SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
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[X] Preliminary Information Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14C-5(D) (2))
[ ] Definitive Information Statement
TELOS CORPORATION
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<PAGE>
TELOS CORPORATION
19886 ASHBURN ROAD
ASHBURN, VA 20147
(703) 724-3800
---------------------------------
INFORMATION STATEMENT
---------------------------------
GENERAL INFORMATION
This Revised Information Statement is being furnished by Telos Corporation,
a Maryland corporation ("Telos" or the "Company"), formerly known as C3, Inc.,
in connection with the special meeting of the holders of its 12% Cumulative
Exchangeable Redeemable Preferred Stock ("Exchangeable Preferred'") to be held
on July 31, 1998 at 10:00 a.m. at The Army and Navy Club Building, 1627 Eye
Street, N.W., Washington, D.C. 20006 at the law offices of McGuire, Woods,
Battle & Boothe LP ("Special Meeting"). The Information Statement has been
revised in response to certain comments received from the Securities and
Exchange Commission on the Information Statement dated July 10, 1998.
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Purpose of Meeting
The purpose of the Special Meeting is to allow the holders of the
Exchangeable Preferred to elect two Class D Directors to the Telos Board of
Directors. On May 7, 1998, the Company mailed a Notice of Special Meeting
setting forth the business to be conducted at the Special Meeting. Pursuant to
Section 5 of Article II of the Company's Bylaws, no other business may be
conducted at the Special Meeting.
Reason for Election
The holders of the Exchangeable Preferred are entitled to elect two Class D
directors because dividends on the Exchangeable Preferred are in arrears and
unpaid for three consecutive full semi-annual periods. Telos did not believe
that the holders of the Exchangeable Preferred were entitled to voting rights to
elect class D Directors because the Company was unable to pay the dividends.
Because certain shareholders asserted that they were entitled to the voting
rights, Telos initiated a Declaratory Judgment action for an interpretation of
the disputed provision. On May 4, 1998, the Court entered a Final Order
declaring that the holders of the Exchangeable Preferred were entitled to the
voting rights.
Nominations
Telos has received nominations of the following persons for election as
Class D Directors:
Richard M. Goltermann
Marshall Greenblatt
Julio E. Heurtematte, Jr.
Richard C. Litsinger
Malcolm M.B. Sterrett
Applicable rules of the Securities and Exchange Commission (the "SEC")
require that, if proxies are solicited from the holders of the Exchangeable
Preferred in support of or in opposition to the election of any nominee to the
Board of Directors of the Company, the person soliciting such holders must
provide them with a proxy statement containing certain prescribed information,
including information concerning the nominees. The Company assumes no
responsibility for the accuracy or completeness of any information contained in
any proxy material furnished to any holder of Exchangeable Preferred concerning
the election of any Class D Director.
The Board of Directors of Telos does not take any position with respect to
the election of any of the nominees for election as Class D Directors, is not
soliciting any proxies in connection with the Special Meeting and does not make
any recommendation "For" or "Against" the election of any nominee.
<PAGE>
Voting At Meeting
The record date for determining the shareholders entitled to vote at the
Special Meeting is June 26, 1998 ("Record Date"). As of the Record Date, there
were 3,595,586 shares of Exchangeable Preferred outstanding. Each share of
Exchangeable Preferred is entitled to one vote at the Special Meeting on the
matter properly presented at the meeting and may be voted for as many
individuals as there are directors to be elected. There is no cumulative voting.
Directors are elected by a plurality of the votes cast with a quorum present. A
quorum consists of stockholders representing, either in person or by proxy, a
majority of the outstanding Exchangeable Preferred entitled to vote at the
Special Meeting. Abstentions are considered in determining the presence of a
quorum but will not affect the plurality vote required for the election of
directors.
If the election of the Class D directors is contested, under rules
applicable to broker-dealers voting shares beneficially owned by customers, the
proposal for the election of the nominees would be considered a
"non-discretionary" item upon which broker-dealers may not vote on behalf of
their clients unless such clients have furnished voting instructions. As a
result, there may be broker non-votes at the Special Meeting. However, broker
non-votes will have no effect on the election of directors by a plurality vote.
If there is no contest, the proposal for the election of the nominees would be
considered a "discretionary" item upon which broker-dealers may vote on behalf
of their clients where the clients have not submitted voting instructions. In
that case, there would be no broker non-votes at the Special Meeting.
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information concerning the security
ownership of management and those persons believed by the Company to be
beneficial owners of more than 5% of the Company's Class A Common Stock and
Exchangeable Preferred Stock at June 30, 1998.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Ownership Percent of
Title of Class Beneficial Owner as of June 30, 1998 Class
- -------------- ---------------- ------------------- -----
<S> <C> <C> <C>
Class A Common Stock John R.C. Porter 23,030,718 shares (A) 80.90%
15 Berners Street
London SW1W 9EA England
Class A Common Stock Telos Shared Savings Plan 3,658,536 shares 17.23%
19886 Ashburn Road
Ashburn, VA 20147
Class B Common Stock F&C Nominees Limited 3,143,358 shares 77.85%
11 Devonshire Square
London EC 2M 4YR England
Class B Common Stock Hare & Co. 815,700 shares 20.20%
c/o Bank of New York
P.O. Box 11203
New York, NY 10249
Class A Common Stock David S. Aldrich 119,392 shares (B) 0.56%
Class A Common Stock Gerald A. Calhoun 143,293 shares (B) 0.67%
Class A Common Stock Mark W. Hester 213,028 shares (B) 1.00%
Class A Common Stock Lorenzo Tellez 377,440 shares (B) 1.76%
Class A Common Stock John B. Wood 1,491,863 shares (B) 6.57%
All Officers and Directors as a 2,880,116 shares (C) 12.14%
Group (8 persons)
12% Cumulative Exchangeable Value Partners, Ltd. 714,317 shares (D) 19.87%
Redeemable Preferred Stock 2200 Ross Avenue, Suite 4660
Dallas, TX 75201
Fisher Ewing Partners
2200 Ross Avenue, Suite 4660
Dallas, TX 75201
12% Cumulative Exchangeable Wynnefield Partners/ 180,000 shares 5.00%
Redeemable Preferred Stock Small Value Cap
One Penn Plaza, Suite 4720
New York, NY 10119
(A) Mr. Porter's holdings include 7,228,916 shares of Class A
Common Stock purchasable upon exercise of a warrant.
(B) Messrs. Aldrich, Calhoun, Hester, Tellez and Wood hold options
to acquire 111,000, 124,900, 142,250, 225,000 and 1,483,471
shares of the Company's Class A Common Stock, respectively, in
addition to their current common stock holdings. These shares
are purchasable upon exercise of warrant and are exercisable
within 60 days of June 30, 1998.
(C) Under the Company's stock option plans and certain stock
option agreements, all officers and directors as a group hold
options to acquire 2,071,218 shares of Class A Common Stock
exercisable within 60 days after June 30, 1998.
(D) Value Partners Ltd. and Fisher Ewing Partners have filed
jointly a Schedule 13D under which they disclosed that they
may act as a "group" within the meaning of Section 13(d) of
the Securities Exchange Act. Each of the reporting persons
disclosed that it may be deemed to beneficially own the
aggregate of 714,317 shares of the Public Preferred Stock held
of record by the reporting persons collectively.
</TABLE>
<PAGE>
Directors and Executive Officers
The following is certain biographical information concerning the directors
and executive officers of the Company. Each of the director's terms continues
until the next annual meeting of shareholders and until his successor is elected
and qualified.
Dr. Fred Charles Ikle, Chairman of the Board
Dr. Ikle (age 73) was elected to the Company's Board of Directors on
January 31, 1994 and was elected Chairman of the Board in January 1995. He is
Chairman of Conservation Management Corporation and Director of the
Zurich-American Insurance Companies. Dr. Ikle is also a Director of the National
Endowment for Democracy and a Distinguished Scholar at the Center for Strategic
& International Studies. From 1981 to 1988, Dr. Ikle served as Under Secretary
of Defense for Policy.
John B. Wood, Director, President and Chief Executive Officer
Mr. Wood (age 34) was elected President and Chief Executive Officer on
February 16, 1994. Mr. Wood was appointed Chief Operating Officer on October 8,
1993 after serving as Executive Vice President from May of 1992. He was elected
to the Board of Directors on May 13, 1992. Mr. Wood joined the Company on
February 13, 1992. Prior to joining the Company, Mr. Wood was a founder of
Beninati & Wood, Inc., an investment-banking firm which had provided services to
the Company.
Dr. Stephen D. Bryen, Director
Dr. Stephen Bryen (age 55) was elected to the Company's Board of
Directors on January 31, 1994. He currently serves as a Director in
Jefferson Partners, L.L.C., a strategic management consulting and merchant
banking firm with offices in Washington, D.C. and New York. Dr. Bryen currently
serves on the board of C-MAC Industries in Mechanicsburgh, Pennsylvania and is
the senior technical advisor to Hollinger Digital Corporation in New York. From
1981 to 1988 Dr. Bryen served as the Deputy Under Secretary of Defense for Trade
Security Policy and as the Director of the Defense Technology Security
Administration, which he founded.
Norman P. Byers, Director
Mr. Byers (age 51) was elected to the Board of Directors on January 31,
1994. He has been president of Byers Consulting, a Fairfax County, Virginia
international business consulting firm since July 1996. Before that appointment,
he had served as the President of International Strategies Limited, another
local international business consulting firm. From 1968 until his retirement in
1989, Mr. Byers served in a variety of operational and staff positions in the
United States Air Force.
David S. Aldrich, Vice President, Corporate Development and Strategy
Mr. Aldrich (age 38) joined the Company in September 1996 as Vice
President, Corporate Development and Strategy. Prior to joining the Company, he
was a partner in the Financial Advisory Services Group - Corporate Finance at
Coopers & Lybrand L.L.P. Prior to joining Coopers & Lybrand L.L.P. in 1991, Mr.
Aldrich was Senior Vice President at Dean Witter Capital Corp., the merchant
banking arm of Dean Witter Reynolds, Inc.
William L. Prieur Brownley, Vice President and General Counsel
Mr. Brownley (age 41) joined the Company in April 1991 and is responsible
for the management of the Company's legal affairs. For the five years prior to
joining the Company, he served as Assistant General Counsel and then as General
Counsel at Infotechnology Inc., an investment company whose holdings included
various companies in the communications industry.
Gerald D. Calhoun, Vice President, Human Resources, and Secretary
Mr. Calhoun (age 48) joined the Company as Vice President, Human Resources,
in August 1989. Prior to joining the Company he served as Director, Risk and
Financial Management of BDM International, a government contractor which
provides consulting services, as Vice President, Human Resources of Halifax
Corp., a government contractor providing technical services and third party
computer maintenance, and as Director for the U.S. Department of Labor,
Employment Standards Administration.
Mark W. Hester, Executive Vice President and Chief Operating Officer
Mr. Hester (age 45) joined Telos in 1979 and was appointed as Executive
Vice President and Chief Operating Officer in 1998. He is responsible for all
business operation activities at Telos. Previously he has held progressive
positions with Telos as President of Telos Systems Solutions, President of Telos
Field Engineering, Regional Manager of Operations and Vice President of
Marketing. Mr. Hester received extensive training from IBM Corporation after a
successful military commitment of nearly eight years.
<PAGE>
Robert W. Lewis, President, Enterworks, Inc.
Mr. Lewis (age 36) has served as the President of Enterworks, Inc. since
its inception in 1996. Mr. Lewis' prior experience has been with Telos
Corporation. From 1991 to 1995, he was Director, Business Development with
responsibility for major customer development and technology integration.
Robert J. Marino, Executive Vice President and Chief Marketing and Sales Officer
Mr. Marino (age 61) joined the Company in 1988 as Senior Vice President of
Sales and Marketing. In 1990, his responsibilities were expanded to include
Program Management in addition to Sales and Marketing. On January 1, 1994, Mr.
Marino was appointed to President of Telos Systems Integration, and on January
1, 1998, he was appointed to his current position. Prior to joining the Company
in February 1988, Mr. Marino held the position of Senior Vice President of Sales
and Marketing with Centel Federal Systems and M/A-COM Information Systems, both
of which are U.S. Government contractors.
Lorenzo Tellez, Chief Financial Officer, Treasurer, and Vice President
Mr. Tellez (age 40) was appointed Chief Financial Officer of the Company in
1993 and Treasurer in 1994. He joined Telos Corporation (California) in 1989
where he was responsible for all financial and regulatory functions. Prior to
joining Telos Corporation, Mr. Tellez served as a Senior Manager with Arthur
Andersen & Company.
Each of the directors and executive officers of the Company is a United
States citizen.
Meetings of the Board of Directors and Committees of the Board of Directors
During the fiscal year ended December 31, 1997 (the "Last Fiscal Year"),
the Board of Directors held four meetings. Each of the incumbent directors
attended at least 75% of the aggregate of all meetings of the Board of Directors
and of the committees, if any, upon which such director served.
The Board of Directors has three standing committees: the Audit Committee,
the Executive Committee and the Compensation Committee.
The Audit Committee, which consists of directors Ikle, Bryen, and Byers,
was established to review, in consultation with the independent auditors, the
Company's financial statements, accounting and other policies, accounting
systems and system of internal controls. The Audit Committee met once during the
Last Fiscal Year.
The Executive Committee, which consists of directors Ikle and Wood, was
established to exercise the authority of the Board of Directors when the Board
of Directors is not in session as to those matters that can be properly
delegated to an executive committee. The Executive Committee met two times
during the Last Fiscal Year.
The Compensation Committee, which consists of directors Ikle, Bryen and
Byers, was established to grant stock options under the Company's Option Plans
and to review the Company's programs relating to the recruitment, retention and
motivation of employees, for recommendation to the Board of Directors. The
Compensation Committee met four times during the Last Fiscal Year.
Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
between the Company and certain of its current and former officers and directors
is set forth below.
Mr. Joseph P. Beninati served as Chairman of the Board for the majority of
1994 before resigning January 5, 1995. The Company paid $165,000 annually
subject to a three-year employment agreement that began in 1995 and terminated
January 8, 1998. Mr. Beninati resigned from the Board in 1996.
Mr. John R. C. Porter, the owner of a majority of the Company's common
stock, has a consulting agreement with the Company whereby he will be
compensated for specific services. Expense recorded pursuant to this agreement
was $200,000 for 1997.
Mr. Byers, a Director of the Company, has a consulting agreement with the
Company to help the Company expand its business operations into the
international marketplace. Under this agreement Mr. Byers receives $10,500 a
month for his services. Mr. Byers was compensated $130,000, $128,000 and
$121,500 for 1997, 1996 and 1995, respectively.
<PAGE>
Executive Compensation
Summary Compensation Table. The following table shows for the years ended
December 31, 1997, 1996 and 1995, the cash compensation paid by the Company as
well as certain other compensation paid or accrued for those years, to the chief
executive officer and the four other most highly compensated executive officers
of the Company in fiscal year 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation (3)
Annual Compensation Awards Payouts
------------------- ------ -------
Other
Name and Principal Annual All Other
Position Year Salary Bonus (1) Compensation (2) Options/SARs(#)(4) Compensation (5)
-------- ---- ------ --------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
John B. Wood 1997 $299,298 $492,000 $32,000 -- $4,750
(President, Chief 1996 291,921 -- 23,000 2,017,531 4,750
Executive Officer) 1995 234,900 325,000 24,000 -- 7,029
Mark W. Hester 1997 174,900 275,000 6,000 150,000 3,525
(Executive V.P. and 1996 184,607 80,000 6,000 185,000 2,850
Chief Operating Officer) 1995 181,695 40,000 6,000 -- 4,992
Lorenzo Tellez 1997 195,000 195,000 24,000 150,000 4,750
(V.P., Treasurer, Chief 1996 188,269 145,000 15,000 465,000 4,750
Financial Officer) 1995 166,624 50,000 6,000 -- 6,846
David S. Aldrich 1997 150,010 195,000 6,000 300,000 --
(V.P., Corporate 1996 45,580 -- -- 200,000 --
Development and
Strategy)
Gerald D. Calhoun 1997 157,997 120,000 6,000 50,000 4,750
(V.P., Human Resources 1996 165,970 85,000 6,000 130,000 --
& Secretary) 1995 143,943 40,000 6,000 -- 4,603
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(1) 1997 amounts include bonuses relating to the TIS sale completed in 1998.
(2) Other annual compensation represents automobile and living allowances
provided to executives. Additionally, compensation for John B. Wood
includes director's fees.
(3) There are no restricted stock awards or payouts pursuant to long-
term investment plans
(4) Options granted are in both the Company's common stock as well as in
Enterworks, Inc., common stock.
(5) All other compensation represents Company contributions made on behalf
of the executive officers to the Telos Shared Savings Plan.
</TABLE>
<PAGE>
Stock Option Grants
The Summary Table of Options/SAR Grants in the Last Fiscal Year is set
forth below for the stock option grants in 1997.
<TABLE>
<CAPTION>
Potential Realizable
Number of % of Value at Assumed Rates
Securities Total of Stock Price
Underlying Options/ Appreciation of
Name and Options/SARS SARS Exercise or 5%/10%for
Principal Position Granted Granted Base Price Expiration Date Option Term
- ------------------ --------------- ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
John B. Wood (President, -- -- -- -- --
Chief Executive Officer)
Mark W. Hester (Executive 150,000 10.5 $1.01 February 2007 $95,278/$241,452
V.P. and Chief Operating
Officer)
Lorenzo Tellez 150,000 10.5 1.01 February 2007 95,278/241,452
(V.P., Treasurer, Chief
Financial Officer)
David S. Aldrich (V.P., 300,000 21.0 1.01 February 2007 190,555/482,904
Corporate Development
Strategy)
Gerald D. Calhoun (V.P., 50,000 3.5 1.01 February 2007 31,759/80,484
Human Resources & Secretary)
</TABLE>
<PAGE>
Management Stock Options
The following table shows, as to the individuals named in the Summary
Compensation table, the number of shares acquired during such period through the
exercise of options, and the number of shares subject to and value of all
unexercised options held as of December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/
Acquired Value Options/SARs at FYEnd SARs at FY- End(1)(2)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- --------------------- ----------------------
<S> <C> <C> <C> <C>
John B. Wood (President, -- -- 1,305,718/1,412,272 $481,433/191,733
Chief Executive Officer)
Mark W. Hester -- -- 85,500/249,500 14,024/35,725
(Executive V.P. and Chief
Operating Officer
Lorenzo Tellez (V.P., -- -- 169,500/445,500 28,875/70,375
Treasurer, Chief Financial
Officer)
David S. Aldrich (V.P. -- -- 120,000/380,000 42,600/105,400
Human Resources, and
Secretary
Gerald D. Calhoun (V.P. -- -- 118,900/131,000 10,050/24,450
Human Resources, and
Secretary)
(1) Based on an estimated fair market value of the Company's Class A common
stock of $1.07 per share at December 31, 1997.
(2) Based on an estimated fair market value of Enterworks common stock of $0.77
per share at December 31, 1997.
</TABLE>
Compensation of Directors
During the fiscal year ended December 31, 1997, employee directors were
paid a fee of $2,000 for each Board meeting attended. Outside directors Mr.
Byers and Dr. Bryen were paid an annual fee of $25,000, and further compensated
at a rate of $750 for each meeting in excess of four meetings a year. The
Chairman of the Board, Dr. Ikle, is paid $25,000 quarterly for his service on
the Board. In addition, Mr. Byers receives $5,000 per annum for his service as
Proxy Chairman. The compensation paid to the outside directors is paid pursuant
to a proxy agreement between the Company, the Defense Security Service and
certain of the Company shareholders. During the fiscal year ended December 31,
1997, no directors of the Company were awarded options.
<PAGE>
Employment Contracts
As of December 31, 1997, the Company was a party to agreements with certain
of its executive officers. Mr. David S. Aldrich, Vice President, Corporate
Development and Strategy, Mr. William L. P. Brownley, Vice President and General
Counsel, Mr. Gerald D. Calhoun, Vice President, Human Resources and Secretary,
Mr. Mark W. Hester, Executive Vice President and Chief Operating Officer, Mr.
Robert J. Marino, Chief Marketing and Sales Officer, Mr. Lorenzo Tellez, Chief
Financial Officer, Treasurer and Vice President, and Mr. John B. Wood, Director,
President and Chief Executive Officer, have agreements with the Company which
provide for a payment of two years' base salary then in effect if involuntarily
terminated. Accordingly, Messrs. Aldrich, Brownley, Calhoun, Hester, Marino,
Tellez and Wood would receive, given their present salary levels, $150,000,
$150,000, $158,000, $175,000, $195,000, $195,000 and $300,000, respectively for
a two year period. In addition, these agreements provide for bonus payment
should certain operating results be attained. Each year the Company renegotiates
these employment contracts as part of the yearly review process. Accordingly, in
1998, the Company expects to review the contracts described above.
TELOS CORPORATION
By:/s/Gerald D. Calhoun, Secretary
-------------------------------------
Ashburn, Virginia
July 15, 1998
