SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1 )*
TELOS CORPORATION
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(Name of Issuer)
12% Cumulative Exchangeable Redeemable Preferred Stock, $.01 par value
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(Title of Class of Securities)
8796B200
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(CUSIP Number)
Andrew R. Siegel
c/o Costa Brava Partnership III, LP
237 Park Avenue, Suite 800
New York, New York 10017
(212) 692-6395
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
May 3, 2005
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the Notes)
Page 2 of 11
SCHEDULE 13D
CUSIP NO. 8796B200
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Costa Brava Partnership III, LP
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 436,811
SHARES --------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH --------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 436,811
WITH --------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
436,811
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 11
SCHEDULE 13D
CUSIP NO. 8796B200
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Roark, Rearden & Hamot, LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES --------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 436,811
EACH --------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH --------------------------------------------
10 SHARED DISPOSITIVE POWER
436,811
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
436,811
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 4 of 11
SCHEDULE 13D
CUSIP NO. 8796B200
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Seth W. Hamot
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES --------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 436,811
EACH --------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH --------------------------------------------
10 SHARED DISPOSITIVE POWER
436,811
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
436,811
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 5 of 11
SCHEDULE 13D
CUSIP NO. 8796B200
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
White Bay Capital Management, LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES --------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 436,811
EACH --------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH --------------------------------------------
10 SHARED DISPOSITIVE POWER
436,811
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
436,811
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 6 of 11
SCHEDULE 13D
CUSIP NO. 8796B200
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Andrew R. Siegel
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(D) OR 2(E) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 14,476
SHARES --------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 436,811
EACH --------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 14,476
WITH --------------------------------------------
10 SHARED DISPOSITIVE POWER
436,811
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
451,287
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.2%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 7 of 11
AMENDMENT NO. 1 to SCHEDULE 13D
This amendment ("Amendment No. 1") amends the Schedule 13D previously
filed on March 25, 2005 (the "Schedule") by Costa Brava Partnership III, LP
("Costa Brava"), Roark, Rearden & Hamot, LLC ("Roark"), Seth W. Hamot ("Hamot"),
White Bay Capital Management, LLC ("White Bay"), and Andrew R. Siegel ("Siegel")
with the Securities and Exchange Commission with respect to the 12% Cumulative
Exchangeable Redeemable Preferred Stock, $0.01 par value ("Redeemable Preferred
Stock") of Telos Corporation, a Maryland corporation (the "Issuer"). All defined
terms refer to terms defined herein or in the Schedule. This Amendment No. 1
speaks only as of its date. Costa Brava, Roark, Mr. Hamot, White Bay and Mr.
Siegel are collectively referred to herein as the "Reporting Persons".
ITEM 4. PURPOSE OF TRANSACTION
Item 4. Purpose of Transaction appearing in the Schedule is amended in
its entirety to read as follows:
The Reporting Persons acquired the shares of Redeemable Preferred Stock
reported in Item 5 in open market transactions. The Reporting Persons
currently hold their shares of Redeemable Preferred Stock for
investment purposes. However, the Reporting Persons intend to closely
monitor the Company's performance and may modify their plans in the
future. In their capacities as holders of the Redeemable Preferred
Stock, the Reporting Persons have contacted, and intend to contact,
members of the Company's board of directors or management from time to
time to discuss shareholder concerns. In addition, the Reporting
Persons and their representatives and advisers have communicated, and
intend to communicate, with other shareholders, industry participants
and other interested parties concerning the Company, its operations and
prospects, and general corporate governance matters. The Reporting
Persons may in the future contact other shareholders to (1) effectuate
appropriate changes in the manner in which the Issuer conducts its
business, (2) make the Board of Directors more responsive to
shareholder concerns, or (3) facilitate a recapitalization of the
Issuer.
In that regard, on May 3, 2005, Andrew R. Siegel, on behalf of Costa
Brava, sent a letter to the Committee of Independent Directors of the
Board of Directors of the Issuer jointly with other holders of the
Redeemable Preferred Stock. A copy of the letter is filed as Exhibit
99.1 hereto and incorporated herein by reference. The letter urges the
Committee of Independent Directors to consider a strategic transaction
such as, but not limited to, a public equity offering or a merger
transaction so that the Issuer may recognize its unrealized value and
raise sufficient funds to fulfill its contractual obligations to redeem
the Redeemable Preferred Stock on November 21, 2005.
The signatories to the letter included three (3) other holders of the
Redeemable Preferred Stock. A fourth holder is expected to sign onto
the letter shortly. The signatories to the letter expressly state that
they are not acting together for purposes of acquiring, holding,
voting, or disposing of any equity security of the Issuer, and they
expressly deny that they constitute a group within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Although the Reporting Persons do not have any current plans other than
as described in the preceding paragraphs, the Reporting Persons may in
the future exercise any and all of their respective rights available to
them as holders of the Redeemable Preferred Stock and beneficiaries of
the accrued and unpaid dividends of the Redeemable Preferred Stock in a
manner consistent with their interests. More specifically, the
Reporting Persons may vote the Redeemable Preferred Stock as permitted
by the Issuer's governing corporate documents. Also, depending on their
Page 8 of 11
evaluation of various factors, including the investment potential of
the Redeemable Preferred Stock, the Company's business prospects and
financial position, other developments concerning the Company, the
price level and availability of the Redeemable Preferred Stock,
available opportunities to acquire or dispose of the Redeemable
Preferred Stock, realize trading profits or minimize trading losses,
conditions in the securities markets and general economic and industry
conditions, reinvestment opportunities, developments relating to the
business of the Reporting Persons and other factors deemed relevant,
the Reporting Persons may take such actions with respect to their
holdings in the Company, including the redemption amount of the
Redeemable Preferred Stock and the accrued and unpaid dividends of the
Redeemable Preferred Stock, as they deem appropriate in light of
circumstances existing from time to time, including the first mandatory
redemption date of the Redeemable Preferred Stock and associated unpaid
and accrued dividends on November 21, 2005. Such actions may include
the purchase of additional shares of Redeemable Preferred Stock in the
open market, through privately negotiated transactions with third
parties or otherwise, or the sale at any time, in the open market,
through privately negotiated transactions with third parties or
otherwise, of all or a portion of the shares now owned or hereafter
acquired.
As of the date of this Amendment No. 1, except as set forth above, none
of the Reporting Persons has any present plan or intention which may
result in or relate to any of the actions described in subparagraphs
(a) through (j) of Item 4 of Schedule 13D.
ITEM 7 MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Joint Filing Agreement
Exhibit 99.1 Letter dated May 3, 2005 to the Committee of Independent
Directors of the Board of Directors of the Issuer
Page 9 of 11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Amendment No. 1 to the Schedule
13D is true, complete and correct.
Dated: May 6, 2005 COSTA BRAVA PARTNERSHIP III, LP
By: Roark, Rearden & Hamot, LLC
Its General Partner
By: /s/ SETH HAMOT
-----------------------------------
Name: Seth W. Hamot
Title: Manager
ROARK, REARDEN & HAMOT, LLC
By: /s/ SETH HAMOT
-----------------------------------
Name: Seth W. Hamot
Title: Manager
/s/ SETH HAMOT
-----------------------------------------
Seth W. Hamot
WHITE BAY CAPITAL MANAGEMENT, LLC
By: /s/ ANDREW R. SIEGEL
------------------------------------
Name: Andrew R. Siegel
Title: Manager
/s/ ANDREW R. SIEGEL
-----------------------------------------
Andrew R. Siegel
Page 10 of 11
EXHIBIT INDEX
-------------
Exhibit 1 Joint Filing Agreement, dated as of May 6, 2005.
Exhibit 99.1 Letter dated May 3, 2005 to the Committee of Independent Directors
of the Board of Directors of the Issuer
Page 11 of 11
EXHIBIT 1 - JOINT FILING STATEMENT
Pursuant to Rule 13d-1(k)(1), we, the undersigned, hereby express our
agreement that the Amendment No. 1 to Schedule 13D for Telos Corporation is
filed on behalf of each of us. This agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Dated: May 6, 2005 COSTA BRAVA PARTNERSHIP III, LP
By: /s/ SETH HAMOT
-----------------------------------
Name: Seth W. Hamot
Title: Manager
ROARK, REARDEN & HAMOT, LLC
By: /s/ SETH HAMOT
-----------------------------------
Name: Seth W. Hamot
Title: Manager
/s/ SETH HAMOT
-----------------------------------------
Seth W. Hamot
WHITE BAY CAPITAL MANAGEMENT, LLC
By: /s/ ANDREW R. SIEGEL
------------------------------------
Name: Andrew R. Siegel
Title: Manager
/s/ ANDREW R. SIEGEL
-----------------------------------------
Andrew R. Siegel
Exhibit 99.1
Dr. Fred C. Ikle
Mr. David Borland
Ambassador Langhorne A. Motley
Committee of Independent Directors of the Board of Directors
Telos Corporation
c/o Joseph M. Berl
Powell Goldstein LLP
901 New York Avenue, N.W.
Washington, D.C. 20001-4413
May 3, 2005
Gentlemen:
The parties signing this letter (the "Signatories") are responding to your
recent letters to them soliciting their input to the financial restructuring of
Telos Corporation1 (the "Company"). As the Signatories are among the largest
holders of the Company's sole public security, they are pleased to provide a
joint response based on the verbal acknowledgement by legal counsel to the
Independent Committee.
The Signatories each hereby acknowledges and agrees that, by holding discussions
and meetings relating to a possible restructuring of the capital of the Company,
and by delivering this proposal in connection with such possible restructuring,
none of the Signatories has acted together nor agreed to act together with
another for purposes of acquiring, holding, voting or disposing of an equity
security of the Company or for any other purpose, and therefore the Signatories
do not constitute a group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Neither the
submission of this letter nor anything contained herein or discussed shall be
construed as an admission that the Signatories constitute a "person" or "group"
for any purpose, or an admission that any Signatory is, for the purposes of
Section 13(d) or 13(g) of the Exchange Act, the beneficial owner of any of the
equity securities of the Company owned by any other Signatory. The Signatories
expressly acknowledge and agree that no Signatory has any shared voting or
dispositive power over the equity securities of the Company owned by any other
Signatory. Except for the submission of this letter in response to the
solicitation of the Company, the Signatories do not have any contracts,
arrangements, understandings or relationships (legal or otherwise) with or among
each other with respect to any securities of the Company, including but not
limited to transfer or voting of any of the securities of the Company, finder's
fees, joint ventures, loan or option arrangements, puts or calls, guarantees of
profits, division of profits or loss, or the giving or withholding of proxies,
or a pledge or contingency the occurrence of which would give another person
voting or dispositive power over the securities of the Company.
- -------------------------
(1) Formerly C3 Inc
Each of the Signatories is aware that the security that he owns, Telos' 12%
Cumulative Exchangeable Redeemable Preferred Stock (the "Security"), was issued
in 1989 as a component of the leveraged buyout ("LBO") of C3 Inc. by C3
Acquisition Corp. Each of the Signatories is also aware that the Security has a
first mandatory redemption date of November 21, 2005 at a price of $10 per
share, plus accrued and unpaid, contractually obligated dividends.
As you are aware, the Security is a fixed obligation of the Company and the
holders of the Security are not considered by the Company to be equity
participants, as disclosed in the October 20, 1989 Proxy Statement/Prospectus:
"As a result [of receiving the Security] the public shareholders
of the Company [existing prior to completion of the LBO] will be
deprived of the opportunity to share in any future earnings or
growth of the Company"
Additionally, each of the Signatories is aware of the Board of Directors'
disclosure statements made in the Company's SEC filings on Forms 8-K, 10-Q and
10-K beginning in March 2004 that the Company believes it will more likely than
not be unable to meet the redemption schedule in accordance with the contractual
obligations set forth in the terms of the Security.
Each of the Signatories acknowledges that based on the Company's Form 10-K for
the fiscal year ended December 31, 2004, on that date, the Company did not have
sufficient cash on hand to effect the mandatory redemption that is scheduled to
commence this year in accordance with the contractual obligations of the Company
under the terms of the Security. However, each of the Signatories believes that
the Company has substantial unrealized total enterprise value ("TEV") that could
be unlocked by the Board of Directors through a strategic transaction such as,
but not limited to, a public equity offering or a merger transaction (a
"Strategic Transaction"). Such a Strategic Transaction is interesting because it
has the potential to unlock substantial value that can be made available to the
Company to provide "legally available funds" to either completely or near
completely fulfill the contractual obligations of the Company under the terms of
the Security.
Based on independent analysis conducted by certain of the Signatories, and
submitted in the enclosed summary, each of the Signatories estimates that the
Company's unrealized TEV is at least between $80 million and $100 million.
In exploring the Company's ability to execute a Strategic Transaction, some of
the Signatories have had informal extensive discussions with
nationally-recognized investment banks that specialize in the Company's sector,
including Friedman Billings Ramsey, BB&T Windsor Group, RBC Capital Markets,
Stephens Financial Group and Morgan Joseph. These investment banks have
expressed confidence in their respective independent abilities to successfully
execute a Strategic Transaction on behalf of the Company.
The Committee of Independent Directors, in addition to the entire Board of
Directors, has a fiduciary duty to direct and aggressively pursue a Strategic
Transaction that would unlock the unrealized TEV and provide "legally available
funds" for fulfilling the contractual obligations of the Company under the terms
of the Security.
To assist the Committee of Independent Directors and the Company in facilitating
a Strategic Transaction for the purposes of unlocking unrealized TEV and
fulfilling the contractual obligations of the Company under the terms of the
Security, some interest has been expressed by the Signatories in the possibility
that holders of the Security may consent to a reduction to the dollar amount of
the accrued and unpaid dividends currently due and owed by the Company ($38.75
million as of March 31, 2005).
Each of the Signatories would welcome an opportunity to meet with you to discuss
these issues. The Signatories understand from certain conversations with Counsel
to the Committee of Independent Directors that a meeting will be held on May 10,
2005 at the office of Powell Goldstein. Subject to scheduling, each of the
Signatories would be very pleased to meet with you at that time.
Sincerely,
/s/ TIMOTHY G. EWING /s/ ANDREW R. SIEGEL
- ---------------------------------- -----------------------------------
Timothy G. Ewing Andrew R. Siegel
Ewing & Partners Costa Brava Partnership III, L.P.
/s/ NELSON OBUS
- ---------------------------------- -----------------------------------
Nelson Obus Victor Morgenstern
Wynnefield Capital Management, LLC
/s/ DAVID P. COHEN
- ----------------------------------
David P. Cohen
Athena Capital Management, Inc.
Enc: summary valuation analysis
Submission to Committee of Independent Directors Telos Corporation
Indicative
Valuation Mutiples
-------------------
Comparable M&A Transactions
Revenue multiples: 0.7x - 2.3x
EBITDA multiples: 6.6x - 16.6x
Comparable Public Equity Market
Revenue multiples: 0.7x - 2.5x
EBITDA multiples: 8.2x - 17.4x
Indicative Multiple Range
Revenue multiples 0.7x - 2.5x
EBITDA multiples 6.6x - 17.4x
Telos LTM, as of 12/31/2004 (in $ millions)
Revenue $116.7
EBITDA $ 7.4
Adjusted EBITDA (1) $ 9.7
(1) EBITDA adjusted for discretionary cash bonuses and "consulting fees" to the
majority common shareholder
Submission to Committee of Independent Directors Telos Corporation
Indicative
Value Ranges Mid
($ in millions) Point
---------------------- ---------
Comparable M&A Transactions
Revenue $83.1 - $264.5 $173.8
EBITDA $48.3 - $122.2 $ 85.2
Adjusted EBITDA (1) $63.6 - $161.0 $112.3
Comparable Public Equity Market
Revenue $84.2 - $291.2 $187.7
EBITDA $60.3 - $128.0 $ 94.2
Adjusted EBITDA (1) $79.4 - $168.7 $124.0
Indicative Value Range
Revenue $83.1 - $291.2 $187.1
EBITDA $48.3 - $128.0 $ 88.2
Adjusted EBITDA (1) $63.6 - $168.7 $116.1
(1) EBITDA adjusted for discretionary cash bonuses and "consulting fees" to the
majority common shareholder
Submission to Committee of Independent Directors Telos Corporation
[GRAPHIC CHART OMITTED]
Indicative Valuation Ranges
($ in millions)
LTM Adj. EBITDA $63 - $168
LTM EBITDA $48 - $128
LTM Revenue $83 - $291
Submission to Committee of Independent Directors Telos Corporation
($MM) Target TEV/ TEV/
Date Transaction LTM LTM LTM
Announced Target Acquirer Value Revenue Revenue EBITDA
- ------------- ------------------------------------ ---------------------------- ---------- ------------ --------- ----------
4/26/2005 PEC Solutions, Inc. Nortel Networks Inc. $448.0 $202.7 2.2x 14.0x
3/22/2005 ComGlobal Systems,
Incorporated Analex Corp. $ 47.0 $ 39.5 1.2x 9.2x
2/18/2005 SYTEX Group Inc. Lockheed Martin
Corporation $462.0 $425.0 1.1x NA
2/18/2005 Integic Corporation Northrop Grumman Corporation $313.0 $161.0 1.9x NA
1/19/2005 OnBoard Software Inc. MTC Technologies Inc. $ 34.0 $ 15.0 2.3x NA
1/12/2005 Shenandoah Electronic
Intelligence Inc. SI International Inc. $ 75.0 $ 73.9 1.0x 7.9x
1/7/2005 Windermere Group LLC Essex Corp. $ 69.4 $ 64.0 1.1x NA
1/3/2005 Sytel Inc. TechTeam Global, Inc. $ 20.5 $ 28.8 0.7x 7.2x
12/27/2004 Manufacturing Technology Inc. MTC Technologies Inc. $ 75.0 $ 50.0 1.5x NA
12/16/2004 RCI Holdings Corp. Serco Group Plc $215.0 $256.0 0.8x 14.3x
12/1/2004 Bridge Technology Corporation SI International Inc. $ 30.0 $ 22.2 1.4x 8.6x
9/11/2004 DigitalNet Holdings Inc. BAE Systems North America $585.9 $354.2 1.7x NA
9/9/2004 AC Technologies PEC Solutions, Inc. $ 49.7 $ 48.5 1.0x 6.6x
Inc.
8/11/2004 Integrated Management
Services, Inc. Anteon International Corp. $ 31.0 $ 30.0 1.0x NA
8/2/2004 Impact Innovations Group LLC
(Gov division) Dynamics Research Corporation $ 53.4 $ 47.0 1.1x NA
7/27/2004 Simulation Technologies, Inc. Anteon International Corp. $ 15.0 $ 20.0 0.8x NA
6/29/2004 Command Technologies, Inc. MTC Technologies Inc. $ 47.0 $ 36.0 1.3x NA
6/1/2004 EPOS Corp Tier Technologies Inc. $ 19.0 $ 15.0 1.3x NA
5/28/2004 Integrated Information
Technology Corp. PEC Solutions Inc. $ 35.0 $ 36.0 1.0x 8.3x
5/6/2004 Beta Analytics International Inc. Analex Corp. $ 32.3 $ 33.0 1.0x NA
4/5/2004 STI Government Systems BAE Systems North America $ 27.0 NA NA NA
3/10/2004 AMS Defense & Intelligence
Group CACI International $415.0 $250.0 1.7x 16.6x
2/12/2004 CMS Information Services,
Inc CACI International $ 30.0 $ 39.0 0.8x 10.7x
1/22/2004 Science & Engineering
Associates, Inc. ITS Services Inc. $100.0 $108.0 0.9x 11.6x
1/8/2004 ORION Scientific Systems, Inc. SRA International Inc. $ 34.5 $ 30.0 1.2x NA
1/8/2004 FAAC, Inc. Arotech Corp. $ 14.0 $ 15.0 0.9x NA
Average 1.2x 10.5x
Median 1.1x 9.2x
($MM)
Date
Announced Target Services Provided to the U.S. Federal Government (DoD, Intelligence, other)
- ----------- -------------------------------------- ---------------------------------------------------------------------------
4/26/2005 PEC Solutions, Inc. Secure, interoperable technology solutions
3/22/2005 ComGlobal Systems, Software and information technology firm providing C4I
Incorporated services to military and federal government agencies
2/18/2005 SYTEX Group Inc. Technology engineering and systems integration, network
security solutions, business management solutions
2/18/2005 Integic Corporation Enterprise health and business process software solutions
1/19/2005 OnBoard Software Inc. Technical development of hardware and software
1/12/2005 Shenandoah Electronic Records management, applications support, secure
Intelligence Inc. optical card processing
1/7/2005 Windermere Group LLC Software development, advanced engineering design and information assurance
1/3/2005 Sytel Inc. Network design and network security services, help desk support
12/27/2004 Manufacturing Technology Inc. Product life cycle support for systems and electronics
12/16/2004 RCI Holdings Corp. Systems engineering and HR business process management
12/1/2004 Bridge Technology Corporation Program management, systems and software engineering
9/11/2004 DigitalNet Holdings Inc. Networked infrastructure, information assurance solutions
9/9/2004 AC Technologies Software engineering and network services primarily to non-security
Inc. civilian federal agencies
8/11/2004 Integrated Management Information security/assurance, infrastructure security,
Services, Inc. enterprise IT architecture
8/2/2004 Impact Innovations Group LLC Enterprise content management, application development,
(Gov division) IT service management, information security
7/27/2004 Simulation Technologies, Inc. Modeling and simulation software solutions and services
6/29/2004 Command Technologies, Inc. Professional and technical services, information technology
6/1/2004 EPOS Corp Interactive communications and transaction processing technologies
5/28/2004 Integrated Information Network and computer services, satellite communications,
Technology Corp. communication system engineering and installation
5/6/2004 Beta Analytics International Inc. Security and intelligence data support
4/5/2004 STI Government Systems IT systems and integration
3/10/2004 AMS Defense & Intelligence IT support and software design for financial management, logistics,
Group warfighting, intelligence
2/12/2004 CMS Information Services, Inc Enterprise network solutions, enterprise financial management systems,
software engineering and integration
1/22/2004 Science & Engineering Advanced sensor development, spectral imaging, security
Associates, Inc. solutions, system engineering and design
1/8/2004 ORION Scientific Systems, Inc. Analytical support, system development, proprietary knowledge management
1/8/2004 FAAC, Inc. Simulators, systems engineering and related software products
Submission to Committee of Independent Directors Telos Corporation
($MM) LTM Total Net Market TEV TEV / TEV /
Revenue EBITDA Margin Debt Debt Cap Revenue EBITDA
-------- -------- ------- -------- -------- -------- -------- -------- --------
CACI International Inc. $1,551.6 $ 177.3 11.4% $ 347.4 $ 284.1 $1,830.1 $2,114.2 1.4x 11.9x
Anteon International Corp. $1,330.0 $ 117.3 8.8% $ 164.2 $ 129.0 $1,509.5 $1,638.6 1.2x 14.0x
Mantech International Corp. $ 842.4 $ 48.2 5.7% $ 25.2 $ 2.2 $ 781.4 $ 783.7 0.9x 16.3x
SRA International Inc. $ 755.5 $ 89.0 11.8% $ 0.0 $ (180.3) $1,728.3 $1,547.9 2.0x 17.4x
Cubic Corp. $ 740.9 $ 57.8 7.8% $ 93.6 $ 77.3 $ 478.3 $ 555.6 0.7x 9.6x
MTC Technologies Inc. $ 298.4 $ 35.7 12.0% $ 63.3 $ 63.3 $ 471.5 $ 534.8 1.8x 15.0x
SI International Inc. $ 290.1 $ 21.8 7.5% $ 100.0 $ 87.7 $ 258.7 $ 346.3 1.2x 15.9x
Argon ST Inc. (1) $ 206.4 $ 30.8 14.9% $ 0.2 $ (42.2) $ 557.0 $ 514.8 2.5x 16.7x
PEC Solutions Inc. $ 202.7 $ 31.9 15.7% $ 0.0 $ (29.4) $ 422.2 $ 392.8 1.9x 12.3x
Analex Corp. (1) $ 145.7 $ 15.0 10.3% $ 73.8 $ 73.2 $ 49.3 $ 122.5 0.8x 8.2x
Tier Technologies Inc. $ 133.1 $ 7.1 5.3% $ 0.2 $ (53.3) $ 149.4 $ 96.1 0.7x 13.5x
Average 1.4x 13.7x
Median 1.2x 14.0x
(1) LTM figues are pro forma for significant material merger transactions in
the LTM period.