<PAGE>
GOVERNMENT TECHNOLOGY SERVICES, INC.
4100 LAFAYETTE CENTER DRIVE
CHANTILLY, VIRGINIA 20151-1200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders
(the "Annual Meeting") of Government Technology Services, Inc., a Delaware
corporation (the "Company"), will be held at 9:00 a.m. on Tuesday, May 6,
1997, at the Company's new distribution center located at 3900A Stonecroft
Boulevard in Chantilly, Virginia, for the following purposes, each as more
fully described in the attached Proxy Statement:
1. To elect seven directors to serve for the ensuing year.
2. To vote on a three-year extension of the Company's Stockholder
Rights Plan.
3. To transact such other business as may properly come before
the Annual Meeting or any adjournment(s) thereof.
Only record holders of common stock at the close of business on March
14, 1997 are entitled to notice of, and to vote at, the Annual Meeting and
at any adjournment(s) thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting in person,
in order to ensure your representation at the Annual Meeting, please mark,
sign, date and return the enclosed proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. Any stockholder
attending the Annual Meeting may vote in person even if such stockholder
has returned a proxy.
By Order of the Board of Directors
Worth D. MacMurray
Corporate Secretary
Chantilly, Virginia
April 14, 1997
<PAGE>
GOVERNMENT TECHNOLOGY SERVICES, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Government Technology Services, Inc. ("GTSI" or the "Company")
for use at the Annual Meeting of Stockholders (the "Annual Meeting") to be
held on Tuesday, May 6, 1997 at 9:00 a.m., Eastern Time, or at any
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the Company's new distribution center located at 3900A
Stonecroft Boulevard in Chantilly, Virginia.
These proxy solicitation materials are being first mailed on or about
April 14, 1997 to all stockholders entitled to vote at the Annual Meeting.
Only stockholders of record at the close of business on March 14, 1997
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. At the Record Date, 6,806,084 shares of common stock were issued
and, after giving effect to 81,165 shares held in treasury, 6,724,919
shares were outstanding.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Corporate
Secretary of the Company a written notice of revocation or a duly executed
proxy bearing a later date or by attending the Annual Meeting and voting in
person.
VOTING AND SOLICITATION
As to all matters to be voted upon at the Annual Meeting, each
stockholder is entitled to one vote for each share of common stock held.
The presence in person or by proxy of a majority of the outstanding shares
of common stock of the Company entitled to vote constitutes a quorum for
the conduct of business at the Annual Meeting. If a quorum is present at
the Annual Meeting, the nominees for director receiving the highest number
of votes up to the number of directors to be elected will be elected. The
affirmative vote of either a majority of the votes cast or a majority of
shares present in person or by proxy and entitled to vote is required for
the approval of all other matters. Abstentions are included in the
determination of the number of shares present and entitled to vote for
purposes of determining the presence of a quorum and in instances where
approval of a matter requires the affirmative vote of a majority of the
shares present in person or by proxy and entitled to vote at the Annual
Meeting. Abstentions, however, do not constitute a vote "for" or "against"
and are disregarded in instances where approval of a matter requires a
majority of the votes cast. Broker non-votes are counted as shares that
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are present and entitled to vote for purposes of determining a quorum. If
a broker indicates on the proxy that it does not have discretionary
authority to vote on a particular matter as to certain shares, those shares
will be counted for purposes of determining the presence of a quorum but
will not be counted in the tabulation of votes cast or treated as present
and entitled to vote with respect to that matter.
IF NO INSTRUCTIONS ARE GIVEN, SUCH SHARES WILL BE VOTED "FOR" EACH
NOMINEE AS DIRECTOR AND "FOR" THE THREE-YEAR EXTENSION OF THE COMPANY'S
STOCKHOLDER RIGHTS PLAN.
The cost of this solicitation will be borne by the Company. The
Company has retained the services of Corporate Investor Communications,
Inc. to distribute proxy materials to brokerage houses, banks, custodians
and other nominee holders. The estimated cost of such services is
approximately $1,000 including out-of-pocket expenses. Pursuant to
Securities and Exchange Commission ("SEC") rules, the Company will
reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may be solicited personally or by telephone or
telegram by certain of the Company's directors, officers and regular
employees, without additional compensation.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's annual meeting of
stockholders to be held in 1998, including the nomination of persons to
serve on the Board of Directors, must be received by the Company's
Secretary not less than 90 days nor more than 180 days prior to the first
anniversary of the preceding year's annual meeting. In addition, in
accordance with Rule 14a-8(3)(i), proposals of stockholders which are
proposed to be included in the Company's proxy statement and form of proxy
relating to the 1998 annual meeting must be received by the Company's
Secretary on or before December 12, 1997. It is recommended that
stockholders submitting proposals direct them to the Secretary of the
Company via certified mail, return receipt requested, in order to ensure
timely delivery. No such proposals were received with respect to the
Annual Meeting scheduled for May 6, 1997.
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
A board of seven directors will be elected at the Annual Meeting.
Unless otherwise instructed, proxy holders will vote the proxies received
by them for the Company's seven nominees named below, all of whom are
currently directors of the Company. In the event that any nominee of the
Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
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designated by the present Board of Directors to fill the vacancy. It is
not expected that any nominee will be unable or will decline to serve as a
director. The term of office of each person elected as a director will
continue until the next annual meeting of stockholders and such time as his
or her successor is duly elected and qualified, or until his or her earlier
resignation, removal or death.
The names of the nominees, and certain information about them, are set
forth below:
NAME AGE POSITION(S) WITH THE COMPANY
- ----------------------- --- ----------------------------
Lawrence J. Schoenberg 64 Chairman of the Board
Tania Amochaev 47 Director
Gerald W. Ebker 58 Director
Thomas L. Hewitt 58 Director
Lee Johnson 69 Director
James J. Leto 53 Director
M. Dendy Young 49 President and Chief Executive
Officer, and a Director
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES.
There is no family relationship between any director or executive
officer of the Company and any other director or executive officer of the
Company.
Mr. Schoenberg has been a director since December 1991 and Chairman of
the Board since February 1995. He previously served as a director of the
Company from March 1990 to December 1990, and served as Chairman of the
Board from May 1990 to December 1990. Mr. Schoenberg served as Chief
Executive Officer and Chairman of the Board of Directors of AGS Computers,
Inc. from January 1967 to December 1990 and as Chairman of its Executive
Committee from January 1991 to December 1991. Mr. Schoenberg is also a
director of Sungard Data Services, Inc.; Merisel, Inc.; Penn-America Group,
Inc.; and Cellular Technical Services Company, Inc.
Ms. Amochaev has been a director since October 1994. Since February
1997, she has been the Chair of the Executive Committee of QuickResponse
Services, Inc., the leading provider of demand chain management services
for the retail industry, where she served as President from May 1992 until
February 1997, and additionally as Chief Executive Officer from May 1993
until February 1997. From May 1988 to March 1992, she was Chief Executive
Officer of Natural Language, Inc., a client server database tool software
company. Ms. Amochaev is also a director of QuickResponse Services, Inc.
and Walker Interactive Systems, Inc.
Mr. Ebker has been a director since April 1994 and served as Chief
Executive Officer from November 1 to December 18, 1995. From March 1963
until his retirement in December 1993, he held a number of executive
management positions with various subsidiaries of IBM Corporation, most
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recently as IBM Vice President and Chairman and Chief Executive Officer of
IBM Federal Systems Company, a government systems integrator.
Mr. Hewitt has been a director since March 1996. Since December 1984,
he has been the Chief Executive Officer and a director of Federal Sources,
Inc., a market research and consulting firm he founded. Mr. Hewitt is also
a director of FSI Products, Inc.
Mr. Johnson has been a director since March 1996. Since March 1984,
he has been the President of Federal Airways Corporation, a provider of
highly modified, special mission high altitude aircraft to civilian and
defense agencies. From February 1986 to August 1994, Mr. Johnson served as
Chairman of the Board of Falcon Microsystems, Inc., a government
microcomputer reseller founded by Mr. Young and acquired by the Company in
August 1994 ("Falcon").
Mr. Leto has been a director since March 1996. Since June 1996, he
has been the President and Chief Executive Officer and a director of
Network Imaging Corporation, a developer and marketer of software used to
manage client/server, object-oriented, and enterprise-wide information.
From January 1992 until February 1996, he was Chairman and Chief Executive
Officer of PRC, Inc., a provider of scientific and technology-based
systems, products and services to government and commercial clients around
the world. Mr. Leto is also a director of Federal Sources, Inc., where Mr.
Hewitt is Chief Executive Officer.
Mr. Young has been President and Chief Executive Officer and a
director since December 1995. From August 1994 until joining the Company,
he was Principal and Consultant of The Exeter Group, a management
consulting firm he founded. From January 1989 until August 1994, Mr. Young
served as President and Chief Executive Officer and a director of Falcon.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held a total of five meetings during 1996.
During 1996, each director of the Company attended at least 75% of the
meetings of the Board of Directors held during the period that he or she
was a director and at least 75% of all meetings held by all committees of
the Board on which he or she served. The Board of Directors has standing
audit, compensation and nominating committees, as discussed below.
The Audit Committee is currently comprised of Messrs. Ebker, Johnson
and Schoenberg, and met three times during 1996. The Audit Committee
selects the Company's independent auditors, reviews reports from
accountants and from the Company's financial officers, reviews transactions
relating to officers and directors and generally performs functions related
to the financial condition and policies of the Company.
The Compensation Committee is currently comprised of Ms. Amochaev, Mr.
Hewitt and Mr. Leto, and met once during 1996; however, committee business
was conducted through committee member discussions concerning compensation
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matters during meetings of the entire Board, and through forms of unanimous
written consent. See "Executive Compensation and Other Information --
Compensation Committee Interlocks and Insider Participation" and
"Compensation Committee Report on Executive Compensation." The
Compensation Committee's responsibilities include administering the
Company's stock option plans (including determining the persons to whom
options are granted and the terms of such options), the Company's Employee
Stock Purchase Plan ("ESPP"), and the Company's 401(k) Plan; advising the
Board on employee compensation matters, including executive bonus plans;
and performing such other duties regarding compensation matters as may be
delegated to it by the Board from time to time.
The Nominating Committee is currently comprised of Messrs. Schoenberg
and Young, and did not meet during 1996. Committee business was conducted
through discussions of Committee matters during meetings of the Board as a
whole. The Nominating Committee's responsibilities are to: (i) seek,
evaluate and recommend to the Board qualified individuals for election to
the Board of Directors by the stockholders, or by the Board to fill
vacancies thereon whenever vacancies occur; (ii) advise the Board on
matters pertaining to the size and composition of the Board of Directors;
and (iii) consider nominees for the Board whose names are timely submitted
by stockholders in writing to the Chairperson of the Nominating Committee
accompanied by such information regarding the nominee as would be required
under SEC rules if the stockholder were soliciting proxies with regard to
the election of such nominee.
COMPENSATION OF DIRECTORS
All non-employee directors of the Company receive automatic grants of
stock options under the Company's 1996 Stock Option Plan ("1996 Plan") of
15,000 shares upon initial election (30,000 in the case of the Chairman of
the Board), and upon each subsequent annual re-election, to the Board of
Directors. Each such automatic option grant vests over a 12-month period,
with the first vesting occurring at the end of the month in which the date
of grant occurred. Such options are granted at exercise prices equal to
the closing price of the Company's common stock on The Nasdaq Stock Market
(sm) on the date of grant. As of March 1, 1997, options to purchase an
aggregate of 105,000 shares had been granted to the Company's six non-
employee directors under the 1996 Plan, at an exercise price of $5.25 per
share. Non-employee directors of the Company are not eligible to
participate in the Company's 1994 Stock Option Plan ("1994 Plan") or ESPP.
Directors of the Company do not receive any other compensation for their
service on the Board of Directors or any committee thereof, but are
reimbursed for their reasonable out-of-pocket expenses incurred in
association with the performance of their duties.
In August 1995, Mr. Schoenberg was awarded compensation for serving as
Chairman of the Board, commencing February 17, 1995 (the date of his
election as Chairman of the Board), in the amount of $150,000 per year,
payable at the rate of $12,500 per month. On May 7, 1996, pursuant to
stockholder approval of the 1996 Plan and in accordance with resolutions
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previously adopted by the Board of Directors, all cash compensation was
terminated for non-employee directors (including the Chairman), except
reimbursement for reasonable out-of-pocket expenses. Prior to such
termination, Mr. Schoenberg received $62,500 during 1996 under the August
1995 compensation arrangement.
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<PAGE>
COMMON STOCK OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's common stock as of March 1, 1997
(except as noted otherwise) by: (i) each person who is known to own bene-
ficially more than 5% of the outstanding shares of the Company's common
stock; (ii) each of the Company's directors who owns common stock; (iii)
each of the executive officers named in the Summary Compensation Table on
page 9; and (iv) all current directors and officers of the Company as a
group.
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER (1) OWNED CLASS
- ---------------------------- ------------- -------
Hal Lashlee (2) 715,500 9.1%
P.O. Box 7680
491 Alpine View
Incline Village, NV 89450
M. Dendy Young (3) 699,730 8.9
FMR Corp. (4) 670,000 8.5
82 Devonshire Street
Boston, MA 02109-3614
Lawrence J. Schoenberg (5) 242,002 3.1
Peter E. Janke (6) 130,000 1.7
Gerald W. Ebker (7) 78,000 1.0
Tania Amochaev (8) 26,000 *
Lee Johnson (9) 20,000 *
James J. Leto (10) 18,000 *
Worth D. MacMurray (11) 16,625 *
Thomas L. Hewitt (12) 15,000 *
John S. Campbell (13) 9,000 *
H. Robert Boehm (14) 4,000 *
All current directors and 1,302,107 16.5%
officers as a group (16 persons) (15)
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* Less than one percent.
(1) Such persons have sole voting and investment power with respect to all
shares of common stock shown as being beneficially owned by them,
subject to community property laws, where applicable, and the
information contained in the footnotes to this table.
(2) To the Company's knowledge, includes 500,000 and 100,000 shares held
by UZONA II and UZONA III, respectively, Nevada corporations of which
Mr. Lashlee is the sole director and owns 100% of the voting stock.
To the Company's knowledge, all of the non-voting interest in UZONA
III is held by Lou Ann Barton, the mother of Mr. Lashlee's minor
children.
(3) Includes 640,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997, and 410 shares held in
the name of Mr. Young's minor children.
(4) Based on a Schedule 13G amendment dated February 14, 1997, wherein FMR
Corp. reported the beneficial ownership of such shares.
(5) Includes 35,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(6) Consists of 130,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(7) Includes 71,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(8) Includes 21,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(9) Includes 15,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(10) Consists of 18,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(11) Consists of 16,625 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(12) Consists of 15,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(13) Consists of 9,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(14) Consists of 4,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1997.
(15) Includes 1,018,375 shares for which options beneficially held by
officers or directors are exercisable or become exercisable within 60
days after March 1, 1997.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
reports concerning their beneficial ownership of the Company's equity
securities. Pursuant to Item 405 of Regulation S-K, the Company has an
affirmative duty to provide proxy statement disclosure of "insiders" who do
not timely file such reports. To the knowledge of the Company, based
solely on its review of the copies of such forms received by it from its
directors, officers and greater than 10% beneficial owners, Messrs. Hasper,
Lambert and Young each failed to file on a timely basis one report relating
to the Company's common stock beneficially owned by them.
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<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about
each of them, are as follows:
NAME AGE TITLE
- --------------------- --- ----------------------------------------
M. Dendy Young 49 President and Chief Executive Officer
H. Robert Boehm 46 Vice President, Human Resources
John S. Campbell 44 Vice President, Sales and
Customer Operations
Richard W. Hartt 45 Vice President and
Chief Information Officer
Charles A. Hasper 42 Vice President, Controller and
Acting Chief Financial Officer
William E. Johnson 56 Vice President, Operations
Arthur D. Lambert 51 Vice President, Field Sales
Joel A. Lipkin 43 Vice President, Business Development
Worth D. MacMurray 43 General Counsel and Corporate Secretary
William A. Shafley 46 Vice President, Marketing
Officers are appointed by and serve at the discretion of the Board of
Directors or, with respect to officers at the Vice President level, the
Chief Executive Officer.
For information concerning Mr. Young, see "Election of Directors --
Nominees."
Mr. Boehm joined the Company in February 1996 as Vice President, Human
Resources. From June 1994 until joining the Company, he was Principal of
Boehm & Associates, a human resources consulting firm. From January 1992
to June 1994, Mr. Boehm served as Chief Administrative Officer of RJO
Enterprises, a technology integration, professional services and
manufacturing firm. From 1986 to December 1991 he served as Director,
Human Resources for Unisys Federal Systems, a government systems
integrator.
Mr. Campbell joined the Company in December 1995 as Vice President,
Sales and Customer Operations. From January 1995 until joining the
Company, he served as Senior Manager, Government and Education Sales for
Compaq Computer Corporation, a computer manufacturer. From June 1989 to
December 1994, Mr. Campbell served as Senior Director, Inside Sales and
Customer Support for Falcon.
Mr. Hartt joined the Company in April 1996 as Vice President and Chief
Information Officer. From September 1995 until joining the Company, he
served as an independent consultant. From October 1990 to September 1995,
Mr. Hartt served as Vice President, information Technology for Start, Inc.,
a financial services marketing company.
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<PAGE>
Mr. Hasper joined the Company in December 1996 as Vice President and
Controller, and assumed the additional role of principal accounting officer
in February 1997 upon Mr. Janke's announcement that he was leaving the
Company in April 1997 (see Employment Agreements and Termination of
Employment and Change of Control Arrangements on page 12). From September
1996 until joining the Company, he served as Director, Business Management
for Allied Signal Aerospace, a provider of systems services and support to
the U.S. National Aeronautics and Space Administration. From April 1994 to
September 1996, Mr. Hasper served as Chief Financial Officer and Controller
for Decision Systems Technologies, Inc., a provider of information systems
support to the Government. From June 1987 to April 1994, he served as
Controller, Systems Services Organization for Unisys Corporation, a
manufacturer of computer hardware.
Mr. Johnson joined the Company as a result of the Company's August
1994 acquisition of Falcon. He served as Vice President, Product
Management from October 1994 to June 1995; as Vice President, Purchasing &
Distribution from June 1995 to January 1996; and as Vice President,
Operations since January 1996. From February 1988 until joining the
Company, he served in various inventory management positions, most recently
as Senior Director of Distribution, at Falcon.
Mr. Lambert joined the Company in December 1996 as Vice President,
Field Sales. From July 1995 until joining the Company, he served as Vice
President, Sales for Heathkit Educational Systems, a developer and
distributor of vocational education training tools. From April 1992 to
July 1995, Mr. Lambert served as Vice President for Intelligent Signage,
Inc., a distributor of braille and raised-letter signage compliant with the
Americans with Disabilities Act, of which firm Mr. Lambert is also co-
founder and co-owner.
Mr. Lipkin joined the Company in March 1997 as Vice President,
Business Development. From March 1987 to January 1997, he was employed by
Zenith Data Systems, an integrator and reseller of microcomputer products
and services to the Government, where he held various business management
positions, including serving as Vice President, Systems Integration from
August 1991 to January 1997.
Mr. MacMurray joined the Company in February 1988 and held various
legal positions until his appointment in February 1994 as General Counsel.
Mr. Shafley joined the Company in September 1996 as Vice President,
Marketing. From June 1995 until joining the Company, he served as Vice
President for Comark, a microcomputer reseller. From July 1990 to February
1995, Mr. Shafley served as General Manager for Central Point Software, a
software publisher.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the three years
ended December 31, 1996 concerning compensation paid or accrued by the
Company to or on behalf of: (i) the Chief Executive Officer ("CEO"); and
(ii) the four most highly compensated executive officers other than the CEO
whose compensation during 1996 exceeded $100,000 (collectively, the "Named
Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- -----------------------
OTHER RESTRICTED SECURITIES ALL
NAME AND ANNUAL STOCK UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
($)(1) ($)(2) ($)(3) ($) (#) ($)
- --------------------------- ---- --------- --------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
M. Dendy Young 1996 $ 1 $ 0 $ 0 $ 0 0 $ 400,000(4)
President and 1995 1 0 0 0 700,000(5) 400,000(4)
Chief Executive Officer 1994 0 0 0 0 100,000(6) 123,077(4)
Peter E. Janke 1996 185,000 0 0 0 0 0
Executive Vice President 1995 3,558(7) 0 0 0 195,000(8) 0
and Chief Financial Officer 1994 0 0 0 0 0 0
John S. Campbell 1996 144,000 50,000 0 0 0 0
Vice President, Sales and 1995 5,538(7) 0 0 0 30,000 0
Customer Operations 1994 0 0 0 0 0 0
Worth D. MacMurray 1996 125,346 31,044 0 0 10,000 0
General Counsel and 1995 113,831 0 0 0 0 0
Corporate Secretary 1994 110,600 0 0 0 10,500 0
H. Robert Boehm 1996 106,154(7) 28,096 0 0 20,000 0
Vice President, 1995 0 0 0 0 0 0
Human Resources 1994 0 0 0 0 0 0
</TABLE>
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(1) Includes amounts, if any, deferred by the Named Executive Officer
pursuant to the Company's 401(k) plan.
(2) Bonuses under any Executive Bonus Plan are based on corporate and
individual performance. See "Compensation Committee Report on
Executive Compensation -- Executive Bonus Plan." No such bonuses were
earned in 1995 or 1994 by officers as a group.
(3) Pursuant to SEC rules, perquisites not exceeding the lesser of $50,000
or 10% of a Named Executive's combined salary and bonus are not
required to be reported.
(4) Consists of payments under the August 16, 1994 Consulting and Non-
Competition Agreement entered into between Mr. Young and the Company
in connection with the August 1994 Falcon acquisition.
(5) Represents options granted to Mr. Young in connection with the
December 18, 1995 Employment Agreement between him and the Company
(the "Employment Agreement;" see "Employment Agreements and
Termination of Employment and Change of Control Agreements" on page
12).
(6) Represents options granted to Mr. Young in connection with the August
1994 Falcon acquisition.
(7) Represents compensation for that portion of the year in which the
officer commenced employment with the Company.
(8) Represents options granted to Mr. Janke in connection with the
December 18, 1995 Employment Agreement between him and the Company
(the "Employment Agreement;" see "Employment Agreements and
Termination of Employment and Change of Control Agreements" on page
12). Mr. Janke is leaving the Company effective April 19, 1997.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options made during the year ended December 31, 1996 to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
- ------------------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED(1) IN 1996(2) PRICE(3) DATE 5% 10%
(#) (%) ($/SH) ($) ($)
- ------------------ ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
M. Dendy Young 0 0 0 - - -
Peter E. Janke 0 0 0 - - -
John S. Campbell 0 0 0 - - -
Worth D. MacMurray 10,000 3.4% $6.13 7/1/03 $24,935 $58,109
H. Robert Boehm 20,000 3.8% $3.25 7/1/03 $26,462 $61,667
</TABLE>
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(1) Such options were granted under the Company's various stock option
plans, vest and become exercisable in 20 equal quarterly installments
over five years and were granted for a term of seven years subject to
earlier termination under certain circumstances relating to
termination of employment.
(2) During fiscal 1996, employees were granted under the Company's various
stock option plans or in accordance with employment offers, and non-
employee directors were granted automatically under the 1996 Plan,
options to purchase an aggregate of 529,500 shares of the Company's
common stock.
(3) Represents the closing price of the Company's common stock on The
Nasdaq Stock Market on the grant date.
(4) Potential values are net of exercise price and before taxes payable in
connection with the exercise of such options or the subsequent sale of
shares acquired upon the exercise of such options. These values
represent certain assumed rates of appreciation (i.e., 5% and 10%
compounded annually over the term of such options) based on SEC Rules.
The actual values, if any, will depend upon, among other factors, the
future performance of the Company's common stock, overall market
conditions and the Named Executive Officer's continued employment with
the Company. Therefore, the potential values reflected in this table
may not necessarily be achieved.
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AGGREGATED OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the year
ended, and unexercised options held as of, December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
12/31/96 12/31/96
SHARES ------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($)(1) (#) ($)(2)
- ------------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
M. Dendy Young 0 0 640,000 $1,125,000
160,000 $187,500
Peter E. Janke (3) 0 0 130,000 $243,750
65,000 $121,875
John S. Campbell 0 0 6,000 $12,750
24,000 $51,000
Worth D. MacMurray 0 0 15,475 0
9,525 0
H. Robert Boehm 0 0 2,000 $4,750
18,000 $42,750
</TABLE>
(1) Represents the excess of the market value of the shares acquired upon
exercise of such options over the exercise price of such options.
(2) Represents the excess of the market value of the shares subject to
such options over the exercise price of such options.
(3) Mr. Janke is leaving the Company effective April 19, 1997, at which
time all of his options will become fully vested and exercisable. See
"Employment Agreements and Termination of Employment and Change of
Control Arrangements" on page 12.
- 16 -
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of three non-employee
directors: Tania Amochaev, Thomas L. Hewitt and James J. Leto. No member
of the Compensation Committee is a current or former officer or employee of
the Company. Mr. Leto also serves on the board of directors of Federal
Sources, Inc., where Mr. Hewitt is Chief Executive Officer. Although Mr.
Young is not a member of the Compensation Committee, he is expected to
attend Committee meetings at the request of the Committee to provide
information to, and respond to questions from, the Committee, and he will
not exercise any of the rights or have any of the responsibilities of a
Committee member. He is not entitled to vote on any matters before the
Compensation Committee and does not participate in any Committee decisions
regarding compensation, including his own. See "Compensation Committee
Report on Executive Compensation."
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND
CHANGE OF CONTROL ARRANGEMENTS
Pursuant to an agreement dated December 18, 1995 (the "Employment
Agreement"), M. Dendy Young serves as the President and Chief Executive
Officer of the Company, as well as a member of its Board of Directors, for
a term ending January 1, 1998. Mr. Young is paid annual cash compensation
of $1.00 per year, payable annually in advance, and is entitled to such
other benefits and perquisites, including any executive bonus plan, as
provided to other senior officers pursuant to policies established from
time to time by the Board. In addition, as a material inducement to Mr.
Young to enter into the Employment Agreement, the Company granted to him a
non-statutory stock option to purchase an aggregate of 700,000 shares of
the Company's common stock at $3.75 per share (which price represents the
closing price on the date of grant of the Company's common stock on The
Nasdaq Stock Market), vesting as to 350,000, 250,000 and 100,000 shares on
December 18, 1995, 1996 and 1997, respectively.
All of such options automatically become fully vested and exercisable
if Mr. Young's employment is terminated by the Company without cause, or
upon any change in control of the Company. The unvested portion of such
options may be canceled if Mr. Young's employment is terminated by him
other than pursuant to a change in control of the Company, or by the
Company for cause or in the case of Mr. Young's death or disability.
Pursuant to an agreement dated December 18, 1995, Peter E. Janke
serves as the Executive Vice President of the Company (on January 5, 1996,
Mr. Janke was elected to the additional position of Chief Financial
Officer) for a term ending on January 1, 1999. Mr. Janke is paid annual
cash compensation of $185,000 per year and is entitled to such other
benefits and perquisites, including any executive bonus plan, as provided
to other senior officers pursuant to policies established from time to time
by the Board. In addition, the Company granted to Mr. Janke a non-
statutory stock option to purchase an aggregate of 195,000 shares of the
Company's common stock at $3.75 per share (which price represents the
- 17 -
<PAGE>
closing price on the date of grant of the Company's common stock on The
Nasdaq Stock Market), vesting as to 65,000 shares on each of December 18,
1995, 1996 and 1997, respectively.
Mr. Janke is leaving the Company effective April 19, 1997 and,
pursuant to the employment agreement between Mr. Janke and the Company, he
receives a lump sum severance payment of $185,000 and all of his then
unvested stock options automatically become fully vested and exercisable.
Under the Company's severance plan as amended to date (the "Severance
Plan"), officers of the Company at the Vice President level and above (not
including Messrs. Young and Janke) who have completed nine full consecutive
calendar months of employment ("Eligible Officers") are entitled to receive
certain severance benefits for one year following termination of
employment, if such termination is non-temporary, involuntary and without
cause. An Eligible Officer is entitled to such severance benefits
regardless of length of employment with the Company if such termination is
a result of the Company's divestment of an operating unit and the Eligible
Officer is not offered employment with the acquiring company on
substantially the same terms as his or her employment with the Company. In
addition, if there is a "change of control" of the Company, an Eligible
Officer will receive benefits under the Severance Plan regardless of length
of employment with the Company if such officer terminates his or her
employment with the Company either for any reason within one year following
the change in control or for "good reason" (which includes the assignment
to the Eligible Officer of significant duties inconsistent with his or her
prior position or a reduction in his or her compensation or benefits)
within two years following such change in control. A "change in control"
of the Company is defined in the Severance Plan to mean: (i) an
acquisition of 50% or more of the Company's outstanding voting securities;
(ii) during any 12-month period, individuals who were directors at the
beginning of such period cease to constitute at least a majority of the
Board of Directors, unless the election of each new director is approved by
a majority of directors then in office who were directors at the beginning
of such period; (iii) certain mergers of the Company or a sale of all or
substantially all of its assets; or (iv) a liquidation of the Company.
Each Eligible Officer is entitled to one year of severance pay based on his
or her highest annual compensation (base salary plus car allowance) prior
to termination. In addition, an Eligible Officer may elect to accept
accelerated vesting of his or her then outstanding but unvested stock
options partially or wholly in lieu of accrued severance pay. In order to
receive severance benefits under the Severance Plan, each Eligible Officer
is required to execute an employment separation agreement with the Company
which provides, among other things, for confidentiality, a general release
in favor of the Company, and a covenant not to compete with the Company for
a period of 12 months after any termination of Company employment.
On March 10, 1997, the Company's Board of Directors voted unanimously
to terminate the Severance Plan. However, such termination will not be
effective with respect to current Eligible Officers, including the Named
Executive Officers (whose benefits under the Severance Plan, in accordance
- 18 -
<PAGE>
with the terms thereof, may not be adversely affected without their consent
and, in any case, not affecting Messrs. Young and Janke, as noted above),
but only to officers who have not qualified as Eligible Officers prior to
March 10, 1997.
Based on current compensation levels, the amount that would be payable
under the Severance Plan to Messrs. Campbell, MacMurray and Boehm if their
employment were terminated in March 1996, if they were eligible for and
elected severance benefits solely under the Severance Plan and if they did
not elect accelerated vesting, would be $150,000, $136,000 and $126,000,
respectively, payable pro rata over 26 bi-weekly periods. Messrs. Young
and Janke are not eligible for benefits under the Severance Plan.
Pursuant to the Employment Agreement, if Mr. Young's employment were
terminated prior to August 16, 1999, other than for cause or pursuant to a
change in control of the Company, he would receive a lump sum severance
payment representing the aggregate of the remaining payments under the
Consulting and Non-Competition Agreement entered into between Mr. Young and
the Company in connection with the August 1994 Falcon acquisition), and
all unvested stock options would automatically become fully vested and
exercisable. As of March 31, 1997, remaining payments under the Consulting
and Non-Competition Agreement equaled $484,615.
- 19 -
<PAGE>
THE FOLLOWING REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION
COMMITTEE SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING
UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF
1934, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS
INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER
SUCH ACTS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
POLICY AND OBJECTIVES
The Company's compensation program for executive officers is designed
to attract, motivate and retain qualified executive officers and is
generally administered by the Compensation Committee. The Company's
program is based on compensation policies and plans which seek to enhance
the profitability of the Company, and thus stockholder value, by aligning
closely the financial interests of GTSI's executive officers with those of
its stockholders. Accordingly, the Committee, which is composed entirely
of non-employee directors, structures such policies and plans to pay
competitive levels of compensation for competitive levels of performance,
and to provide for superior compensation opportunities for superior levels
of performance.
The Company actively collects and analyzes compensation information
from ten competitive computer resellers (the "Competitive Group"; all of
which are publicly traded companies, and five of which are listed in the
Company's Peer Index used in the Performance Graph appearing elsewhere in
this Proxy Statement). This information, and other market and competitive
information collected by the Company's Human Resources department, is used
as the basis for comparing the compensation of the Company's executive
officers to amounts paid to executive officers with comparable
qualifications, experience and responsibilities at other companies engaged
in the same or similar business as GTSI.
COMPONENTS
GTSI's executive compensation program includes three components, each
of which is intended to serve the overall compensation approach described
above: base salary, an executive bonus and stock options.
BASE SALARY
The Committee believes that the Company pays base salaries to its
executive officers that are set conservatively, and below the median,
compared with executive officers employed at competing companies. The
Committee, among other things, reviews and approves the annual salaries of
the Company's President and CEO, and Executive Vice President(s). The CEO
and the Chairperson of the Committee have been delegated by the Board of
- 20 -
<PAGE>
Directors the collective authority to set the annual base salaries of the
remaining, less senior executive officer positions. Additionally, all
executive officers participate in the Company's broad-based employee
benefit plans.
EXECUTIVE BONUS PLAN
The Committee believes that a significant portion of each executive
officer's total compensation should be "at risk" in the form of incentive
compensation. Accordingly, under an annual Executive Bonus Plan developed
and implemented under the Committee's supervision, the Company pays cash
bonuses to all its eligible executive officers according to a formula that
varies, according to position, on two factors: (1) certain Company
financial goals (net income and gross margin); and (2) certain individual
goals. Individual bonuses are calculated as a percentage of base salary
and range from 25% to 40% in the case of officers generally, other than the
CEO. In 1996, bonuses were earned by executive officers based on
application of the Executive Bonus Plan's formula. The CEO additionally
employs the occasional use of "spot" bonuses in recognition of
extraordinary performance. In 1996, Mr. MacMurray was awarded two such
spot bonus of $5,000 each.
STOCK OPTIONS
Options to purchase the Company's common stock are a key component of
the Company's executive compensation program. The Committee views the
grant of stock options as a valuable incentive that serves to align the
interests of executive officers with the Company's goal of enhancing
stockholder value. Options will only have value to an executive officer if
the stock price increases over the exercise price. The Committee reviews
and acts upon recommendations by the Company's CEO with regard to the grant
of stock options to executive officers (other than to himself). In
determining the size and other terms of an option grant to an executive
officer, the Committee considers a number of factors, including such
officer's position, responsibilities and previous stock option grants (if
any). Options typically vest in equal installments over three to five
years and, therefore, encourage an officer to remain in the employ of the
Company.
During 1996, option grants were made to seven executive officers in
connection with each person's acceptance of an officer-level position with
the Company, and to two current executive officers as performance
incentives.
CHIEF EXECUTIVE OFFICER COMPENSATION
In evaluating the CEO's compensation, the Committee generally
considers compensation levels of chief executive officers within the
Competitive Group.
- 21 -
<PAGE>
Mr. Young's compensation of $1 per year in salary and 700,000 options
was unanimously approved by the Board, prior to Mr. Young becoming a Board
member. This compensation plan is intended to provide significant
incentives to Mr. Young to increase the Company's value, as reflected in
its stock price, to the benefit of all Company stockholders. Mr. Young
became President and CEO on December 18, 1995.
OTHER MATTERS
Mr. Young from time to time consulted with, and made recommendations
to, the Committee with respect to the compensation of the Company's
executive officers other than himself. Other than as delegated by the
Board of Directors (as set forth above), Mr. Young did not participate in
decisions relating to executive officer compensation, including his own,
and did not participate on matters relating to the administration of the
Company's stock option plans.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), a publicly-held corporation such as the Company will not be
allowed a federal income tax deduction for compensation paid to the
executive officers named in the Summary Compensation Table to the extent
that compensation (including stock-based compensation) paid to a particular
officer exceeds $1 million in any fiscal year unless such compensation was
based on performance goals or paid under a written contract that was in
effect on February 17, 1993. Final regulations to implement the new
limitation were published in December 1995. The 1996 Stock Option Plan is
designed so that amounts realized on the exercise of options granted
thereunder may qualify as "performance-based compensation" that is not
subject to the deduction limitation of Section 162(m). The Committee
intends to evaluate other elements of compensation in light of Section
162(m), but may enter into arrangements that do not satisfy exceptions to
Section 162(m), as the Committee determines to be appropriate. In
particular, based upon the Company's current compensation plans and
policies and the final regulations under Section 162(m), it is possible
that the compensation to be paid to Mr. Young (primarily due to the stock
option component of his compensation arrangement) for 1997 may exceed the
$1 million limitation per officer.
COMPENSATION COMMITTEE
Tania Amochaev
Thomas L. Hewitt
James J. Leto (Chairperson)
- 22 -
<PAGE>
THE FOLLOWING PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the
cumulative total return on the Company's common stock with the cumulative
total return of the Nasdaq Composite Index and a Peer Index of companies
with the same four-digit standard industrial classification (SIC) code as
the Company (SIC Code 5045 -- Computers and Peripheral Equipment and
Software)(1) for the period commencing December 31, 1991, and ending
December 31, 1996.(2) The stock price performance shown on the graph below
is not necessarily indicative of future price performance.
December 31,
--------------------------------------------------------
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------
Nasdaq Index 100.00 100.98 121.13 127.17 164.96 204.98
Peer Index 100.00 112.91 181.60 117.46 152.71 205.87
GTSI 100.00 51.89 92.45 81.13 33.02 42.45
(1) The 50 companies listed in SIC Code 5045 are: Actrade Intl. Ltd;
Alphanet Solutions, Inc.; Applied Cellular Tech.; Atec Group, Inc.;
Aurora Electronics, Inc.; BRC Holdings, Inc.; Bristol Tech. Sys.;
Capital Associates, Inc.; CDW Computer Centers, Inc.; Cheyenne
Software, Inc.; CHS Electronics, Inc.; CompuCom Systems, Inc.;
Computer Marketplace, Inc.; Computer Integration Corp.; Continental
Info. Sys.; Dataflex Corporation; Datatrend Services, Inc.; Egghead,
Inc.; En Pointe Technologies; Global Intellicom, Inc; Government
Technology Services, Inc.; Hirel Holdings, Inc.; Infosafe Sys. Inc.;
Ingram Micro, Inc.; Intelligent Electronics, Inc.; Liuski
International, Inc.; Mechanical Dynamics, Inc.; Merisel, Inc.; Miami
Computer Supply Corp.; MicroAge, Inc.; Micros-to-Mainframes, Inc.;
North Star Universal, Inc.; OCG Technology, Inc.; Omni U.S.A., Inc.;
Orcad, Inc.; PC Services Source, Inc.; PCC Group, Inc.; Peak
Technologies Group; Peerless Systems Corp.; Programmers Paradise,
Inc.; Safeguard Scientific, Inc.; Sand Technology Systems
International; Scansource, Inc.; Software Spectrum, Inc.; Southern
Electronics Corporation; Tech Data Corporation; Transnet Corporation;
V-One Corp.; Venturian Corp. and Wiz Technology. Since last year's
proxy statement, Access Healthnet, Inc.; Blue Chip Computerware;
Business Records Corporation; CWE, Inc.; GBC Technologies, Inc.;
Glasgal Communications; Inmac Corporation; Insight Enterprises, Inc.;
IRG Technologies, Inc.; LDI Corporation; Micom Communications
Corporation; Polyphase Corporation; Random Access, Inc.; Robec, Inc.;
and Solar-Mates, Inc. were deleted from SIC Code 5045 and Alphanet
- 23 -
<PAGE>
Solutions, Inc.; Applied Cellular Tech.; Atec Group, Inc.; Aurora
Electronics, Inc.; BRC Holdings, Inc.; Bristol Tech. Sys.; Capital
Associates, Inc.; Computer Integration Corp.; Continental Info. Sys.;
En Pointe Technologies; Global Intellicom, Inc; Hirel Holdings, Inc.;
Infosafe Sys. Inc.; Ingram Micro, Inc.; Mechanical Dynamics, Inc.;
Miami Computer Supply Corp.; OCG Technology, Inc.; Orcad, Inc.; PC
Services Source, Inc.; Peak Technologies Group; Peerless Systems
Corp.; Programmers Paradise, Inc.; V-One Corp.; and Venturian Corp.
were added to SIC Code 5045.
(2) Assumes: (i) $100 invested on September 20, 1991 in GTSI common stock
(based on its initial public offering price of $12 per share) and in
the stocks of the companies comprising the Nasdaq Composite Index and
the Peer Index; and (ii) immediate reinvestment of all dividends.
PROPOSAL 2 -
EXTENSION OF RIGHTS PLAN
At the Annual Meeting, the stockholders of the Company will be
requested to consider and vote on a three-year extension (i.e., until
January 3, 2000) of the Company's Stockholder Rights Plan. The affirmative
vote of a majority of the shares of the Company's common stock present in
person or by proxy and entitled to vote at the Annual Meeting will be
required for passage of such extension proposal. In the event of a
negative vote on this proposal, the Rights Plan will terminate effective
May 6, 1997.
SUMMARY OF THE RIGHTS
On December 19, 1994, the Board of Directors of Government Technology
Services, Inc. (the "Company") authorized and declared a dividend of one
preferred stock purchase right (a "Right") for each share of common stock,
par value $0.005 per share, of the Company (the "Common Shares"). The
dividend is payable on January 3, 1995 (the "Record Date") to the holders
of record of Common Shares as of the close of business on such date.
The following is a brief description of the Rights Plan. It is
intended to provide a general description only and is subject to the
detailed terms and conditions of a Rights Agreement (the "Rights
Agreement") dated as of January 3, 1995 by and between the Company and
First Union National Bank of North Carolina as Rights Agent (the "Rights
Agent"). Capitalized terms not defined herein shall have the meaning set
forth in the Rights Agreement.
1. COMMON SHARE CERTIFICATES REPRESENTING RIGHTS
Until the Distribution Date (as defined in Section 2 below), (a)
the Rights shall not be exercisable, (b) the Rights shall be attached to
and trade only together with the Common Shares and (c) the stock
certificates representing Common Shares shall also represent the Rights
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<PAGE>
attached to such Common Shares. Common Share certificates issued after the
Record Date and prior to the Distribution Date shall contain a notation
incorporating the Rights Agreement by reference.
2. DISTRIBUTION DATE
The "Distribution Date" is the earliest of (a) the tenth business
day (or such later day as may be designated by the Board of Directors)
following the date of the commencement of, or the announcement of an
intention to make, a tender offer or exchange offer, the consummation of
which would cause any person to become the beneficial owner of 25% or more
of the then outstanding Common Shares (such person, upon acquiring
beneficial ownership of 25% or more of the then outstanding Common Shares,
is a "25% Stockholder" and the date of the first public announcement of
such fact is the "25% Ownership Date"), (b) the tenth business day
following the date of the first public announcement that any person (other
than the Company or certain related entities, and with certain additional
exceptions) has become a 25% Stockholder or (c) the first date, on or after
the 25% Ownership Date, upon which the Company is acquired in a merger or
other business combination in which the Company is not the surviving
corporation or in which the outstanding Common Shares are changed into or
exchanged for stock or assets of another person, or upon which 50% or more
of the Company's consolidated assets or earning power are sold (other than
in transactions in the ordinary course of business). In calculating the
percentage of outstanding Common Shares that are beneficially owned by any
person, such person shall be deemed to beneficially own any Common Shares
issuable upon the exercise, exchange or conversion of any options, warrants
or other securities beneficially owned by such person; provided, however,
that such Common Shares issuable upon such exercise shall not be deemed
outstanding for the purpose of calculating the percentage of Common Shares
that are beneficfter December 19, 1994, any person becomes the beneficial
owner of at least 25% of the then outstanding Common Shares as a result of
any decrease in the number of outstanding Common Shares resulting from any
stock repurchase plan or self tender offer of the Company, then such person
shall not be deemed a "25% Stockholder" until such person thereafter
acquires beneficial ownership of, in the aggregate, an additional 50,000
Common Shares.
Upon the close of business on the Distribution Date, the Rights
shall separate from the Common Shares, Right certificates shall be issued
and the Rights shall become exercisable to purchase Preferred Shares as
described in Section 5 below.
3. ISSUANCE OF RIGHT CERTIFICATES
As soon as practicable following the Distribution Date, separate
certificates representing only Rights shall be mailed to the holders of
record of Common Shares as of the close of business on the Distribution
Date, and such separate Right certificates alone shall represent such
Rights from and after the Distribution Date.
- 25 -
<PAGE>
4. EXPIRATION OF RIGHTS
The Rights shall expire on May 6, 1997 (May 6, 2000 if this
extension proposal is approved) unless earlier redeemed or exchanged,
provided that if the Distribution Date has previously occurred and the
Rights have separated from the Common Shares, the Rights will expire on
January 3, 2005 unless earlier redeemed or exchanged.
5. EXERCISE OF RIGHTS
Unless the Rights have expired or been redeemed or exchanged,
they may be exercised, at the option of the holders, pursuant to paragraphs
(a), (b) or (c) below. No Right may be exercised more than once or
pursuant to more than one of such paragraphs. From and after the first
event of the type described in paragraphs (b) or (c) below, each Right that
is beneficially owned by a 25% Stockholder or that was attached to a Common
Share that is subject to an option beneficially owned by a 25% Stockholder
shall be void.
(a) RIGHT TO PURCHASE PREFERRED SHARES. From and after the
close of business on the Distribution Date, each Right (other than a Right
that has become void) shall be exercisable to purchase one one-thousandth
of a share of Series B Junior Participating Cumulative Preferred Stock, par
value $0.25 per share, of the Company (the "Preferred Shares"), at an
exercise price of $40 (forty dollars) (the "Exercise Price"). Prior to the
Distribution Date, the Company may substitute for all or any portion of the
Preferred Shares that would otherwise be issuable upon exercise of the
Rights, cash, assets or other securities having the same aggregate value as
such Preferred Shares. The Preferred Shares are non-redeemable and, unless
otherwise provided in connection with the creation of a subsequent series
of preferred stock, are subordinate to any other series of the Company's
preferred stock, whether issued before or after the issuance of the
Preferred Shares. The Preferred Shares may not be issued except upon
exercise of Rights. The holder of a Preferred Share is entitled to receive
when, as and if declared, the greater of (i) cash and non-cash dividends in
an amount equal to 1,000 times the dividends declared on each Common Share
or (ii) a preferential annual dividend of $1.00 per Preferred Share ($0.001
per one-thousandth of a Preferred Share). In the event of liquidation, the
holders of Preferred Shares shall be entitled to receive a liquidation
payment in an amount equal to the greater of (1) $1.00 per Preferred Share
($0.001 per one-thousandth of a Preferred Share), plus all accrued and
unpaid dividends and distributions on the Preferred Shares, or (2) an
amount equal to 1,000 times the aggregate amount to be distributed per
Common Share. Each Preferred Share has voting rights equal to 1,000 times
the voting rights of each Common Share, and the Preferred Shares vote as a
class with the Common Shares. In the event of any merger, consolidation or
other transaction in which Common Shares are exchanged, the holder of a
Preferred Share shall be entitled to receive 1,000 times the amount
received per Common Share. The rights of the Preferred Shares as to
dividends, voting and liquidation preferences are protected by anti-
dilution provisions. It is anticipated that the value of one one-
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<PAGE>
thousandth of a Preferred Share should approximate the value of one Common
Share.
(b) RIGHT TO PURCHASE COMMON SHARES OF THE COMPANY. From and
after the close of business on the tenth business day following the 25%
Ownership Date, each Right (other than a Right that has become void) shall
be exercisable to purchase, at the Exercise Price (initially $40), Common
Shares with a market value equal to two times the Exercise Price. If the
Company does not have sufficient Common Shares available for all Rights to
be exercised, the Company shall substitute for all or any portion of the
Common Shares that would otherwise be issuable upon the exercise of the
Rights, cash, assets or other securities having the same aggregate value as
such Common Shares.
(c) RIGHT TO PURCHASE COMMON STOCK OF A SUCCESSOR CORPORATION.
If, on or after the 25% Ownership Date, (i) the Company is acquired in a
merger or other business combination in which the Company is not the
surviving corporation, (ii) the Company is the surviving corporation in a
merger or other business combination in which all or part of the
outstanding Common Shares are changed into or exchanged for stock or assets
of another person or (iii) 50% or more of the Company's consolidated assets
or earning power are sold (other than in transactions in the ordinary
course of business), then each Right (other than a Right that has become
void) shall thereafter be exercisable to purchase, at the Exercise Price
(initially $40), shares of common stock of the surviving corporation or
purchaser, respectively, with an aggregate market value equal to two times
the Exercise Price.
The right to purchase the Common Shares does not apply solely as a result
of a person becoming a 25% Stockholder as a result of a tender or exchange
offer for all outstanding Voting Shares if, prior to the purchase of shares
under such offer, such transaction is approved by a majority of the
directors who are not officeiliates, Associates, nominees or
representatives of such person (a "Permitted Offer"). The right to
purchase the common stock of the surviving corporation or purchaser does
not apply to a merger or other business combination between the Company and
a person that acquires Voting Shares as a result of a Permitted Offer,
provided that the consideration paid in the merger is paid in the same form
as in, and is equal to or greater in value than that paid in, the Permitted
Offer.
In the event that the holder of a Right would otherwise be entitled to
exercise the Right under the circumstances described in either Section 5(b)
or Section 5(c), the provisions of Section 5(c), including the non-
applicability of that section to Permitted Offers, shall apply.
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<PAGE>
6. ADJUSTMENTS TO PREVENT DILUTION
The Exercise Price, the number of outstanding Rights and the
number of Preferred Shares or Common Shares issuable upon exercise of the
Rights are subject to adjustment from time to time as set forth in the
Rights Agreement in order to prevent dilution.
7. CASH PAID INSTEAD OF ISSUING FRACTIONAL SECURITIES
With certain exceptions, no adjustment in the Exercise Price
shall be required until cumulative adjustments require an adjustment of at
least 1%. No fractional securities shall be issued upon exercise of a
Right (other than fractions of Preferred Shares that are integral multiples
of one one-thousandth of a Preferred Share and that may, at the election of
the Company, be evidenced by depositary receipts) and in lieu thereof, an
adjustment in cash shall be made based on the market price of such
securities on the last trading date prior to the date of exercise.
8. REDEMPTION
At any time prior to the earlier of (a) the first event of the
type giving rise to the exercise rights described under 5(b) above, (b) the
first event of the type giving rise to exercise rights described under 5(c)
above or (c) the Expiration Date, the Board of Directors may, at its
option, direct the Company to redeem the Rights in whole, but not in part,
at a price of $.01 per Right (the "Redemption Price"), and the Company
shall so redeem the Rights. In the event that a 25% Ownership Date shall
have occurred or during the 180 days following the date upon which a
majority of the Board of Directors is replaced in a proxy or consent
solicitation participated in by a Person who has stated his intent (or is
determined by a majority of the Board of Directors upon the commencement of
the solicitation to intend) to take such action that would result in such
Person becoming a 25% Stockholder or would cause the occurrence of any of
the events described in (a) or (b) above, any action by the Board of
Directors to redeem the Rights must be approved by a majority of (and
regardless by at least two) Continuing Directors (as that term is defined
in the Rights Agreement). Immediately upon any such action by the Board of
Directors (the date of such action is the "Redemption Date"), the right to
exercise Rights shall terminate and the only right of the holders of Rights
thereafter shall be to receive the Redemption Price.
9. EXCHANGE
At any time after the 25% Ownership Date and prior to the first
date thereafter upon which a 25% Stockholder shall be the beneficial owner
of 50% or more of the outstanding Common Shares, the Board of Directors
may, at its option, direct the Company to exchange all, but not less than
all, of the then outstanding Rights for Common Shares at an exchange ratio
per Right equal to that number of Common Shares which, as of the date of
the Board of Directors' action, has a current market price equal to the
difference between the Exercise Price and the current market price of the
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<PAGE>
shares that would otherwise be issuable upon exercise of a Right on such
date (the "Exchange Ratio"), and the Company shall so exchange the Rights.
Immediately upon such action by the Board of Directors, the right to
exercise Rights shall terminate and the only right of the holders of Rights
thereafter shall be to receive a number of Common Shares equal to the
Exchange Ratio.
10. NO STOCKHOLDER RIGHTS PRIOR TO EXERCISE
Until a Right is exercised, the holder thereof, as such, shall
have no rights as a stockholder of the Company (other than rights resulting
from such holder's ownership of Common Shares), including, without
limitation, the right to vote or to receive dividends.
11. AMENDMENT OF RIGHTS AGREEMENT
The Board of Directors may, from time to time, without the
approval of any holder of Rights, direct the Company and the Rights Agent
to supplement or amend any provision of the Rights Agreement in any manner,
whether or not such supplement or amendment is adverse to any holder of
Rights, and the Company and the Rights Agent shall so supplement or amend
such provision; provided, however, that from and after the earliest of (a)
the date of the first event of the type giving rise to exercise rights
described under 5(b) above, (b) the date of the first event of the type
giving rise to exercise rights described under 5(c) above, (c) the
Redemption Date or (d) the Expiration Date, the Rights Agreement shall not
be supplemented or amended in any manner that would materially and
adversely affect any holder of outstanding Rights other than a 25%
Stockholder; provided, further that in the event that a 25% Ownership Date
shall have occurred, or during the 180 days following the date upon which a
majority of the Board of Directors is replaced in a proxy or consent
solicitation participated in by a Person who has stated his intent (or is
determined by a majority of the Board of Directors upon the commencement of
the solicitation to intend) to take such action that would result in such
Person becoming a 25% Stockholder or would cause the occurrence of any of
the events described in (a) or (b) above, any such amendment or supplement
must be approved by a majority of (and regardless by at least two)
Continuing Directors.
APPROVAL OF THE RIGHTS PLAN
If the extension of the Rights n stock present in person or
represented by proxy and entitled to vote at the Annual Meeting, the Rights
Plan will terminate effective May 6, 1997. However, the result of the vote
of the stockholders on this proposal will not limit or otherwise affect the
power of the Board of Directors to adopt a rights plan or take similar
action in the future if the Board of Directors, in the exercise of its
fiduciary duties, determines such action to be in the best interests of the
Company.
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<PAGE>
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
accountants, to audit the Company's financial statements for the year
ending December 31, 1997. A representative of Arthur Andersen is expected
to be present at the Annual Meeting, will have an opportunity to make a
statement if he or she so desires, and is expected to be available to
respond to appropriate questions.
During the first calendar quarter of 1996, proposals were requested
from qualified firms of certified public accountants to perform audit
services beginning in 1996 for the Registrant. The Registrant's former
independent accountant - Coopers & Lybrand LLP - submitted a letter in
response to the Registrant's request for proposals, stating an interest in
continuing to serve as the Registrant's independent accountant, but
declining to participate in the Registrant's proposal process, as defined
in the request for proposals. On June 6, 1996, the Audit Committee of the
Board of Directors met to interview the finalist firms selected by
management as a result of the above-mentioned process. On June 17, 1996,
such Audit Committee approved the engagement of Arthur Andersen LLP as the
independent accountants for the Registrant.
During the two fiscal years ended December 31, 1995 and 1994, (i)
there were no disagreements with Coopers & Lybrand LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to its
satisfaction would have caused it to make reference in connection with its
report to the subject matter of the disagreement; and (ii) Coopers &
Lybrand LLP has not advised the Registrant of any reportable events as
defined in paragraph (A) through (D) of Regulation S-K Item 304 (a)(1)(v).
The accountants' report of Coopers & Lybrand LLP on the consolidated
financial statements of Government Technology Services, Inc. and Subsidiary
as of and for the years ended December 31, 1995 and 1994 did not contain
any adverse opinion or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope, or accounting principles.
A copy of the Company's 1996 Annual report to Stockholders is being
delivered to each stockholder of record as of the Record Date. THE
COMPANY'S ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SEC, IS AVAILABLE
FREE OF CHARGE TO ALL STOCKHOLDERS OF RECORDS AS OF THE RECORD DATE BY
WRITING TO THE COMPANY AT 4100 LAFAYETTE CENTER DRIVE, CHANTILLY, VIRGINIA
20151-1200, ATTENTION: INVESTOR RELATIONS.
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OTHER MATTERS
The Company currently knows of no matters to be submitted at the
Annual Meeting other than those described herein. If any other matters
properly come before the Annual Meeting, the proxies will vote the shares
they represent as they deem advisable.
By Order of the Board of Directors
Worth D. MacMurray
Corporate Secretary
Chantilly, Virginia
April 14, 1997
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<TABLE>
<CAPTION>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GOVERNMENT TECHNOLOGY SERVICES, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
<S> <C>
The undersigned stockholder of Government Technology Services, Inc., a Delaware corporation (the "Company"), hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated April 14, 1997, and Annual
Report on Form 10-K for the year ended December 31, 1996, and hereby appoints M. Dendy Young and Worth D. MacMurray, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Stockholders of the Company to be held at 9:00 a.m. on May 6, 1997, at the
Company's new distribution center located at 3900A Stonecroft Boulevard in Chantilly, Virginia, and at any adjournment(s) thereof,
and to vote all shares of Common Stock to which the undersigned would be entitled, if then and there personally present, on the
matters set forth below:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS: [ ] FOR ALL nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below). to vote for ALL nominees listed below.
(Instruction: To Withhold the authority to vote for any individual nominee, mark the box next to the nominee's name below.)
Name of Nominee:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
[ ] Tania Amochaev [ ] Gerald W. Ebker [ ] Thomas L. Hewitt
[ ] Lee Johnson [ ] James J. Leto [ ] Lawrence J. Schoenberg [ ] M. Dendy Young
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
2. EXTENSION OF RIGHTS PLAN: [ ] FOR [ ] AGAINST [ ] ABSTAIN
To vote on a three-year extension of the Company's Stockholder Rights Plan, as described in the Proxy Statement.
3. OTHER BUSINESS:
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting
or any adjournment(s) thereof.
Any one of such attorneys-in-fact or substitutes as shall be present and shall act at said meeting or any adjournment(s)
thereof shall have and may exercise all powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR PROPOSALS 1 AND 2, AND AS
SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
</TABLE>
<TABLE>
<S> <C> <C>
Dated: , 1997
------------------------------------
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(Signature)
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(Signature)
(This Proxy should be marked, dated and signed by
the stockholder(s) exactly as his or her name
appears hereon and returned promptly in the
enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held
by joint tenants or as community property, both
should sign.)
DO NOT FOLD, STAPLE OR MUTILATE
</TABLE>
