R.C. Porter 81-86
10.69 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Sir Leslie
Porter 87-92
10.70 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Second
Consolidated Trust, PLC 93-98
10.71 Series C Senior Subordinated Unsecured Note due
October 1, 2000 as of October 13, 1995 between
Telos Corporation (Maryland) and Toxford Corp. 99-104
27 Financial Data Schedule 105
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES B SENIOR SUBORDINATED SECURED NOTE DUE OCTOBER 1, 2000
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, or assigns, (hereinafter referred
to as "Drayton English" or "Lender"), at c/o INVESCO Asset Mgmt.
Ltd., 11 Devonshire Square, London, UK EC2M4YR or at such other
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-ONE THOUSAND SEVENTY-NINE DOLLARS AND 80/100
($151,079.80) on October 1, 2000 together with interest on the
principal amount hereof from time to time outstanding at the rate
hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series B Senior Subordinated Secured Notes Due October 1, 2000
(collectively referred to herein as the "Series B Notes"), all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series B Note issued to Sir Leslie Porter. The Series B Notes
have been issued in the aggregate principal amount of
$6,493,581.93.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
<PAGE>
paid in full, on the first day of April, July, October, and
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock
of the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount
equal to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes,
accrued and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series B Notes and the Series C Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series C Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series B Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series B Notes outstanding at the time of any such payment.
1.12 The Company agrees that within 60 days of the date
hereof it will enter into a security agreement with the holder
granting to a collateral agent, mutually acceptable to the Lender
and the Company, for the holders of the Series B Notes, a
perfected security interest in the Company's plant, property and
equipment, pursuant to documents and agreements in form and
substance reasonably satisfactory to the Lender.
<PAGE>
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more
than five days after due date any amount of premium, if any, or
interest on this Note or the Series C Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed
by it under this Note or the Series C Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation
or warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit
Agreement") shall have occurred and be continuing, if (and only if) such
event results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower
agrees to pay all reasonable 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.
<PAGE>
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined
in the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the
Series B Notes.
This Note shall be construed and enforced in accordance
with, and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of
this Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES B SENIOR SUBORDINATED SECURED NOTE DUE OCTOBER 1, 2000
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., or assigns, (hereinafter referred to as "J.O.
Hambro" or "Lender"), at 30 Queen Anne Gate, London, SWIH 9AL, United
Kingdom or at such other offices or at such other place or places
as the holder hereof may from time to time designate in writing,
the principal sum of SEVENTEEN THOUSAND SEVEN HUNDRED TWENTY-FIVE
DOLLARS AND 21/100 ($17,725.21) on October 1, 2000 together with
interest on the principal amount hereof from time to time
outstanding at the rate hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series B Senior Subordinated Secured Notes Due October 1, 2000
(collectively referred to herein as the "Series B Notes"), all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series B Note issued to Sir Leslie Porter. The Series B Notes
have been issued in the aggregate principal amount of
$6,493,581.93.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
<PAGE>
paid in full, on the first day of April, July, October, and
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series B Notes and the Series C Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series C Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series B Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series B Notes outstanding at the time of any such payment.
1.12 The Company agrees that within 60 days of the date
hereof it will enter into a security agreement with the holder
granting to a collateral agent, mutually acceptable to the Lender
and the Company, for the holders of the Series B Notes, a
perfected security interest in the Company's plant, property and
equipment, pursuant to documents and agreements in form and
substance reasonably satisfactory to the Lender.
<PAGE>
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series C Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series C Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
<PAGE>
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
B Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES B SENIOR SUBORDINATED SECURED NOTE DUE OCTOBER 1, 2000
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, or assigns, (hereinafter referred to
as "North Atlantic" or "Lender"), at 30 Queen Anne Gate, London SWIH
9AL, United Kingdom or at such other 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 TWENTY-NINE
THOUSAND SIXTY-FIVE DOLLARS AND 44/100 ($229,065.44) on October 1,
2000 together with interest on the principal amount hereof from
time to time outstanding at the rate hereinafter provided until
paid in full.
This is one of a series of the Company's Notes known as its
Series B Senior Subordinated Secured Notes Due October 1, 2000
(collectively referred to herein as the "Series B Notes"), all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series B Note issued to Sir Leslie Porter. The Series B Notes
have been issued in the aggregate principal amount of $6,493,581.93.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
<PAGE>
paid in full, on the first day of April, July, October, and
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series B Notes and the Series C Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a Public
Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series C Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series B Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series B Notes outstanding at the time of any such payment.
1.12 The Company agrees that within 60 days of the date
hereof it will enter into a security agreement with the holder
granting to a collateral agent, mutually acceptable to the Lender
and the Company, for the holders of the Series B Notes, a
perfected security interest in the Company's plant, property and
equipment, pursuant to documents and agreements in form and
substance reasonably satisfactory to the Lender.
<PAGE>
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series C Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series C Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
<PAGE>
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
B Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES B SENIOR SUBORDINATED SECURED NOTE DUE OCTOBER 1, 2000
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 John Porter, or
assigns, (hereinafter referred to as "John Porter" or "Lender"),
at c/o PFM Ltd. 12 Hans Road, London SW3 1RT, United Kingdom or at
such other 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 THREE HUNDRED SIXTY-ONE THOUSAND SEVEN
HUNDRED FORTY-FIVE DOLLARS and 92/100 ($3,361,745.92) on October
1, 2000 together with interest on the principal amount hereof from
time to time outstanding at the rate hereinafter provided until
paid in full.
This is one of a series of the Company's Notes known as its
Series B Senior Subordinated Secured Notes Due October 1, 2000
(collectively referred to herein as the "Series B Notes"), all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series B Note issued to Sir Leslie Porter. The Series B Notes
have been issued in the aggregate principal amount of
$6,493,581.93.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
<PAGE>
paid in full, on the first day of April, July, October, and
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series B Notes and the Series C Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a Public
Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series C Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series B Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series B Notes outstanding at the time of any such payment.
1.12 The Company agrees that within 60 days of the date
hereof it will enter into a security agreement with the holder
granting to a collateral agent, mutually acceptable to the Lender
and the Company, for the holders of the Series B Notes, a
perfected security interest in the Company's plant, property and
equipment, pursuant to documents and agreements in form and
substance reasonably satisfactory to the Lender.
<PAGE>
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series C Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series C Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
<PAGE>
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
B Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES B SENIOR SUBORDINATED SECURED NOTE DUE OCTOBER 1, 2000
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
other offices or at such other place or places as the holder
hereof may from time to time designate in writing, the principal
sum of SEVEN HUNDRED NINE THOUSAND FOUR HUNDRED NINETY-SEVEN
DOLLARS AND 49/100 ($709,497.49) on October 1, 2000 together with
interest on the principal amount hereof from time to time
outstanding at the rate hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series B Senior Subordinated Secured Notes Due October 1, 2000
(collectively referred to herein as the "Series B Notes"), all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in this
Note. The Series B Notes have been issued in the aggregate
principal amount of $6,493,581.93.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
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
<PAGE>
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 January 1, 1996 and shall include all
interest accrued from the date hereof until the date of such
interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
<PAGE>
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall mean an amount equal to (a)
13 1/2% per annum, compounded semiannually from and
after the date hereof until paid, on the principal
amount of this Note outstanding from time to time
until the time of payment minus (b) the cumulative
amount payable by the Company on account of
withholding taxes with respect to interest payable
pursuant to Section 1.1 to the date of payment of
such premium. For the avoidance of doubt, the
Payment Premium shall not itself be increased on
account of withholding taxes, but shall be subject
to, and the amount remitted to the holder reduced
by, any withholding tax to which the Payment
Premium is subject, with the result that the total
cost to the Company for interest, Payment Premium
and withholding taxes shall equal twenty-seven and
one-half percent (27 1/2%) per annum on the
principal outstanding from time to time to the date
of payment of the Payment Premium.
<PAGE>
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series B Notes and the Series C Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a Public
Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series C Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
<PAGE>
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series B Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series B Notes outstanding at the time of any such payment.
1.12 The Company agrees that within 60 days of the date
hereof it will enter into a security agreement with the holder
granting to a collateral agent, mutually acceptable to the Holders
and the Company, for the holders of the Series B Notes, a
perfected security interest in the Company's plant, property and
equipment, pursuant to documents and agreements in form and
substance reasonably satisfactory to the Lender.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series C Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series C Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
<PAGE>
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
B Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
<PAGE>
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES B SENIOR SUBORDINATED SECURED NOTE DUE OCTOBER 1, 2000
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, or assigns, (hereinafter referred to as "Second
Consolidated Trust" or "Lender"), at c/o Foreign & Colonial
Exchange House, Primrose Street, 8th Floor, London EC2A 2NY,
United Kingdom or at such other 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 FIFTY-SEVEN THOUSAND
EIGHT HUNDRED FORTY-ONE DOLLARS AND 55/100 ($557,841.55) on
October 1, 2000 together with interest on the principal amount
hereof from time to time outstanding at the rate hereinafter
provided until paid in full.
This is one of a series of the Company's Notes known as its
Series B Senior Subordinated Secured Notes Due October 1, 2000
(collectively referred to herein as the "Series B Notes"), all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series B Note issued to Sir Leslie Porter. The Series B Notes
have been issued in the aggregate principal amount of
$6,493,581.93.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
<PAGE>
paid in full, on the first day of April, July, October, and
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series B Notes and the Series C Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a Public
Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series C Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series B Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series B Notes outstanding at the time of any such payment.
1.12 The Company agrees that within 60 days of the date
hereof it will enter into a security agreement with the holder
granting to a collateral agent, mutually acceptable to the Lender
and the Company, for the holders of the Series B Notes, a
perfected security interest in the Company's plant, property and
equipment, pursuant to documents and agreements in form and
substance reasonably satisfactory to the Lender.
<PAGE>
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series C Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series C Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
<PAGE>
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
B Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES B SENIOR SUBORDINATED SECURED NOTE DUE OCTOBER 1, 2000
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 Toxford Corporation, or
assigns, (hereinafter referred to as "Toxford Corporation" or
"Lender"), at c/o Rabobank, P.O. Box 348, St. Andrews House, Le
Bordage, St. Peter Port, Guernsey , Channel Islands, or at such
other 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 FOUR HUNDRED SIXTY-SIX THOUSAND SIX HUNDRED
TWENTY-SIX DOLLARS AND 53/100 ($1,466,626.53) on October 1, 2000
together with interest on the principal amount hereof from time to
time outstanding at the rate hereinafter provided until paid in
full.
This is one of a series of the Company's Notes known as its
Series B Senior Subordinated Secured Notes Due October 1, 2000
(collectively referred to herein as the "Series B Notes"), all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series B Note issued to Sir Leslie Porter. The Series B Notes
have been issued in the aggregate principal amount of
$6,493,581.93.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
<PAGE>
paid in full, on the first day of April, July, October, and
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series B Notes and the Series C Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a Public
Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series C Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series B Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series B Notes outstanding at the time of any such payment.
1.12 The Company agrees that within 60 days of the date
hereof it will enter into a security agreement with the holder
granting to a collateral agent, mutually acceptable to the Lender
and the Company, for the holders of the Series B Notes, a
perfected security interest in the Company's plant, property and
equipment, pursuant to documents and agreements in form and
substance reasonably satisfactory to the Lender.
<PAGE>
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series C Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series C Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
<PAGE>
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
B Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES C SENIOR SUBORDINATED UNSECURED NOTE DUE OCTOBER 1, 2000
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, or assigns, (hereinafter referred
to as "Drayton English" or "Lender"), at c/o INVESCO Asset Mgmt.
Ltd., 11 Devonshire Square, London, UK EC2M4YR or at such other
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 EIGHTY-THREE THOUSAND THREE HUNDRED THIRTY-TWO DOLLARS AND
40/100 ($183,332.40) on October 1, 2000 together with interest on
the principal amount hereof from time to time outstanding at the
rate hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series C Senior Subordinated Unsecured Notes Due October 1, 2000
(collectively referred to herein as the "Series C Notes", all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series C Note issued to Sir Leslie Porter. The Series C Notes
have been issued in the aggregate principal amount of
$7,879,835.51.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
paid in full, on the first day of April, July, October, and
<PAGE>
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed money from
NationsBank and/or its successors, substitutes and
participants and their respective assigns and any
refinancing thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series C Notes and the Series B Senior Secured Notes issued
by the Company contemporaneous herewith may request, in writing,
that the Company effect a Public Offering, at the Company's cost
and expense. Upon receipt of any such request, the Company shall,
as expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds
sufficient to pay the then-outstanding principal balance of the
Series C Notes and the Series B Notes together with accrued,
unpaid interest thereon, and, to the extent not prohibited by
applicable law, a Payment Premium in an amount determined in
accordance with S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series C Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series C Notes outstanding at the time of any such payment.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series B Notes, or (b) 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
<PAGE>
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series B Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal, of interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
<PAGE>
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
C Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES C SENIOR SUBORDINATED UNSECURED NOTE DUE OCTOBER 1, 2000
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
Trust, or assigns, (hereinafter referred to as"J.O. Hambro" or
"Lender"), at 30 Queen Anne Gate, London, SWIH 9AL, United Kingdom
or at such other offices or at such other place or places as the
holder hereof may from time to time designate in writing, the
principal sum of TWENTY-ONE THOUSAND FIVE HUNDRED NINE DOLLARS AND
19/100 ($21,509.19) on October 1, 2000 together with interest on
the principal amount hereof from time to time outstanding at the
rate hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series C Senior Subordinated Unsecured Notes Due October 1, 2000
(collectively referred to herein as the "Series C Notes", all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series C Note issued to Sir Leslie Porter. The Series C Notes
have been issued in the aggregate principal amount of
$7,879,835.51.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
paid in full, on the first day of April, July, October, and
<PAGE>
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed money from
NationsBank and/or its successors, substitutes and
participants and their respective assigns and any
refinancing thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series C Notes and the Series B Senior Secured Notes issued
by the Company contemporaneous herewith may request, in writing,
that the Company effect a Public Offering, at the Company's cost
and expense. Upon receipt of any such request, the Company shall,
as expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds
sufficient to pay the then-outstanding principal balance of the
Series C Notes and the Series B Notes together with accrued,
unpaid interest thereon, and, to the extent not prohibited by
applicable law, a Payment Premium in an amount determined in
accordance with S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series C Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series C Notes outstanding at the time of any such payment.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series B Notes, or (b) 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
<PAGE>
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series B Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal, of interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
quivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
<PAGE>
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the Series
C Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES C SENIOR SUBORDINATED UNSECURED NOTE DUE OCTOBER 1, 2000
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, or assigns, (hereinafter referred to
as "North Atlantic" or "Lender"), at 30 Queen Anne Gate, London
SWIH 9AL, United Kingdom or at such other 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 SEVENTY-
SEVEN THOUSAND NINE HUNDRED SIXTY-SIX DOLLARS AND 47/100
($277,966.47) on October 1, 2000 together with interest on the
principal amount hereof from time to time outstanding at the rate
hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series C Senior Subordinated Unsecured Notes Due October 1, 2000
(collectively referred to herein as the "Series C Notes", all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series C Note issued to Sir Leslie Porter. The Series C Notes
have been issued in the aggregate principal amount of
$7,879,835.51.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
paid in full, on the first day of April, July, October, and
<PAGE>
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with
S 1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed money from
NationsBank and/or its successors, substitutes and
participants and their respective assigns and any
refinancing thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series C Notes and the Series B Senior Secured Notes issued
by the Company contemporaneous herewith may request, in writing,
that the Company effect a Public Offering, at the Company's cost
and expense. Upon receipt of any such request, the Company shall,
as expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds
sufficient to pay the then-outstanding principal balance of the
Series C Notes and the Series B Notes together with accrued,
unpaid interest thereon, and, to the extent not prohibited by
applicable law, a Payment Premium in an amount determined in
accordance with S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series C Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series C Notes outstanding at the time of any such payment.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series B Notes, or (b) 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
<PAGE>
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series B Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal, of interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
<PAGE>
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the
Series C Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES C SENIOR SUBORDINATED UNSECURED NOTE DUE OCTOBER 1, 2000
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 John Porter, or
assigns, (hereinafter referred to as "John Porter" or "Lender"),
at c/o PFM Ltd. 12 Hans Road, London SW3 1RT, United Kingdom or at
such other offices or at such other place or places as the holder
hereof may from time to time designate in writing, the principal
sum of FOUR MILLION SEVENTY-NINE THOUSAND, FOUR HUNDRED THIRTEEN
DOLLARS AND 36/100 ($4,079,413.36) on October 1, 2000 together
with interest on the principal amount hereof from time to time
outstanding at the rate hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series C Senior Subordinated Unsecured Notes Due October 1, 2000
(collectively referred to herein as the "Series C Notes", all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series C Note issued to Sir Leslie Porter. The Series C Notes
have been issued in the aggregate principal amount of
$7,879,835.51.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
paid in full, on the first day of April, July, October, and
<PAGE>
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed money from
NationsBank and/or its successors, substitutes and
participants and their respective assigns and any
refinancing thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series C Notes and the Series B Senior Secured Notes issued
by the Company contemporaneous herewith may request, in writing,
that the Company effect a Public Offering, at the Company's cost
and expense. Upon receipt of any such request, the Company shall,
as expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds
sufficient to pay the then-outstanding principal balance of the
Series C Notes and the Series B Notes together with accrued,
unpaid interest thereon, and, to the extent not prohibited by
applicable law, a Payment Premium in an amount determined in
accordance with S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series C Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series C Notes outstanding at the time of any such payment.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series B Notes, or (b) 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
<PAGE>
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed
by it under this Note or the Series B Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation
or warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit
Agreement") shall have occurred and be continuing, if (and only if) such
event results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal, of interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
<PAGE>
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the
Series C Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES C SENIOR SUBORDINATED UNSECURED NOTE DUE OCTOBER 1, 2000
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
other offices or at such other place or places as the holder
hereof may from time to time designate in writing, the principal
sum of EIGHT HUNDRED SIXTY THOUSAND NINE HUNDRED SIXTY-ONE DOLLARS
AND 42/100 ($860,961.42) on October 1, 2000 together with interest
on the principal amount hereof from time to time outstanding at
the rate hereinafter provided until paid in full.
This is one of a series of the Company's Notes known as its
Series C Senior Subordinated Unsecured Notes Due October 1, 2000
(collectively referred to herein as the "Series C Notes"), all of
ike tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in this
Note. The Series C Notes have been issued in the aggregate
principal amount of $7,879,835.51.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
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
<PAGE>
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 January 1, 1996 and shall include all
interest accrued from the date hereof until the date of such
interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not prohibited
by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
<PAGE>
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; (b) other
obligations for money borrowed from NationsBank
and/or its successors, substitutes and participants
and their respective assigns and any refinancing
thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall mean an amount equal to (a)
13 1/2% per annum, compounded semiannually from and
after the date hereof until paid, on the principal
amount of this Note outstanding from time to time
until the time of payment minus (b) the cumulative
amount payable by the Company on account of
withholding taxes with respect to interest payable
pursuant to Section 1.1 to the date of payment of
such premium. For the avoidance of doubt, the
Payment Premium shall not itself be increased on
account of withholding taxes, but shall be subject
to, and the amount remitted to the holder reduced
by, any withholding tax to which the Payment
Premium is subject, with the result that the total
cost to the Company for interest, Payment Premium
and withholding taxes shall equal twenty-seven and
one-half percent (27 1/2%) per annum on the
principal outstanding from time to time to the date
of payment of the Payment Premium.
<PAGE>
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
he surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
he Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series C Notes and the Series B Notes issued by the Company
contemporaneously herewith may request, in writing, that the
Company effect a Public Offering, at the Company's cost and
expense. Upon receipt of any such request, the Company shall, as
expeditiously as possible, use its best efforts to effect a Public
Offering, with the objective of realizing Net Proceeds sufficient
to pay the then-outstanding principal balance of the Series B
Notes and the Series B Notes together with accrued, unpaid
interest thereon, and, to the extent not prohibited by applicable
law, a Payment Premium in an amount determined in accordance with
S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
<PAGE>
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series C Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series C Notes outstanding at the time of any such payment.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series B Notes, or (b) 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, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series B Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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
<PAGE>
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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal of, interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the
Series C Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES C SENIOR SUBORDINATED UNSECURED NOTE DUE OCTOBER 1, 2000
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, or assigns, (hereinafter referred to as "Second
Consolidated Trust" or "Lender"), at c/o Foreign & Colonial
Exchange House, Primrose Street, 8th Floor, London EC2A 2NY,
United Kingdom or at such other offices or at such other place or
places as the holder hereof may from time to time designate in
writing, the principal sum of SIX HUNDRED SEVENTY-SIX THOUSAND
NINE HUNDRED TWENTY-NINE DOLLARS AND 88/100 ($676,929.88) on
October 1, 2000 together with interest on the principal amount
hereof from time to time outstanding at the rate hereinafter
provided until paid in full.
This is one of a series of the Company's Notes known as its
Series C Senior Subordinated Unsecured Notes Due October 1, 2000
(collectively referred to herein as the "Series C Notes", all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series C Note issued to Sir Leslie Porter. The Series C Notes
have been issued in the aggregate principal amount of
$7,879,835.51.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
paid in full, on the first day of April, July, October, and
<PAGE>
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed money from
NationsBank and/or its successors, substitutes and
participants and their respective assigns and any
refinancing thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series C Notes and the Series B Senior Secured Notes issued
by the Company contemporaneous herewith may request, in writing,
that the Company effect a Public Offering, at the Company's cost
and expense. Upon receipt of any such request, the Company shall,
as expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds
sufficient to pay the then-outstanding principal balance of the
Series C Notes and the Series B Notes together with accrued,
unpaid interest thereon, and, to the extent not prohibited by
applicable law, a Payment Premium in an amount determined in
accordance with S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series C Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series C Notes outstanding at the time of any such payment.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series B Notes, or (b) 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
<PAGE>
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series B Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal, of interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the
Series C Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS IT IS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER SAID ACT AND LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR
INDEBTEDNESS DUE TO NATIONSBANK, N.A. AND/OR CERTAIN OTHER BANKS
OR FINANCIAL INSTITUTIONS, AS PROVIDED IN THE SUBORDINATION
AGREEMENT DATED AS OF OCTOBER 13, 1995 BY AND AMONG TELOS
CORPORATION, A MARYLAND CORPORATION, TELOS CORPORATION, A
CALIFORNIA CORPORATION, NATIONSBANK, N.A. AND THE HOLDERS
IDENTIFIED IN SCHEDULE A THERETO.
Herndon, Virginia
October 13, 1995
SERIES C SENIOR SUBORDINATED UNSECURED NOTE DUE OCTOBER 1, 2000
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 Toxford Corporation, or
assigns, (hereinafter referred to as "Toxford Corporation" or
"Lender"), at c/o Rabobank, P.O. Box 348, St. Andrews House, Le
Bordage, St. Peter Port, Guernsey, Channel Islands, or at such
other 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 SEVEN HUNDRED SEVENTY-NINE THOUSAND SEVEN
HUNDRED TWENTY-TWO DOLLARS AND 79/100 ($1,779,722.79) on October
1, 2000 together with interest on the principal amount hereof from
time to time outstanding at the rate hereinafter provided until
paid in full.
This is one of a series of the Company's Notes known as its
Series C Senior Subordinated Unsecured Notes Due October 1, 2000
(collectively referred to herein as the "Series C Notes", all of
like tenor, except as to the identifying number and principal
amount thereof and except for certain variations contained in the
Series C Note issued to Sir Leslie Porter. The Series C Notes
have been issued in the aggregate principal amount of
$7,879,835.51.
I. GENERAL TERMS
1.1 Interest only shall be payable at the rate of fourteen
percent (14%) per annum, on the principal balance of this Note
from time to time outstanding from and after the date hereof, and
shall be due and payable quarterly, until the principal has been
paid in full, on the first day of April, July, October, and
<PAGE>
January in each year. The first interest payment shall be due
January 1, 1996 and shall include all interest accrued from the
date hereof until the date of such interest payment.
1.2 If not sooner paid, the outstanding and unpaid principal
balance shall be paid on October 1, 2000, together with accrued
and unpaid interest on this Note. In addition, interest shall be
payable at the rate provided in Section 1.1 hereof on any Payment
Premium from the date such premium is due until paid in full.
1.3 Principal, premium, if any, and interest on this note
are payable in lawful money of the United States. The principal
of this Note may be prepaid at any time after ten (10) days,
written notice to the Lender, in whole or in part, and shall be
accompanied by payment in cash of all accrued and unpaid interest
on the amount so prepaid, together with, to the extent not
prohibited by applicable law, a Payment Premium.
1.4 In the event of a Public Offering of the common stock of
the Company, or in the event of a Refinancing, the principal then
outstanding shall become immediately due and payable, together
with, accrued and unpaid interest thereon, and, to the extent not
prohibited by applicable law, a Payment Premium in an amount equal
to the lesser of (i) the Net Proceeds of such Public Offering or
Refinancing or (ii) the amount determined in accordance with S
1.6(iv). The Net Proceeds shall be applied toward the payment of
the outstanding and unpaid principal balance of the Notes, accrued
and unpaid interest thereon and, to the extent not prohibited by
applicable law, such Payment Premium.
1.5 In the event of a Merger or Dissolution, the principal
then outstanding shall become immediately due and payable,
together with accrued and unpaid interest thereon and, to the
extent not prohibited by applicable law, a Payment Premium in the
amount determined in accordance with S 1.6(iv).
1.6 Definitions.
(i) "Public Offering" shall mean the distribution and
sale of the Company's common stock (some of the
proceeds of which sale are available to the
Company) pursuant to a registration statement
(other than a registration statement on Form S-4 or
Form S-8) which has been filed with the U.S.
Securities and Exchange Commission and become
effective.
<PAGE>
(ii) "Refinancing" shall mean a sale of securities of
the Company which results in Net Proceeds to the
Company in excess of $1,000,000, other than (a)
obligations for borrowed money due and payable
within one year which are not extended, renewed or
refinanced beyond such due date; or (b) other
obligations for money borrowed money from
NationsBank and/or its successors, substitutes and
participants and their respective assigns and any
refinancing thereof.
(iii) "Net Proceeds" shall mean the proceeds to the
Company after expenses of sale and distribution,
including discounts, commissions and brokerage and
legal fees.
(iv) "Payment Premium" shall, except as otherwise
provided in S 1.4, mean an amount equal to 13 1/2%
per annum, compounded semiannually from and after
the date hereof until paid, on the principal amount
of this Note outstanding from time to time until
the time of payment.
(v) "Merger" shall mean a merger, consolidation or
other combination to which the Company or any
subsidiary is a party, in which the Company is not
the surviving corporation or which results in the
acquisition of "beneficial ownership" of securities
of the Company representing 50% or more of the
total number of votes that may be cast for the
election of directors by any "person" or "group"
(as such terms are defined in Rule 13(d)
promulgated under the Securities Exchange Act of
1934, as amended), or a sale by the Company of all
or substantially all of its assets.
(vi) "Dissolution" shall mean the adoption by the Board
of Directors and/or the shareholders of the Company
of a resolution to dissolve the Company and
liquidate its assets, the filing by the Company of
articles of dissolution or a similar application
for dissolution with the appropriate officer of the
state of incorporation of the Company, the entry of
an order or other action by such state dissolving
the Company, or the adoption by the Board of
Directors or the shareholders of the Company of a
plan of liquidation or a resolution approving a
liquidating distribution of the Company's assets,
whichever shall first occur.
<PAGE>
1.7 At any time after the third anniversary of the date
hereof, the holders of a majority in outstanding principal amount
of the Series C Notes and the Series B Senior Secured Notes issued
by the Company contemporaneous herewith may request, in writing,
that the Company effect a Public Offering, at the Company's cost
and expense. Upon receipt of any such request, the Company shall,
as expeditiously as possible, use its best efforts to effect a
Public Offering, with the objective of realizing Net Proceeds
sufficient to pay the then-outstanding principal balance of the
Series C Notes and the Series B Notes together with accrued,
unpaid interest thereon, and, to the extent not prohibited by
applicable law, a Payment Premium in an amount determined in
accordance with S 1.4.
1.8 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 Commonwealth of Virginia, or any other day on which
banking institutions in the Commonwealth 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.
1.9 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.
1.10 Payments made on account hereof shall be applied first
to accrued and unpaid interest, then to principal, then to
interest on any unpaid Payment Premium and then to the Payment
Premium, if any.
1.11 All payments made by the Company on account of the
Series C Notes or any of them shall be made pro rata, in
proportion to the outstanding principal balance of each of the
Series C Notes outstanding at the time of any such payment.
II. DEFAULT
2.1 It is expressly agreed by Borrower that the following
shall be deemed to be Events of Default under this Note: (a) the
failure to pay, when due, any amount of principal, or no more than
five days after due date any amount of premium, if any, or
interest on this Note or the Series B Notes, or (b) 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
<PAGE>
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, (c) or any
failure by the Borrower to perform or observe any of the other
covenants, agreements or provisions to be performed or observed by
it under this Note or the Series B Notes, and such default shall
not be rectified or cured within 10 days after written notice
thereof by the Lender to the Company, or (d) any representation or
warranty of the Company under the Bridge Notes Exchange and
Conversion Agreement of even date herewith shall be materially
false on the date it was made, or (e) an event of default as
specified in the Revolving and Reducing Senior Facility Credit
Agreement among the Company, Telos Corporation (a California
corporation) and NationsBank, N.A. (the "Senior Credit Agreement")
shall have occurred and be continuing, if (and only if) such event
results in acceleration of the maturity of the indebtedness under
such Senior Credit Agreement and such acceleration continues in
effect.
2.2 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.
2.3 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, or upon the
occurrence of any other Event of Default hereunder Borrower agrees
to pay all reasonable 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.
III. SUBORDINATION
3.1 Payment of the principal, of interest on and Payment
Premium on this Note are subordinate and subject in right of
payment to the prior indefeasible payment in full in cash or cash
equivalents of all Senior Indebtedness (as such term is defined in
the Subordination Agreement) in the manner and to the extent
provided in the Subordination Agreement, and each holder of this
Note by such holder's acceptance hereof, acknowledges and confirms
such subordination, represents and warrants that such holder has
<PAGE>
received and reviewed and become a party to the Subordination
Agreement, and covenants and agrees to comply with the provisions
of the Subordination Agreement applicable to holders of the
Series C Notes.
This Note shall be construed and enforced in accordance with,
and governed by the laws of, the Commonwealth of Virginia without
giving effect to conflict of laws principles.
The parties hereto, including the undersigned Borrower and
all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance and enforcement of this
Note, and assent to extensions of time of payment, or forbearance
or other indulgence without notice.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President, General Counsel
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1995 STATEMENT OF OPERATIONS AND BALANCE SHEET, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 462,000
<SECURITIES> 0
<RECEIVABLES> 38,387,000
<ALLOWANCES> (665,000)
<INVENTORY> 9,468,000
<CURRENT-ASSETS> 49,985,000
<PP&E> 20,751,000
<DEPRECIATION> (18,255,000)
<TOTAL-ASSETS> 80,489,000
<CURRENT-LIABILITIES> 68,561,000
<BONDS> 39,157,000
<COMMON> 78,000
29,566,000
0
<OTHER-SE> (26,354,000)
<TOTAL-LIABILITY-AND-EQUITY> 80,489,000
<SALES> 46,148,000
<TOTAL-REVENUES> 144,692,000
<CGS> 36,714,000
<TOTAL-COSTS> 120,141,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 142,000
<INTEREST-EXPENSE> 4,043,000
<INCOME-PRETAX> 520,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 520,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 520,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
