<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: March 31, 1996
[ ] 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 May 2, 1996 the registrant had 23,076,753 shares of Class A
Common Stock, no par value, 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): 16
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited): PAGE
Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1996 and 1995 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 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
TELOS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(amounts in thousands)
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Sales
Systems and Support Services $26,232 $25,889
Systems Integration 13,931 14,308
Consulting 7,080 6,564
47,243 46,761
Costs and expenses
Cost of sales 41,825 37,890
Selling, general and
administrative expenses 6,916 6,774
Goodwill amortization 390 794
Operating (loss) income (1,888) 1,303
Other income(expenses)
Other income 3 5
Interest expense (1,509) (1,233)
(Loss) income before taxes (3,394) 75
Income tax provision 0 0
Net (loss) income $(3,394) $75
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TELOS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
(amounts in thousands)
March 31, 1996 December 31, 1995
<S> <C> <C>
Current assets
Cash and cash equivalents,
(including $1,121 of restricted
cash at March 31, 1996) $ 2,124 $ 735
Accounts receivable, net 40,396 44,112
Inventories, net 16,906 15,877
Other current assets 1,831 1,921
Total current assets 61,257 62,645
Property and equipment, net of
accumulated depreciation of $19,014
and $18,600 respectively 14,188 2,671
Goodwill 22,424 22,814
Other assets 6,297 6,362
$104,166 $94,492
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Accounts payable $22,964 $26,528
Other current liabilities 8,059 6,951
Accrued compensation and benefits 10,761 8,804
Total current liabilities 41,784 42,283
Senior credit facility 33,559 32,312
Senior subordinated notes 15,009 15,004
Capital lease obligation 12,484 --
Other long-term liabilities 938 1,109
Total liabilities 103,774 90,708
Redeemable preferred stocks
Senior redeemable preferred stock 4,577 4,494
Class B redeemable preferred stock 10,460 10,252
Redeemable preferred stock 18,960 18,646
Total preferred stock 33,997 33,392
Stockholders' investment
Common stock 78 78
Capital in excess of par 7,065 7,670
Retained earnings (deficit) (40,748) (37,356)
Total stockholders' investment (33,605) (29,608)
$104,166 $94,492
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TELOS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
Three Months
Ended March 31,
1996 1995
<S> <C> <C>
Operating activities:
Net (loss) income $(3,394) $ 75
Adjustments to reconcile net (loss)
income to cash provided by operating
activities:
Depreciation and amortization 787 869
Goodwill amortization 390 794
Other non-cash items 191 647
Changes in assets and liabilities that
provided (used) cash 1,809 (8,723)
Cash used in operating activities (217) (6,338)
Investing activities:
Purchase of property and equipment (643) (205)
Investment in products (119) --
Cash used in investing activities (762) (205)
Financing activities:
Proceeds from senior credit facility 1,247 6,764
Proceeds from capital lease transaction 1,121 --
Cash provided by financing activities 2,368 6,764
Increase in cash and cash equivalents 1,389 221
Cash and cash equivalents at beginning of period 735 441
Cash and cash equivalents at end of period $2,124 $662
</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") and its wholly owned subsidiaries,
Telos Corporation (California), Telos Field Engineering, Inc.,
enterWorks.com and Telos International Corporation (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, 1995.
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 March 31, 1996 and December 31, 1995, and
the results of its operations and its cash flows for the three
month periods ended March 31, 1996 and 1995. Interim results are
not necessarily indicative of fiscal year performance because of
the impact of seasonal and short-term variations.
In 1996 the Company reviewed and changed its organizational
structure to more efficiently support customer needs and address
changing market conditions. As a result of this change, the
Company has modified its business segments disclosure. The
Systems Integration division has modified its structure to
address increased network related business activities, emerging
strategic markets and customer focuses. The Company has
consolidated its software and hardware support services into one
business segment in recognition that customers in this
marketplace view system support as addressing both hardware and
software. The consulting division remains a separate business
segment.
Certain reclassifications have been made to the prior year's
financial statements to conform to the classifications used in
the current period.
<PAGE>
TELOS CORPORATION SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2. Accounts Receivable
The components of accounts receivable are as follows (in
thousands):
<TABLE>
March 31, 1996 December 31, 1995
<S> <C> <C>
Billed accounts receivable $29,209 $30,286
Unbilled accounts receivable 11,934 14,550
41,143 44,836
Allowance for doubtful accounts (747) (724)
$40,396 $44,112
</TABLE>
Note 3. Debt Obligations
Senior Credit Facility
At March 31, 1996, the Company had a $45 million senior
credit facility ("Facility") with a bank maturing on July 1,
1997. The Company was not compliant with certain covenants
contained in the Facility at March 31, 1996 and the bank has
waived such covenant noncompliance.
Senior Subordinated Note, Series A
At March 31, 1996, the Company had $675,000 of the senior
subordinated note, Series A with a balance of $636,000
outstanding with John R.C. Porter ("Porter"), the majority common
shareholder. The Company was not in compliance with the
financial maintenance covenants of the senior subordinated note,
Series A as of March 31, 1996. Porter has agreed to waive such
noncompliance.
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 ($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,
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2001, subject to the legal availability of funds. At March 31,
1996 and December 31, 1995 undeclared, unpaid dividends relating
to Series A-1 and A-2 Preferred Stock were accrued for financial
reporting purposes in the amount of $1,577,000 and $1,494,000,
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 March 31, 1996 and December
31, 1995 undeclared, unpaid dividends relating to the Class B
Redeemable Preferred Stock were accrued for financial reporting
purposes in the amount of $2,960,000 and $2,752,000 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.
Through November 21, 1995, the Company had 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 were 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 1995, 1994, 1993 and 1992.
Cumulative undeclared dividends as of December 31, 1995 accrued
for financial reporting purposes totaled $6,107,000. Dividends
for the years 1992 through 1994 and for the dividend payable June
1, 1995 were accrued under the assumption that the dividend will
be paid in additional shares of preferred stock and are valued at
$3,950,000. Had the Company accrued these dividends on a cash
basis, the total amount accrued would have been $15,101,000. The
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
dividend payable on December 15, 1995 of $2,157,000 was accrued
on a cash basis. All future dividends will be accrued on a cash
basis.
The Company has not declared or paid dividends since 1991,
due to restrictions and ambiguities relating to the payment of
dividends contained within its charter, its working capital
facility agreement, and under Maryland law.
Note 5. Stock Option Plan
During 1996, the Board of Directors approved and the
shareholders ratified a new stock option plan for certain key
executives and for a larger employee group. Under the plan, a
total of 6,644,974 shares of common stock may be awarded at an
exercise price not lower than fair market value with vesting
based upon the passage of time and/or significant events.
Note 6. Commitments
During the first quarter the Company entered into a twenty
year lease with annual payments of $1,447,000 commencing March
11, 1996 for a building that will serve as its corporate
headquarters. The building provides significant additional
manufacturing and integration space. The Company has accounted
for this lease as a capital lease and has accordingly recorded
assets and a corresponding liability of approximately $12.4
million. Under the terms of the lease, the landlord funded the
Company with $1.3 million for use for tenant improvements and
other building costs of which $1.1 million, recorded as
restricted cash, is available for use at March 31, 1996.
The Company is in the process of finalizing its transition
plans and is currently evaluating its requirements and options
for the current corporate headquarters facility. The lease on
the current corporate headquarters facility expires in March
1997.
The following is a schedule by years of future minimum lease
payments under the capital lease together with the present value
of the net minimum lease payments as of March 31, 1996:
<TABLE>
<C> <C>
1996 $ 1,085,000
1997 1,447,000
1998 1,447,000
1999 1,447,000
2000 1,447,000
Later Years 21,946,000
Total minimum payments 28,819,000
Less: Amounts represent interest (16,335,000)
Present value of net minimum payments $12,484,000
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
In the first three months of 1996, the Company had increased
revenue as compared to 1995. The Company's profitability was
adversely impacted by the Federal government shutdown and budget
impasse that occurred during the first quarter of 1996.
Additionally, the Company was impacted by lower than anticipated
sales and order volume on certain large equipment contracts.
Gross margins were affected by increased cost of sales resulting
from a change in product mix as compared to 1995. With the roll
out of significant new contracts, there were additional
infrastructure and support costs in the first quarter of 1996
with minimal corresponding revenue. These impacts had a negative
effect on the overall profitability.
Total backlog from existing contracts was approximately $1.3
billion as of March 31, 1996 and December 31, 1995. As of March
31, 1996, the funded backlog of the Company totaled $52.3
million, a decrease of $13.3 million from December 31, 1995.
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., Telos International Corporation and
enterWorks.com ("the Company"). The major elements of the
Company's operating expenses as a percentage of sales for the
three month periods ended March 31, 1996 and 1995 were as
follows:
<TABLE>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Sales 100.0 % 100.0 %
Cost of sales (88.6) (81.0)
SG&A expenses (14.6) (14.5)
Goodwill amortization (0.8) (1.7)
Operating (loss) income (4.0) 2.8
Other income -- --
Interest expense (3.2) (2.6)
Income tax provision -- --
Net (loss) income (7.2) % .2 %
</TABLE>
<PAGE>
Financial Data by Market Segment
During the first quarter of 1996, the Company modified its
view of the business segments that it operates given the
increased network based activities of the Systems Integration
Group as well as the merger of its hardware and software support
divisions. The Company operates in three market segments:
systems and support services ( the "Systems and Support Services
Group"), which consists of the Company's hardware and software
support services; system integration (the "Systems Integration
Group") and consulting services (the "Consulting Group").
Sales, gross profit, and gross margin by market segment for
the first quarter of 1996 and 1995 were as follows:
<TABLE>
Three Months Ended
March 31,
1996 1995
(amounts in thousands)
<S> <C> <C>
Sales:
Systems and Support Services $26,232 $25,889
Systems Integration 13,931 14,308
Consulting Services 7,080 6,564
Total $47,243 $46,761
Gross Profit:
Systems and Support Services $2,880 $4,219
Systems Integration 1,380 3,248
Consulting Services 1,158 1,404
Total $5,418 $8,871
Gross Margin:
Systems and Support Services 11.0% 16.3%
Systems Integration 9.9% 22.7%
Consulting Services 16.4% 21.4%
Total 11.5% 19.0%
</TABLE>
For the three month period ended March 31, 1996 sales
increased by approximately $482,000, or 1.0%, to $47.2 million
from $46.8 million for the comparable 1995 period. This increase
for the three month period is due to the Systems and Services
Group, which reported increased sales of $343,000 and to the
Consulting Group, which reported increased sales of $516,000.
Offsetting these increases were decreased sales during the first
quarter of 1996 by the Systems Integration Group of approximately
$377,000.
<PAGE>
Within the Systems and Support Services Group, software
services sales accounted for approximately $1.5 million of the
increase due to increased activity under certain large labor
contracts. The increase is offset by a $1.1 million decrease in
hardware support sales. The decrease in hardware support sales
is due to a continued shift in the computer platforms it services
from mainframe computers to both network and personal computers
which generally produce lower revenue streams. Also, it is
experiencing shifts from fixed price contracts to time and
material contracts which produce less predictable revenue
streams.
Systems Integration Group sales decreased by $377,000 during
the first quarter of 1996 as compared to the first quarter of
1995 due to the impact of the various Federal government
shutdowns and related Federal budget impasse. The Company has
experienced reduced order flow on certain of its large equipment
contracts to supply computer equipment to the Federal government
as a result of budget impasse. The Company expects the impact
from the budget impasse to continue to effect its order flow and
related revenue through the first half of 1996.
The increase in the Consulting Services Group sales of
approximately $516,000 for the three month period is due to
increased billable hours resulting from obtaining new customers.
Cost of sales increased by $3.9 million or 10.4% to $41.8
million during the three month period ended March 31, 1996, from
$37.9 million in the comparable 1995 period. The increase in
cost of sales results from two primary reasons. First, the
System Integration Group's revenue product mix during the first
quarter of 1996 differed from the Group's revenue product mix in
the first period of 1995. Revenue for 1996 included certain
higher cost equipment and software as compared to the same period
in 1995. Some of these items were one time sales and the Company
has taken action on certain of its contracts to introduce new
products and technology with improved profit margins. Second,
the Company, given its recent contract awards, invested in
personnel and other infrastructure costs during the first quarter
of 1996 to support these new contracts while revenue from these
contracts was minimal. Management believes that as the roll out
of the new contracts continues, gross margin contribution, as
well as indirect cost absorption, should improve.
Gross profit decreased by $3.5 million in the first quarter
of 1996 to $5.4 million from $8.9 million in the comparable 1995
period as a result of the matters discussed above. Total Company
gross margins were 11.5% and 19.0% for the three month periods
ended March 31, 1996 and 1995, respectively.
Selling, general and administrative costs increased for the
three month period by approximately $100,000 to $6.9 million in
1996 from $6.8 million in 1995. This increase is due to
increased marketing efforts during the first quarter of 1996 as
compared to the same period of 1995. SG&A as a percentage of
sales was 14.6% and 14.5% for the three month periods ended March
31, 1996 and 1995, respectively.
<PAGE>
Goodwill amortization expense declined by $404,000 during
the three month period ended March 31, 1996 due to the completion
of the amortization of goodwill stemming from the 1989 leveraged
buy out of the Company. The Company continues to amortize the
goodwill balance which resulted from the acquisition of Telos
Corporation (California).
Operating income decreased by $3.2 million during the three
months ended March 31, 1996 to a $1.9 million operating loss.
The Company had an operating profit of $1.3 million in the
comparable period of 1995. The decrease in operating profit
resulted primarily from the aforementioned cost of sales
increases.
Interest expense increased by approximately $280,000 to $1.5
million during the three month period ended March 31, 1996, from
$1.2 million in the comparable period of 1995. The increase is
primarily attributed to an increase in the outstanding balance of
the subordinated debt and related interest rate.
The Company did not have a tax provision in either the three
month period ended March 31, 1996 or 1995 as a result of the
utilization of net operating loss carryforwards.
Liquidity and Capital Resources
For the three months ended March 31, 1996, the Company used
$200,000 of cash in its operating activities primarily as a
result of increased inventory levels and the net loss for the
period. The Company funded its net loss and use of operating
cash as well as its investing activities through increased
borrowings.
During the first quarter of 1996, the Company's liquidity
was impacted by the various Federal government shutdowns and the
related impasse on the 1996 Federal government budget. While the
services side of the Company's business was generally unaffected,
certain of its large equipment contracts within its Systems
Integration Group were adversely impacted through reduced order
volume. The effect of this was an overall reduction in the
Company's liquidity. The Company has counteracted this negative
effect with an aggressive cash management program. One of these
aggressive actions has been to establish extended payment terms
to the Company's vendors as well as to reduce discretionary
spending in certain areas. The Company has recently begun to see
improved order flow. However, the Company believes that the
impact from the Government shutdown and budget impasse will be
felt through the first half of 1996 in its results from
operations and financial condition.
<PAGE>
With the contract awards received by the Company in 1995,
the Company is evaluating its financing requirements to support
these contracts. The Company anticipates that its current
Facility will be adequate for at least the first half of 1996.
The Company believes that additional financing may be required in
the second half of 1996 and is currently reviewing with its
senior lender an expanded credit facility through a prospective
multi-bank syndication arrangement.
The Company is actively reviewing its business opportunities
surrounding its Internet products. During the first quarter of
1996, the Company formed enterWorks.com, a wholly owned
subsidiary focused on the Internet and related software products,
to pursue and expand such opportunities. While the Company is
currently funding the on-going product development and business
growth in this area, it is reviewing the potential for external
capital to fully exploit this emerging market.
In March 1996, the Company signed a long term lease for a
building in Loudoun County, Virginia that will serve as its
corporate headquarters as well as provide significant additional
manufacturing and integration space. The lease provides for
annual payments of $1,447,000. The Company is finalizing its
transition plans and is currently evaluating its options for the
current corporate headquarters facility whose lease expires in
March 1997.
At March 31, 1996, the Company had outstanding debt of $48.6
million, consisting of $33.6 million under the secured senior
credit facility and $15 million in subordinated debt. The senior
credit facility was refinanced during the first quarter of 1996
and has a maturity date of July 1, 1997. Under the terms of the
refinancing, the total commitment remains at $45 million with
terms and conditions similar to the previous senior credit
facility except for amendments made to certain of the financial
and non financial covenants.
The Company is not in compliance with certain financial
covenants contained in the senior credit facility as of March 31,
1996. The bank has waived such non compliance.
At March 31, 1996, the Company had $675,000 of the senior
subordinated note, Series A outstanding with John R.C. Porter
("Porter"), a majority common shareholder of the Company. The
Company was not in compliance with certain of the financial
maintenance covenants of the senior subordinated note, Series A
as of March 31, 1996. Porter has agreed to waive such
noncompliance.
<PAGE>
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
Senior and Class B Redeemable Preferred Stocks
The Company has not declared dividends on its Senior
Redeemable Preferred Stock, Series A-1 and A-2, and its Class B
Redeemable Preferred Stock since their issuance. Total
undeclared unpaid dividends, accrued for financial reporting
purposes, are $1,577,000 for the Series A-1, A-2 Preferred stock
and $2,959,000 for the Class B Preferred Stock at March 31, 1996.
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 had 3,595,936 shares of 12%
Cumulative Exchangeable Redeemable Preferred Stock (the
"Preferred Stock"), par value $.01 per share outstanding at March
31, 1996. The Preferred Stock accrues a semi-annual dividend at
the annual rate of 12% ($1.20) per share, based on the
liquidation preference of $10 per share, and is fully cumulative.
Through November 21, 1995, the Company had the option to pay
dividends in additional shares of Preferred Stock in lieu of
cash, all dividends thereafter are to be paid in cash. Dividends
are payable by the Company, provided the Company has legally
available funds under Maryland law, when and if declared by the
Board of Directors, commencing June 1, 1990, and on each six
month anniversary thereof. Dividends in additional shares of the
Preferred Stock are paid at the rate of 0.06 of a share of the
Preferred Stock for each $.60 of such dividends not paid in cash.
No dividends were declared or paid during fiscal years 1995,
1994, 1993 or 1992. Cumulative undeclared dividends as of
December 31, 1995 accrued by the Company were $6,107,000. The
Company has accrued these dividends for the periods although the
Company is uncertain when or if these dividends will be declared
or paid.
Item 4. Submission of Matters to a Vote of Security Holders
On April 6, 1996, at a special meeting of the common
shareholders a vote was taken regarding the establishment of a
new stock option plan. The stock option plan was approved by
unanimous vote of all shareholders present at the meeting which
represented a majority of the Company's common shares
outstanding.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.74 1996 Stock Option Plan
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: May 15, 1996 TELOS CORPORATION
/s/ Lorenzo Tellez
Lorenzo Tellez
(Principal Financial Officer &
Principal Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
Telos Corporation
Exhibit Index
<S>
Exhibit Number Exhibit Name Page Number(s)
<C> <C> <C>
10.74 1996 Stock Option Plan 18-28
27 Financial Data Schedule 29
<PAGE>
TELOS CORPORATION
1996 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for Telos
Corporation, a Maryland corporation, (the "Company") and its
shareholders the benefits arising from capital stock ownership by
employees, officers and directors of the Company and its parent
and subsidiary corporations who are expected to contribute to the
Company's future growth and success. Except where the context
otherwise requires, the term "Company" shall include the parent
and all present and future subsidiaries of the Company as defined
in Sections 424(e) and 424(f) of the Internal Revenue Code of
1986, as amended or replaced from time to time (the "Code").
Those provisions of the Plan which make express reference to
Section 422 shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan
may be either incentive stock options ("Incentive Stock Options")
meeting the requirements of Section 422 of the Code or Non-
Statutory Options which are not intended to meet the requirements
of Section 422 of the Code ("Non-Statutory Options").
(b) Administration.
(i) The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation
of the terms and provisions of the Plan shall be final and
conclusive. The Board of Directors may in its sole discretion
grant options to purchase shares of the Company's Common Stock
("Common Stock") which are shares of Class A Common Stock and
issue shares upon exercise of such options as provided in the
Plan. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective option
agreements and the Plan, to prescribe, amend and rescind rules
and regulations relating to the Plan, to determine the terms and
provisions of the respective option agreements, which need not be
identical, and to make all other determinations which are, in the
judgment of the Board of Directors, necessary or desirable for
the administration of the Plan. The Board of Directors may
correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the
manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of
such expediency. No director or person acting pursuant to
authority delegated by the Board of Directors shall be liable for
any action or determination under the Plan made in good faith.
(ii) To the full extent permitted by or consistent with
applicable laws or regulations and Section 3(b) of this Plan
<PAGE>
(A) the Board of Directors may delegate any or all of its powers
under the Plan to a committee appointed by the Board of Directors
for the purpose of granting and administering options to persons
to whom Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") applies, and (B) any and all other powers of the
Board of Directors under the Plan, including the granting and
administration of all other options shall be vested in the Chief
Executive Officer of the Company, provided that the Chief
Executive Officer is and remains a member of the Board of
Directors, and provided further, that to the extent required by
Maryland's General Corporate Law, the Chief Executive Officer
shall act together with another member of the Board of Directors
as a committee of the Board of Directors designated by the Board
of Directors for such purpose; and references to the Board of
Directors in the Plan shall mean and relate to the Chief
Executive Officer and, if so appointed, any such committee.
(c) Applicability of Rule 16b-3. Those provisions of the
Plan which make express reference to Rule 16b-3 promulgated under
the Exchange Act, or any successor rule ("Rule 16b-3"), or which
are required in order for certain option transactions to qualify
for exemption under Rule 16b-3, shall apply only to such persons
as are required to file reports under Section 16(a) of the
Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at
the time of grant, employees or officers of the Company;
provided, that the class of employees to whom Incentive Stock
Options may be granted shall be limited to all employees of the
Company. A person who has been granted an option may, if he or
she is otherwise eligible, be granted additional options if the
Board of Directors shall so determine. Subject to adjustment as
provided in Section 15 below, the maximum number of shares with
respect to which options may be granted to any employee under the
Plan shall not exceed 4,000,000 shares of common stock during the
ten-year term of the Plan. For the purpose of calculating such
maximum number, (a) an option shall continue to be treated as
outstanding notwithstanding its repricing, cancellation or
expiration and (b) the repricing of an outstanding option or the
issuance of a new option in substitution for a cancelled option
shall be deemed to constitute the grant of a new additional
option separate from the original grant of the option that is
repriced or cancelled.
(b) Grant of Options to Officers. From and after the
registration of the Common Stock of the Company under the
Exchange Act, the selection of an officer (as the term "officer"
is defined for purposes of Rule 16b-3) as a recipient of an
option, the timing of the option grant, the exercise price of the
option and the number of shares subject to the option shall be
determined either (i) by the Board of Directors, of which all
members shall be "disinterested persons" (as hereinafter
defined), or (ii) by two or more directors having full authority
to act in the matter, each of whom shall be a "disinterested
<PAGE>
person." For the purposes of the Plan, a director shall be
deemed to be a "disinterested person" only if such person
qualifies as a "disinterested person" within the meaning of
Rule 16b-3, as such term is interpreted from time to time.
4. Stock Subject to Plan.
Subject to adjustment as provided in Section 15 below, the
maximum number of shares of Common Stock which may be issued and
sold under the Plan is 6,644,974. If an option granted under the
Plan shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares subject to such option
shall again be available for subsequent option grants under the
Plan. If shares issued upon exercise of an option under the Plan
are tendered to the Company in payment of the exercise price of
an option granted under the Plan, such tendered shares shall
again be available for subsequent option grants under the Plan;
provided, that in no event shall such shares be made available
for issuance to Reporting Persons or pursuant to exercise of
Incentive Stock Options.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan,
each recipient of an option shall execute an option agreement in
such form not inconsistent with the Plan as may be approved by
the Board of Directors. Such option agreements may differ among
recipients.
6. Purchase Price.
(a) General. Subject to Section 3(b), the purchase price
per share of stock deliverable upon the exercise of an option
shall be determined by the Board of Directors, provided, however,
(i) that in the case of an Incentive Stock Option, the exercise
price shall not be less than 100% of the fair market value of
such stock, as determined by the Board of Directors, at the time
of grant of such option, or less than 110% of such fair market
value in the case of options described in Section 11(b), and (ii)
in no event shall the exercise price be less than $.95 per share
(subject to appropriate adjustment for stock splits, stock
dividends, combinations and other similar recapitalizations,
subsequent to the date of this Plan, affecting the shares subject
to the options.)
(b) Payment of Purchase Price. Options granted under the
Plan may provide for the payment of the exercise price by
delivery of cash or a check to the order of the Company in an
amount equal to the exercise price of such options, or, to the
extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company
already owned by the optionee having a fair market value equal in
amount to the exercise price of the options being exercised or
(ii) by any other means (including, without limitation, by
delivery of a promissory note of the optionee payable on such
terms as are specified by the Board of Directors) which the Board
of Directors determines are consistent with the purpose of the
<PAGE>
Plan and with applicable laws and regulations (including, without
limitation, the provisions of Regulation T promulgated by the
Federal Reserve Board). The fair market value of any shares of
the Company's Common Stock or other non-cash consideration which
may be delivered upon exercise of an option shall be determined
by the Board of Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such
date as shall be set forth in the applicable option agreement,
except that, in the case of an Incentive Stock Option, such date
shall not be later than ten years after the date on which the
option is granted and, in all cases, options shall be subject to
earlier termination as provided in the Plan.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable
either in full or in installments at such time or times and
during such period as shall be set forth in the agreement
evidencing such option, subject to the provisions of the Plan.
Options to persons (other than persons determined by the Board of
Directors for purposes of this Plan to be key employees ("Key
Employees") who are employees on the date of this Plan shall be
exercisable to the extent of twenty percent (20%) of the shares
subject thereto and to the extent of an incremental twenty
percent (20%) on each of the first four anniversaries of the date
of grant; and options to such persons who become employees after
the date of the Plan shall be exercisable to the extent of twenty
percent (20%) cumulatively on each of the first five
anniversaries of the date of grant. No options to Key Employees
who become employees after the date of the Plan will be
exercisable on or prior to the date of grant of such options, and
no shares becoming exercisable over time will be exercisable
prior to the first anniversary of employment.
9. Nontransferability of Options.
Options shall not be assignable or transferable by the
person to whom they are granted, either voluntarily or by
operation of law, except by will or the laws of descent and
distribution, and, during the life of the optionee, shall be
exercisable only by the optionee; provided, however, that
(i) subject to clause (ii) hereof, options to persons subject to
the provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended, may be transferred to the extent allowed by
Rule 16b-3 as in effect from time to time, and (ii) Incentive
Stock Options may be transferred to the extent allowed by
Section 422 of the Code or any successor provision with respect
to Incentive Stock Options as in effect from time to time.
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to
Incentive Stock Options, and subject to the provisions of the
Plan, the Board of Directors shall determine the period of time
during which an optionee may exercise an option following (i) the
<PAGE>
termination of the optionee's employment or other relationship
with the Company or (ii) the death or disability of the optionee.
Such periods shall be set forth in the agreement evidencing such
option.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be
Incentive Stock Options shall be subject to the following
additional terms and conditions:
(a) Express Designation. All Incentive Stock Options
granted under the Plan shall, at the time of grant, be
specifically designated as such in the option agreement covering
such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive
Stock Option is to be granted under the Plan is, at the time of
the grant of such option, the owner of stock possessing more than
10% of the total combined voting power of all classes of stock of
the Company (after taking into account the attribution of stock
ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive
Stock Option granted to such individual
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than
110% of the fair market value of one share of Common Stock at the
time of grant; and
(ii) the option exercise period shall not exceed five
years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so
provide, options granted to any employee under the Plan (and any
other incentive stock option plans of the Company) which are
intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time
in any one calendar year for shares of Common Stock with an
aggregate fair market value (determined as of the respective date
or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No
Incentive Stock Option may be exercised unless, at the time of
such exercise, the optionee is, and has been continuously since
the date of grant of his or her option, employed by the Company,
except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be
an employee of the Company (or within such lesser period as may
be specified in the applicable option agreement), provided, that
the agreement with respect to such option may designate a longer
exercise period and that the exercise after such three-month
period shall be treated as the exercise of a non-statutory option
<PAGE>
under the Plan;
(ii) if the optionee dies while in the employ of the
Company, or within three months after the optionee ceases to be
such an employee, the Incentive Stock Option may be exercised by
the person to whom it is transferred by will or the laws of
descent and distribution within the period of one year after the
date of death (or within such lesser period as may be specified
in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning
of Section 22(e)(3) of the Code or any successor provision
thereto) while in the employ of the Company, the Incentive Stock
Option may be exercised within the period of one year after the
date the optionee ceases to be such an employee because of such
disability (or within such lesser period as may be specified in
the applicable option agreement).
For all purposes of the Plan and any option granted hereunder,
"employment" shall be defined in accordance with the provisions
of Section 1.421-7(h) of the Income Tax Regulations (or any
successor regulations). Notwithstanding the foregoing
provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors
may, in its sole discretion, include additional provisions in
option agreements covering options granted under the Plan,
including without limitation restrictions on transfer, repurchase
rights, commitments to pay cash bonuses, to make, arrange for or
guaranty loans or to transfer other property to optionees upon
exercise of options, or such other provisions as shall be
determined by the Board of Directors; provided that such
additional provisions shall not be inconsistent with any other
term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan
to fail to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors
may, in its sole discretion, (i) accelerate the date or dates on
which all or any particular option or options granted under the
Plan may be exercised or (ii) extend the dates during which all,
or any particular, option or options granted under the Plan may
be exercised; provided, however, that prior to the time that the
Common Stock of the Company is registered under the Exchange Act,
unless such action has been approved by the holders of a majority
of the then outstanding shares of the Company's Common Stock,
such actions (i) may be taken with respect to not more than
twenty-five percent (25%) of the maximum number of shares which
may be issued under options to persons other than Key Employees
and (ii) may not be taken with respect to an option to a Key
Employee.
<PAGE>
13. General Restrictions.
(a) Investment Representations. The Company may require
any person to whom an option is granted, as a condition of
exercising such option, to give written assurances in substance
and form satisfactory to the Company to the effect that such
person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to
such other effects as the Company deems necessary or appropriate
in order to comply with federal and applicable state securities
laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be
subject to the requirement that if, at any time, counsel to the
Company shall determine that the listing, registration or
qualification of the shares subject to such option upon any
securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or
that the disclosure of non-public information or the satisfaction
of any other condition is necessary as a condition of, or in
connection with, the issuance or purchase of shares thereunder,
such option may not be exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval,
or satisfaction of such condition shall have been effected or
obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply
for or to obtain such listing, registration or qualification, or
to satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a
shareholder with respect to any shares covered by the option
(including, without limitation, any rights to receive dividends
or non-cash distributions with respect to such shares) until the
date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock
certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related
Transactions.
(a) General. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of
the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other similar
transaction, (i) the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind
of shares or other securities of the Company, or (ii) additional
shares or new or different shares or other securities of the
Company or other non-cash assets are distributed with respect to
such shares of Common Stock or other securities, an appropriate
and proportionate adjustment may be made in (x) the maximum
number and kind of shares reserved for issuance under the Plan,
(y) the number and kind of shares or other securities subject to
<PAGE>
any then outstanding options under the Plan, and (z) the price
for each share subject to any then outstanding options under the
Plan, without changing the aggregate purchase price as to which
such options remain exercisable. Notwithstanding the foregoing,
no adjustment shall be made pursuant to this Section 15 if such
adjustment would cause the Plan to fail to comply with
Section 422 of the Code.
(b) Board Authority to Make Adjustments. Any adjustments
under this Section 15 will be made by the Board of Directors,
whose determination as to what adjustments, if any, will be made
and the extent thereof will be final, binding and conclusive. No
fractional shares will be issued under the Plan on account of any
such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. Except as otherwise provided in any
applicable option, in the event of a consolidation or merger or
sale of all or substantially all of the assets of the Company in
which outstanding shares of Common Stock are exchanged for
securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors
of any corporation assuming the obligations of the Company, may,
in its discretion, take any one or more of the following actions,
as to outstanding options: (i) provide that such options shall
be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof),
provided that any such options substituted for Incentive Stock
Options shall meet the requirements of Section 424(a) of the
Code, (ii) upon written notice to the optionees, provide that all
unexercised options will terminate immediately prior to the
consummation of such transaction unless exercised by the optionee
within a specified period following the date of such notice,
(iii) in the event of a merger under the terms of which holders
of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the merger
(the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such
outstanding options (to the extent then exercisable at prices not
in excess of the Merger Price) and (B) the aggregate exercise
price of all such outstanding options in exchange for the
termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately
prior to such event.
(b) Substitute Options. The Company may grant options
under the Plan in substitution for options held by employees of
another corporation who become employees of the Company, or a
subsidiary of the Company, as the result of a merger or
consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by
the Company, or one of its subsidiaries, of property or stock of
the employing corporation. The Company may direct that
<PAGE>
substitute options be granted on such terms and conditions as the
Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer
upon any optionee any right with respect to the continuation of
his or her employment by the Company or interfere in any way with
the right of the Company at any time to terminate such employment
or to increase or decrease the compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts
as compensation, the amount of any compensation deemed to be
received by an employee as a result of the exercise of an option
or the sale of shares received upon such exercise will not
constitute compensation with respect to which any other employee
benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing,
life insurance or salary continuation plan, except as otherwise
specifically determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time
to time, modify or amend the Plan in any respect, except that if
at any time the approval of the shareholders of the Company is
required under Section 422 of the Code or any successor provision
with respect to Incentive Stock Options, or under Rule 16b-3, the
Board of Directors may not effect such modification or amendment
without such approval.
(b) The termination or any modification or amendment of the
Plan shall not, without the consent of an optionee, affect his or
her rights under an option previously granted to him or her.
With the consent of the optionee affected, the Board of Directors
may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have
the right to amend or modify (i) the terms and provisions of the
Plan and of any outstanding Incentive Stock Options granted under
the Plan to the extent necessary to qualify any or all such
options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and
(ii) the terms and provisions of the Plan and of any outstanding
option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from
payments of any kind otherwise due to the optionee any federal,
state or local taxes of any kind required by law to be withheld
with respect to any shares issued upon exercise of options under
the Plan. Subject to the prior approval of the Company, which
<PAGE>
may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company to withhold shares of Common
Stock otherwise issuable pursuant to the exercise of an option or
(ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall
have a fair market value equal to such withholding obligation.
The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Company as of
the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to
this Section 20(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
(b) Notwithstanding the foregoing, in the case of a
Reporting Person, no election to use shares for the payment of
withholding taxes shall be effective unless made in compliance
with any applicable requirements of Rule 16b-3 (unless it is
intended that the transaction not qualify for exemption under
Rule 16b-3).
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect,
at any time and from time to time, with the consent of the
affected optionees, (i) the cancellation of any or all
outstanding options under the Plan and the grant in substitution
therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option
exercise price per share which may be lower or higher than the
exercise price per share of the cancelled options or (ii) the
amendment of the terms of any and all outstanding options under
the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of
such outstanding options; provided, however, that prior to the
time that the Common Stock of the Company is registered under
the Exchange Act, any such action shall be effective only with
the approval of the holders of a majority of the then outstanding
shares of the Company's Common Stock.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when
adopted by the Board of Directors, but no option granted under
the Plan shall become exercisable unless and until the Plan shall
have been approved by the Company's shareholders. If such
shareholder approval is not obtained within twelve months after
the date of the Board's adoption of the Plan, options previously
granted under the Plan shall not vest and shall terminate and no
options shall be granted thereafter. Amendments to the Plan not
requiring shareholder approval shall become effective when
adopted by the Board of Directors; amendments requiring
shareholder approval (as provided in Section 19) shall become
effective when adopted by the Board of Directors, but no option
granted after the date of such amendment shall become exercisable
(to the extent that such amendment to the Plan was required to
<PAGE>
enable the Company to grant such option to a particular person)
unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not
obtained within twelve months of the Board's adoption of such
amendment, any options granted on or after the date of such
amendment shall terminate to the extent that such amendment was
required to enable the Company to grant such option to a
particular optionee. Subject to this limitation, options may be
granted under the Plan at any time after the effective date and
before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance
with Section 16, the Plan shall terminate upon the close of
business on the day next preceding the tenth anniversary of the
date of its adoption by the Board of Directors. Options
outstanding on such date shall continue to have force and effect
in accordance with the provisions of the instruments evidencing
such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan,
modify awards or options granted to participants who are foreign
nationals or employed outside the United States to recognize
differences in laws, rules, regulations or customs of such
foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
Adopted by the Board of Directors on March 21, 1996.
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1996 STATEMENT OF OPERATIONS AND BALANCE SHEET, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,124,000
<SECURITIES> 0
<RECEIVABLES> 41,143,000
<ALLOWANCES> 747,000
<INVENTORY> 16,906,000
<CURRENT-ASSETS> 61,257,000
<PP&E> 33,202,000
<DEPRECIATION> 19,014,000
<TOTAL-ASSETS> 104,166,000
<CURRENT-LIABILITIES> 41,784,000
<BONDS> 48,568,000
<COMMON> 78,000
33,997,000
0
<OTHER-SE> (33,683,000)
<TOTAL-LIABILITY-AND-EQUITY> 104,166,000
<SALES> 13,931,000
<TOTAL-REVENUES> 47,243,000
<CGS> 12,551,000
<TOTAL-COSTS> 41,825,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23,000
<INTEREST-EXPENSE> 1,509,000
<INCOME-PRETAX> (3,394,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,394,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,394,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
