<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 12, 1998
--------------------
GOVERNMENT TECHNOLOGY SERVICES, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-19394 54-1248422
- ------------------------ ------------ -----------------
(State or other (Commission (IRS Employer
jurisdiction of File Identification
incorporation) Number) Number)
4100 Lafayette Center Drive, Chantilly, Virginia 20151-1200
- ---------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 703-502-2000
-----------------
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Item 1. Changes in Control of Registrant
Not Applicable.
Item 2. Acquisition or Disposition of Assets
On February 12, 1998, Government Technology Services, Inc. ("GTSI"),
pursuant to an asset purchase agreement, acquired from BTG, Inc. and two of
its subsidiaries (collectively "BTG") substantially all of the assets of
the BTG division that is a reseller of computer hardware, software and
integrated systems to the federal government (the "Division"). The
acquired assets include certain inventory, furniture, fixtures, supplies,
equipment, deposits, rights under acquired contracts and intangible
personal property. In addition, GTSI assumed certain liabilities of BTG to
be performed under specified contracts of BTG relating to the Division and
certain liabilities arising from the ownership or operation of the acquired
assets after the closing. GTSI paid at closing $7,325,265 in cash and
issued 15,375 shares, having a liquidation preference of $15,375,000, of a
new series of preferred stock designated Series C 8% Cumulative Redeemable
Convertible Preferred Stock ("Series C Preferred Stock"). GTSI will pay an
additional $500,000 in cash upon the release of liens on certain items of
equipment which are part of the acquired assets. A portion of the
consideration, $800,000 in cash and 1,538 shares of Series C Preferred
Stock, is being held under an escrow agreement to secure BTG's
indemnification obligations under the asset purchase agreement. Under the
asset purchase agreement, BTG is obligated to repay to GTSI up to $4.5
million to the extent that there is a shortfall in the amounts that GTSI
receives from dispositions of certain noncurrent inventory acquired. GTSI
funded the cash portion of the consideration by drawing on its existing
credit facility with its lenders. The amount of consideration was
determined as a result of arm's-length negotiations between GTSI and BTG.
Prior to the closing, there were no material relationships between BTG and
GTSI or any of its affiliates, directors or officers, or any associate of
any such director or officer. The asset purchase agreement includes
certain non-competition covenants by BTG which will continue in effect
until February 12, 2004.
GTSI has agreed to convene a meeting of stockholders no later than
January 1, 1999 (the "First Meeting") to approve a proposal (the
"Conversion Proposal") to convert the 15,375 shares of Series C Preferred
Stock into GTSI common stock ("Common Stock"). If the Conversion Proposal
is approved, the Series C Preferred Stock will be converted automatically
into that number of shares of Common Stock equal to the liquidation
preference of the Series C Preferred Stock ($15,375,000 or $1,000 per
share) plus all accrued and unpaid dividends thereon divided by the
conversion price of $5.125. If the Conversion Proposal is approved at the
First Meeting, the Series C Preferred Stock will be converted into
3,000,000 shares of Common Stock. If the Conversion Proposal is not
approved at the First Meeting, GTSI has agreed to convene a second meeting
of stockholders no later than January 1, 2000 (the "Second Meeting") to
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approve the Conversion Proposal. GTSI has agreed to recommend that holders
of Common Stock vote in favor of the Conversion Proposal and each current
member of the GTSI board of directors (the "Board") agreed to vote any
Common Stock over which he or she has voting power in favor of the
Conversion Proposal.
Dividends, payable annually in cash or in additional shares of Series
C Preferred Stock at GTSI's option, will begin to accrue commencing on the
earlier of January 1, 1999 and the date on which the First Meeting is held
if at such meeting approval of the Conversion Proposal is not obtained. At
any time on or after the dividend commencement date, GTSI may at its option
redeem, in whole but not in part, all of the Series C Preferred Stock. If
the redemption date occurs during the period from the dividend commencement
date to the date on which the Second Meeting is held, the redemption price
will be equal to the liquidation preference plus accrued and unpaid
dividends thereon to the redemption date plus an amount equal to 8% of the
liquidation preference multiplied by a fraction the numerator of which will
be the number of days from the redemption date to the earlier of (a) the
first anniversary of the First Meeting and (b) January 1, 2000, and the
denominator of which will be 365. If the redemption date occurs on or
after the adjustment date (defined as the earlier of January 1, 2000 and
the date on which the Second Meeting is held if at such meeting approval of
the Conversion Proposal is not obtained), the redemption price will be
equal to the liquidation preference plus accrued and unpaid dividends
thereon to the redemption date plus an amount equal to 2% of the sum of the
liquidation preference and accrued and unpaid dividends thereon
attributable to the period commencing with the adjustment date to the
redemption date.
The holders of a majority of the Series C Preferred Stock, voting as a
single class, have the right to elect to the Board a director designated as
the "Series C Director." In addition, the holders of a majority of the
Series C Preferred Stock have the right to nominate, subject to approval by
the Board, an independent director designated as the "Joint Director." The
Joint Director may not be (a) a director, officer or employee of or
otherwise paid any compensation by any holder of Series C Preferred Stock
or (b) an officer or employee of or otherwise paid any compensation (other
than director's fees) by GTSI. BTG, as the holder of the Series C
Preferred Stock, has elected Dr. Edward H. Bersoff, who is BTG's president
and chief executive officer, as the Series C Director. BTG has nominated
and the Board has approved John M. Toups, a GTSI director since October
1997, as the Joint Director. The rights of the holders of the Series C
Preferred Stock with respect to the Joint Director will automatically
terminate if the total liquidation preference with respect to the Series C
Preferred Stock owned by BTG plus all accrued and unpaid dividends thereon
falls below 66 2/3% of the total liquidation preference of the then
outstanding Series C Preferred Stock plus all accrued and unpaid dividends
thereon.
At the closing on February 12, 1998, BTG and GTSI entered into a
standstill agreement which restricts certain actions by BTG and its
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affiliates (collectively and individually, the "BTG Group") with respect to
GTSI and its securities. BTG agreed that, without the Board's prior
consent, while the BTG Group beneficially owns any Series C Preferred
Stock, the BTG Group will not acquire any Common Stock or other securities
of GTSI entitled to vote generally for the election of directors or
securities convertible into such voting securities (collectively "Voting
Securities") if after such acquisition the BTG Group would beneficially own
5% or more of the Voting Securities outstanding following any such
acquisition; provided that the BTG Group may not acquire any Voting
Securities prior to the earlier of the First Meeting and January 1, 1999.
If the Series C Preferred Stock has been converted to Common Stock as a
result of stockholder approval of the Conversion Proposal, the BTG Group
may not acquire any Voting Securities if after such acquisition the BTG
Group would beneficially own more than 30.8% of the Voting Securities
outstanding following any such acquisition. BTG also agreed that, without
the Board's prior consent, the BTG Group will not (a) deposit any Voting
Securities in a voting trust or subject them to any similar arrangement;
(b) solicit proxies with respect to Voting Securities in opposition to the
recommendation of a majority of the Board with respect to any matter
(subject to certain exceptions); (c) propose to or solicit GTSI
stockholders for the approval of a stockholder proposal except with respect
to the Conversion Proposal; (d) join a partnership or other group to
acquire, hold, vote or dispose of Voting Securities; or (e) make any
proposal to the Board with respect to the acquisition of any beneficial
ownership by the BTG Group or with respect to a merger or consolidation
with, or sale of a substantial portion of GTSI's assets to the BTG Group.
In addition, BTG agreed that, without the Board's prior consent, the BTG
Group will not transfer any Voting Securities, other than (a) to a wholly
owned subsidiary of BTG; (b) pursuant to Rule 144 under the Securities Act
of 1933, as amended; (c) pursuant to any tender or exchange offer
recommended by the Board to GTSI stockholders; (d) pursuant to any public
offering of Voting Securities (subject to certain exceptions); or (e) as a
result of any pledge to a financial institution to secure a loan.
Under the standstill agreement, after the date the Series C Preferred
Stock is converted to Common Stock as a result of stockholder approval of
the Conversion Proposal, GTSI will have the option to repurchase all, but
not less than all, of the Voting Securities beneficially owned by the BTG
Group if any of the following occurs: (a) the Continuing Directors (as
defined) of BTG fail to constitute a majority of the BTG board of
directors; (b) no member of any slate of directors recommended by the BTG
board is elected to the BTG board by the stockholders of BTG in any
election; or (c) the BTG board approves, or BTG executes, an agreement
providing for a merger or consolidation of BTG, a sale of substantially all
of BTG's assets or any similar transaction (subject to certain exceptions).
After the date the Series C Preferred Stock is converted to Common Stock
and until such time as the BTG Group beneficially owns less than 15% of
GTSI's outstanding Voting Securities, (a) the BTG Group will be entitled to
designate one person for nomination to the holders of Common Stock for
election to the Board (the "BTG Designee"), (b) the BTG Group will be
entitled to designate one additional person for nomination to the holders
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of Common Stock for election to the Board, who will be an independent
person approved by the Board in its sole discretion (the "Joint Designee"),
and (c) GTSI has agreed to nominate and recommend for approval such BTG
Designee and such Joint Designee at each annual meeting of stockholders for
the election of directors to the Board. The standstill agreement will
continue in effect until February 12, 2004 and thereafter for long as the
BTG Group beneficially owns Series C Preferred Stock or 5% or more of the
Voting Securities, but in no event longer than February 12, 2008.
Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events
Not Applicable.
Item 6. Resignation of Registrant's Directors
Not Applicable.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The financial statements relating to the business acquired from
BTG are not available at this time. Such financial statements will be
filed by amendment not later than 60 days after the date this report is
required to be filed.
(b) Pro Forma Financial Information.
The required pro forma financial information is not available at
this time. Such information will be filed at the time the required
financial statements are filed.
(c) Exhibits.
10.30 Asset Purchase Agreement dated as of February 12, 1998
among GTSI, BTG, Inc., BTG Technology Systems, Inc. and
Concept Automation, Inc. of America (excluding
attachments and exhibits).
10.31 Standstill Agreement between GTSI and BTG, Inc. dated
as of February 12, 1998.
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10.32 Certificate of Designations, Preferences and Rights of
Series C 8% Cumulative Redeemable Convertible Preferred
Stock of GTSI filed February 12, 1998 with the
Secretary of State of Delaware.
99.1 Press release dated February 12, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: February 26, 1998
GOVERNMENT TECHNOLOGY SERVICES, INC.
By: /s/ M. DENDY YOUNG
--------------------------------------
M. Dendy Young
President and Chief Executive Officer
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INDEX TO EXHIBITS
===========================================================================
EXHIBIT |
NUMBER | DESCRIPTION
- ---------------------------------------------------------------------------
10.30 | Asset Purchase Agreement dated as of February 12, 1998 among
GTSI, BTG, Inc., BTG Technology Systems, Inc. and Concept
Automation, Inc. of America (excluding attachments and
exhibits)
- ---------------------------------------------------------------------------
10.31 | Standstill Agreement between GTSI and BTG, Inc. dated as of
February 12, 1998
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10.32 | Certificate of Designations, Preferences and Rights of Series
C 8% Cumulative Redeemable Convertible Preferred Stock of GTSI
filed February 12, 1998 with the Secretary of State of
Delaware
- ---------------------------------------------------------------------------
99.1 | Press release dated February 12, 1998
===========================================================================
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<PAGE> 1
ASSET PURCHASE AGREEMENT
DATED AS OF
FEBRUARY 12, 1998
AMONG
GOVERNMENT TECHNOLOGY SERVICES, INC.,
BTG, INC.,
BTG TECHNOLOGY SYSTEMS, INC.,
AND
CONCEPT AUTOMATION, INC. OF AMERICA
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TABLE OF CONTENTS
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ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Purchase And Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.01. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.02. Retained Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.03. Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.04. Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.05. Nonassignable Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.06. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.07. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.08. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.09. Stock Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 3 Representations and Warranties of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.01. Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.02. Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.03. Acquisition of Series C Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.04. BTG SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.05. Division Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.06. No Violations; Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.07. No Undisclosed Material Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.08. Absence of Certain Events and Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.09. Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.10. Title to and Sufficiency of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.11. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.12. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.14. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.15. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.16. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.17. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.18. Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.19. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.20. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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Section 3.21. Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.22. Export Control and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.23. Cooperative Business Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.24. Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.25. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.26. Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.27. Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.28. Ownership of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.29. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.30. Cumulative Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 4 Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.01. Corporate Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.02. Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.03. No Violations; Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.04. Capitalization of GTSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.05. GTSI SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.06. No General Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.07. Title to Series C Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.08. Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.09. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.10. Cumulative Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 5 Covenants of Buyer and Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 5.01. Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 5.02. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.03. Assignments; Novation of Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 5.04. Noncompete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 5.05. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 5.06. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 5.07. Administration of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.08. Use of Stationery, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 5.09. Nasdaq Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 6 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.01. Tax Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.02. Transfer and Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.03. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.04. Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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ARTICLE 7 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.01. Employees; Allocation of Liabilities; WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.02. Employee Plans and Foreign Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.03. Defined Contribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 8 Survival; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.01. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.03. Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 9 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.01. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.03. Amendments; No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.05. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.06. Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.07. Expenses of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.08. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.09. Confidentiality and Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.10. No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.11. Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.12. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.13. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.14. Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.15. Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
EXHIBITS
- - --------
1 Escrow Agreement
2 Trademark License Agreement
3 Database and Software Agreement
4 Standstill Agreement
5 Transition Services Agreement
6 Warehouse Sublease Agreement
7 Lockbox Agreements
8 Sales Commission and Bonus Agreement
9 Royalty Subcontracts
10 Novation Subcontracts
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
11 Novation Agreements
12 Chattanooga Sublease Agreement
13 Assignment and Assumption of the Germany Lease
14 Series C Certificate of Designation
15 Opinion of Hogan & Hartson, L.L.P.
16 Opinion of Arent Fox Kintner Plotkin & Kahn, PLLC
</TABLE>
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<PAGE> 6
SELLERS' DISCLOSURE SCHEDULES
<TABLE>
<CAPTION>
SECTION DISCLOSURE
- - ------- ----------
<S> <C>
1.01 Retained Assets
1.01(a) Certain Individuals
3.05 Division Balance Sheet
3.06(a) Violations
3.06(b) Consents and Approvals
3.07(b) Material Liabilities
3.08 Material Changes
3.10(b) Inventory
3.10(c) Tangible Personal Property
3.10(e) Government Property and Equipment
3.12 Litigation
3.13(f) Resale Exemption Certificates
3.14 Employee Benefit Plans
3.17(a) Purchase Intellectual Property
3.18(a) Employment Matters
3.19(a) Contracts
3.19(b) Defaults
3.19(c) Bids and Proposals
3.19(d) Unexercised Options for Sale of
Goods or Services
3.19(e) Late Performance
3.19(f) Late Delivery Penalties
3.19(g) Contracts Requiring Letters of Credit
or Bank Guarantees
3.19(h) Performance Pending Funding
3.21(c) Government Contract Deficiencies
3.21(f) Debarments and Suspensions
3.21(g) Stop Work Orders
3.21(i) Ceiling, Cap and Share Ratios
3.22(b) Export Control and Related Matters
3.23 Cooperative Business Agreements
3.24(a) Backlog
3.24(b) Exceptions to Backlog
3.26 Suppliers
3.27 Customers
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
SELLERS' ATTACHMENTS
- - --------------------
<S> <C>
1.1 Inventory
1.2 Current Inventory
1.3 Tangible Personal Property
1.4 Deposits
5.03(e) Deferred Revenue Contracts
</TABLE>
<TABLE>
<CAPTION>
BUYER'S ATTACHMENTS
- - -------------------
<S> <C>
4.03 Consents and Approvals
4.04(b) Stock Options, Etc.
4.08 Brokers and Finders
</TABLE>
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<PAGE> 8
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement") dated as of February 12,
1998 among Government Technology Services, Inc., a Delaware corporation
("Buyer" or "GTSI"), and BTG, Inc., a Virginia corporation ("BTG"), BTG
Technology Systems, Inc., a Virginia corporation ("BTG Systems"), and Concept
Automation, Inc. of America, a Virginia corporation ("Concept Automation" and,
together with BTG and BTG Systems, "Sellers").
W I T N E S S E T H:
WHEREAS, as part of a business constituting the Division (as
hereinafter defined) Sellers sell and distribute certain products and provide
certain services;
WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to
sell to Buyer substantially all of the assets of the Division, upon the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. DEFINITIONS.
(a) The following terms used herein shall have the
following meanings:
"Acquired Assets" means, subject to the exclusions set forth below,
the following assets, properties and rights, whether tangible or intangible,
whether fixed, contingent or otherwise, and wherever located, that are used or
held for use in the Division (or, in the case of Inventory, which are also
subject to open purchase orders) as of the Closing Date:
(i) all inventory, including merchandise,
materials, finished goods, work-in-process, packaging, shipping materials,
parts and other tangible personal property held for sale or which contribute to
the finished products or the sale, promotion, storage and shipment thereof,
whether located at facilities owned or leased by Sellers, inventory received at
the Virginia Warehouse or the Chattanooga Warehouse after the Closing Date if
it is subject to an open purchase order whether or not such inventory is in
transit as of the Closing Date, subject to Section 5.07, any rights of Sellers
to the warranties, price protections, volume discounts, special discounts,
prompt payment
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<PAGE> 9
discounts, prepay discounts, cooperative advertising discounts and marketing
development fund allowances and price reductions received from suppliers, and
any related claims, credits, rights of recovery and setoff with respect to such
inventory, all of which (other than the related rights and inventory not
received at the Virginia Warehouse or the Chattanooga Warehouse as of February
6, 1998) is listed on Attachment 1.1 (collectively, the "Inventory");
(ii) all furniture, fixtures, office supplies,
machinery, equipment, computer hardware, computer software, supplies, repair
parts, tools, plant, laboratory and office equipment and other tangible
personal property, in each case as listed on Attachment 1.3, together with any
rights or claims arising out of the breach of any express or implied warranty
by the manufacturers or sellers of any of such assets or any component part
thereof;
(iii) all deposits identified on Attachment 1.4;
(iv) all right, title and interest in, to and
under all Acquired Contracts;
(v) all intangible personal property, including
all Proprietary Information and Intellectual Property, used or held for use in
the Division;
(vi) (A) originals of operating data and records
including books, records, electronic data, notes, sales and sales promotional
data, advertising materials, customer and supplier lists, databases, reference
catalogs, catalog inventory, and other similar property, rights and
information; and (B) copies of financial and accounting data and records
including books, records, electronic data, notes, credit information, cost and
pricing information, payroll and personnel records (to the extent permitted
under applicable law), and other similar property, rights and information, used
or held for use in the Division;
(vii) claims, causes of action, choses in action,
rights under express or implied warranties, rights of recovery, rights of
set-off, and rights of subrogation with respect to the Acquired Assets;
(viii) Permits, used or held for use in the
Division; and
(ix) all rights under non-disclosure and
proprietary agreements with employees and agents of Sellers or with other third
parties to the extent related to the Acquired Assets.
"Acquired Business" means the Acquired Assets and the Assumed
Liabilities.
"Acquired Contracts" means all Contracts other than the Contracts
identified on Disclosure Schedule Section 3.19(a) as "Nonacquired Contracts."
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<PAGE> 10
"Affiliate" means, with respect to any specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
"Ancillary Agreements" means the Escrow Agreement, the Trademark
License Agreement, the Database and Software Agreement, the Standstill
Agreement, the Transition Services Agreement, the Warehouse Sublease Agreement,
the Lockbox Agreements, the Sales Commission and Bonus Agreement, the Royalty
Subcontracts, the Novation Subcontracts, the Novation Agreements, the
Chattanooga Sublease Agreement, the Assignment and Assumption of the Germany
Lease, substantially in the form of Exhibits 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11,
12, and 13, respectively.
"Applicable Interest Rate" means interest at the rate per annum
determined, from time to time, under the provisions of Section 6621(a)(2) of
the Code.
"Assumed Liabilities" means (i) the Liabilities of Sellers to be
performed or otherwise satisfied under the Acquired Contracts specifically by
the terms thereof on any date that is after the Closing Date and (ii) all
Liabilities arising from Buyer's ownership of the Acquired Assets or its
operation of the Acquired Business after the Closing Date; provided that
Assumed Liabilities shall specifically exclude Liabilities arising out of or
related to (a) any misrepresentation or breach of warranty made by Sellers
contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith, (b) breaches of covenants or
obligations of Sellers contained herein or (c) any Retained Liability.
"Chattanooga Warehouse" means the premises known as Suite A of
Warehouse at Highways 153/58, 4250 Berton Drive, Chattanooga, Tennessee 37406.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, par value $.005 per share, of
Buyer.
"Contracts" means (i) all oral or written bids, quotations, proposals
(including pending bid proposals), contracts (including Government Contracts
and Backlog Contracts), agreements (including the Vendor Agreements),
commitments, understandings, licenses, teaming arrangements, subcontracts,
memoranda of understanding ("MOUs"), memoranda of agreement ("MOAs"), contract,
subcontract or bid awards, sales and purchase orders (including partially
filled purchase orders), and backlog of unexecuted delivery orders and open
market orders on which any Seller has not executed, of any Seller relating to
the Division and the subject matter of which is within the definition of
"commercial items" as defined in Section 2.101 of the Federal Acquisition
Regulations, including those listed on Disclosure Schedule Section 3.19(a); and
(ii) the Germany Lease.
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<PAGE> 11
"Controlled Group Liability" means all Liabilities relating to
Employee Plans and Foreign Plans under (i) Title IV of ERISA, (ii) Section 302
of ERISA, and (iii) Sections 412 and 4971 of the Code.
"Conversion Proposal" means the proposal to be presented to the
holders of Common Stock at the First Meeting and, if necessary, the Second
Meeting, with respect to the approval of (a) the conversion of the Series C
Preferred Stock into Common Stock in accordance with the terms of the Series C
Certificate of Designation and (b) the GTSI Charter Amendment.
"Current Inventory" means all manufacturer current, non-obsolete
Inventory based on a 90-day average run rate, which is either listed on
Attachment 1.2 or will be listed on Attachment 1.2 by supplement pursuant to
Section 2.10(b).
"Damages" means any damage, loss, claim, assessment, judgment,
liability and expense (including reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any pending or
threatened claim, action, suit, investigation, proceeding or government
directive).
"Disclosure Schedule" means the Disclosure Schedule delivered by
Sellers to Buyer simultaneously with the execution and delivery of this
Agreement and initialed by Sellers and Buyer.
"Division" means Sellers' business as a product reseller of computer
hardware, software, hardware maintenance agreements, software maintenance
agreements, software licenses, peripherals and integrated systems, providing
clients and prospective clients with advanced technology products in the areas
of enterprise networking and internet networking, the UNIX operating system
environment, data storage, image processing and high-performance
client/servers, and all activities incidental to the foregoing.
"Division Employees" means those individuals who are employed by any
Seller in the Division as of the Closing Date, a preliminary list of whom as of
December 18, 1997 has been delivered by Sellers to Buyer prior to the date
hereof and a definitive list of whom as of the close of business on the date
prior to the Closing Date has been delivered by Sellers to Buyer at Closing.
Division Employees shall include all individuals who are described in the first
sentence hereof and who are, as of the Closing Date, on an approved leave of
absence with a right to return to active employment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes the first entity, trade or business, or that is a member
of the same "controlled group" as the first entity, trade or business pursuant
to Section 4001(a)(14) of ERISA.
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<PAGE> 12
"Employee Plans" means each "employee benefit plan," within the
meaning of Section 3(3) of ERISA, and each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement providing
for insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which is
maintained, administered or contributed to by any Seller or any of its ERISA
Affiliates and which covers any Division Employee, other than any such plan,
contract, arrangement or policy which is a Foreign Plan.
"Environmental Laws" means any applicable federal, state, local or
foreign law, treaty, judicial decision, regulation, rule, judgment, order,
decree, injunction, permit, agreement or governmental restriction, each as in
effect on or prior to the Closing Date, relating to the environment or to any
Hazardous Substance.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Export Control Laws" means all federal, state, local and foreign laws
(including common law), statutes, codes, ordinances, rules, regulations,
executive orders or other requirements, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretations thereof, relating to the export or reexport of
commodities and technologies. Export Control Laws includes the Export
Administration Act of 1979 (24 U.S.C. Sections 2401 - 2420); the International
Emergency Economic Powers Act (50 U.S.C. Sections 1701 - 1706); the Trading
with the Enemy Act (50 U.S.C. Sections 1 et seq.); the Arms Export Control Act
(22 U.S.C. Sections 2778, 2779); and the International Boycott Provisions of
Section 999 of the Code.
"Final Determination" shall mean (i) with respect to federal income
Taxes, a "determination" as defined in Section 1313(a) of the Code or execution
of an Internal Revenue Service Form 870AD and, with respect to Taxes other than
federal income Taxes, any final determination of liability in respect of a Tax
that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds,
amended returns or appeals from adverse determinations) or (ii) the payment of
Tax by any Seller, Buyer or any of their Affiliates, whichever is responsible
for payment of such Tax liability under applicable law, with respect to any
item disallowed or adjusted by a Taxing Authority, provided that such
responsible party determines that no action should be taken to recoup such
payment and the indemnifying party, if any, agrees.
"Foreign Plans" means each "employee benefit plan," within the meaning
of Section 3(3) of ERISA, and each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement providing for
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits,
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<PAGE> 13
retirement benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which is maintained,
administered or contributed to by any Seller or any of its ERISA Affiliates
primarily for non-U.S. citizens or non-U.S. residents and which covers any
Division Employee.
"GAAP" means United States generally accepted accounting principles.
"Germany Lease" means the Commercial Sublease Agreement between
Digital Equipment GmbH and BTG, Inc., dated September 29, 1997, with respect to
a portion of the premises known as Heidelbergerstr. 5-7, 68519 Viernheim,
Federal Republic of Germany.
"Government Contract" means (i) any Contract (including purchase
orders, blanket purchase orders and agreements and delivery orders) relating to
the Acquired Business between any Seller and any Governmental Entity and (ii)
any Contract (including GSA Contracts, purchase orders, blanket purchase
orders, blanket purchase agreements ("BPAs") and delivery orders) relating to
the Acquired Business entered into by any Seller as subcontractor (at any tier)
in connection with a Contract between another Person and any Governmental
Entity, including the Contracts listed on Section 3.19(a) of the Disclosure
Schedule.
"Governmental Entity" means any government or any court, arbitral
tribunal, administrative agency, or commission or other governmental or other
regulatory authority or agency, federal, state, local, transnational or
foreign.
"GTSI Board" means the board of directors of GTSI.
"GTSI Bylaws" means the bylaws of GTSI, as amended through the date of
this Agreement.
"GTSI Charter" means the certificate of incorporation of GTSI, as
amended through the date of this Agreement.
"GTSI Charter Amendment" means an amendment to the GTSI Charter
increasing the number of authorized shares of Common Stock from 10,000,000 to
20,000,000.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hazardous Substance" means any substance, pollutant, contaminant,
chemical, waste or material, including petroleum, its derivatives, by-products
and other hydrocarbons, that is listed, identified in, or regulated under any
applicable federal, state, local or foreign law, treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit, agreement or
governmental restriction.
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<PAGE> 14
"Income Tax" means any Tax imposed on or measured by net income, net
worth or capital, or any alternative minimum Tax or similar Tax, together with
any interest or any penalty, addition to tax or additional amount imposed by
any Taxing Authority.
"Intellectual Property" means all inventions, improvements, domestic
and foreign patents and applications therefor, trade secrets, know how,
customer lists, trade names, common law trademarks and service marks, trademark
and service mark registrations and applications therefor, copyrights, copyright
registrations and applications therefor, mask works, mask work registrations
and applications therefor, rights in Software and databases (including customer
databases), all rights (including rights to use data) with respect to any of
the foregoing that are granted or retained under Contract, license, law or
regulation.
"IRS" means the Internal Revenue Service.
"Liabilities" means any and all debts, liabilities, commitments,
claims, allegations, demands and obligations, whether fixed, contingent or
absolute, matured or unmatured, liquidated or unliquidated, accrued or not
accrued, known or unknown, whenever or however arising (including whether
arising out of any contract or tort based on negligence or strict liability)
and whether or not the same would be required by GAAP to be reflected in
financial statements or disclosed in the notes thereto.
"Lien" means any adverse claim, restriction on voting or transfer or
pledge, lien, mortgage, hypothecation, collateral assignment, charge,
encumbrance, easement, covenant, restriction, title defect, encroachment or
security interest of any kind.
"Liquidation Preference" has the meaning set forth in the Series C
Certificate of Designation.
"Material Adverse Effect" means, with respect to the Acquired Business
or any entity (or group of entities taken as a whole), such state of facts,
events, change or effect as has had, or would reasonably be expected to have, a
material adverse effect on the business, results of operations or financial
condition of the Acquired Business or, such entity (or group of entities, taken
as a whole), and with respect to the Acquired Business, also on the ability of
Buyer to own and operate the Acquired Business following the Closing Date
substantially as currently conducted; provided that, in any event, an adverse
effect in the amount of at least $25,000 shall be deemed to be material.
"New Material" means satisfying the provisions of Federal Acquisition
Regulation 48 CFR 52.211-5.
"Noncurrent Inventory" means all Inventory which is not Current
Inventory.
"PBGC" means the Pension Benefit Guaranty Corporation.
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<PAGE> 15
"Permit" means any license, franchise, permit, concession, order,
clearance, authorization, approval or registration from, of or with a
Governmental Entity or other Person.
"Permitted Liens" means any Liens (i) for Taxes attributable to a
Pre-Closing Tax Period not yet due or payable or (ii) that are not material and
constitute mechanics', carriers', workers' or like liens incurred in the
ordinary course of business.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including any Governmental Entity.
"Pre-Closing Tax Period" means any Tax period, or portion thereof,
ending on or before the close of business on the Closing Date.
"Proprietary Information" means all information with respect to the
Acquired Business that in accordance with Sellers' usual practices would be
treated by Sellers as "PROPRIETARY INFORMATION - STRICTLY PRIVATE,"
"PROPRIETARY INFORMATION - INTERNAL DATA" or equivalent.
"Purchased Intellectual Property" means the Intellectual Property
included in the Acquired Assets.
"Retained Assets" means all assets, properties and rights, whether
tangible or intangible, whether fixed, contingent or otherwise, and wherever
located, of Sellers (including all demonstration, evaluation or other loaned
equipment from manufacturers) other than the Acquired Assets, including:
(i) All cash or cash equivalents held by any Seller, all
interest payable in connection with any such cash, cash equivalents or short
term investments, bank balances and rights in and to bank accounts, marketable
and other securities of any Seller.
(ii) All accounts receivable arising out of the business
and operations of the Division.
(iii) All contracts of insurance and all insurance plans
and the assets thereof.
(iv) All Employee Plans and Foreign Plans, benefit
arrangements, qualified plans and welfare plans and the assets thereof.
(v) Any and all claims of any Seller with respect to any
Tax refunds with respect to the period on or prior to the Closing Date.
(vi) All of each (a) Seller's organizational documents,
corporate books and records (including minute books and stock ledgers and
records), and originals of account books of original
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<PAGE> 16
entry, (b) duplicated copies of any books, records, accounts, checks, payments
records, Tax records (including payroll, unemployment, real estate and other
Tax records) and other similar books, records and information of any Seller
relating to such Seller's operation of the Division prior to the Closing, (c)
all records prepared by or on behalf of Sellers in connection with the sale of
the Acquired Assets, (d) originals of Sellers' financial and accounting data
and records including books, records, electronic data, notes, credit
information, cost and pricing information, payroll and personnel records (to
the extent permitted under applicable law) and (e) all records and documents
relating to any Retained Assets.
(vii) All rights and claims of any Seller whether mature,
contingent or otherwise, against third parties relating to the business of the
Division (including all rights under the Contracts) for the period on or prior
to the Closing Date, whether in tort, contract, or otherwise.
(viii) All of each Seller's rights under or pursuant to this
Agreement or any other rights in favor of Sellers pursuant to the other
agreements contemplated hereby.
(ix) All rights to the names "BTG," "BTG Technology
Systems" and "Concept Automation" and any logo or variation thereof and the
goodwill associated therewith (except as contemplated hereby or by the
Trademark License Agreement, the Transition Services Agreement, the Royalty
Subcontracts or the Novation Subcontracts).
(x) All interests in real property other than with
respect to the Chattanooga Sublease, the Germany Lease and the Warehouse
Sublease.
(xi) The BTO CPU manufacturing of BTG computers, including
all unique components necessary to build same.
(xii) All right, title and interest in, to and under the
Retained Contracts.
(xiii) The additional assets designated as Retained Assets
on Disclosure Schedule Section 1.01.
"Retained Contracts" means all Contracts other than Acquired
Contracts.
"Retained Liabilities" means Liabilities with respect to: (i) any
inventory in transit to or from the facilities of any Seller and not the
subject of an open purchase order as of the Closing Date; (ii) returned
products initially delivered by any Seller on or before the Closing Date and
returned to any Seller or Buyer after the Closing Date ("Returned Products");
(iii) warranty and "year 2000" compliance claims and obligations relating to
products and services delivered under the Contracts on or before the Closing
Date; (iv) audits, inquiries, investigations or proceedings with respect to
performance under the Contracts on or before the Closing Date; (v) accounts
payable and vendor invoices with respect to the period on or before the Closing
Date; (vi) expenses accrued as of the
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<PAGE> 17
Closing Date or any unpaid sales, use or other Tax whether or not assessed as
of the Closing Date; (vii) any duty, obligation or liability of any Seller to
be performed or otherwise satisfied under the Contracts specifically by the
terms thereof on or before the Closing Date; (viii) obligations under the
Contracts to upgrade Software after the Closing Date; (ix) any Liability
relating to the Retained Assets; (x) items otherwise identified as Retained
Liabilities in this Agreement; (xi) Permitted Liens; (xii) any Liability
related to the employment or termination of or resignation from employment by
Sellers of any of the individuals listed on Disclosure Schedule 1.01(a); (xiii)
any Liability related to the unsuccessful attempt by the persons listed in
clause (xii) above to acquire all or part of the Division; and (xiv) any other
Liability not within the definition of Assumed Liabilities.
"Returned Products" shall have the meaning set forth in the definition
of Retained Liabilities.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series C Certificate of Designation" means the Certificate of
Designation, Preferences and Rights of the Series C Preferred Stock, in the
form attached hereto as Exhibit 14.
"Series C Preferred Stock" means the 8% Cumulative Redeemable
Convertible Preferred Stock, Series C, par value $.25 per share, of GTSI, with
the rights, preferences and privileges set forth in the Series C Certificate of
Designation.
"Sole-Source Supplier" means any supplier of goods or services to any
Seller with respect to the Division for which no practical alternative source
of such goods or services is available on terms and conditions substantially as
favorable to Sellers as those available from such supplier.
"State Department and PC-2 Contracts" means Contract No.
S-OPRAQ-97-D-0608 for the Department of State and Contract No.
DAAB07-97-D-V002 for the Department of Defense.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which such Person owns, either directly or through its Subsidiaries, more than
fifty percent of the total combined voting power of all classes of voting
securities of such corporation or (ii) any partnership, association, joint
venture or other form of business organization, whether or not it constitutes a
legal entity, in which such Person, directly or indirectly, owns more than
fifty percent of the total equity interests.
"Tax" (including with correlative meaning, the terms "Taxes" and
"Taxable") means (i) all forms of taxation, whenever created or imposed,
whether imposed by a local, municipal, state, foreign, federal or other
governmental body or authority, including income, gross receipts, ad valorem,
excise, value-added, sales, use, transfer, franchise, license, stamp,
occupation, withholding, employment, payroll, property or environmental tax or
premium, together with any interest, penalty, addition to tax or additional
amount imposed by any Governmental Entity responsible for the
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<PAGE> 18
imposition of any such tax (a "Taxing Authority"), and (ii) any liability for
the payment of any amounts as a result of being party or subject to any
agreement or with respect to the payment of any amounts of the type described
in (i) as a result of any express or implied obligations to indemnify any other
Person.
"Tax Return" means any return, report, statement, information
statement and the like required to be filed with any Taxing Authority.
"Transactions" means the transactions contemplated by the Transaction
Agreements.
"Transaction Agreements" means this Agreement and the Ancillary
Agreements.
"Vendor Agreements" means the (i) Remarketer/Integrator Agreement
dated July 30, 1992 between Dell Marketing L.P. and Concept Automation, Inc.,
as amended August 13, 1997 to, among other things, change name from Concept
Automation, Inc. to BTG, Inc. and as supplemented; (ii) Addendum to
Remarketer/Integrator Agreement dated April 14, 1993 between Dell Marketing
Corporation and Concept Automation, Inc.; (iii) Cisco Systems, Inc. GSA
Reseller Agreement dated January 22, 1996 between Cisco Systems, Inc. and BTG,
Inc.; (iv) U.S. Federal (All) Systems Integrator Agreement dated May 23, 1997
between Cisco Systems, Inc. and BTG, Inc.; (v) License Agreement dated March
10, 1995 between Netscape Communications Corporation and BTG, Inc., as amended;
and (vi) Systems Integrator Agreement No. 001754 dated December 20, 1996
between Netscape Communications Corporation and BTG, Inc.
"Virginia Warehouse" means Sellers' warehouse facility located at 4101
Westfax Drive, Chantilly, Virginia.
(b) The following terms shall have the meanings assigned
to such terms in the following sections:
<TABLE>
Term Section
---- -------
<S> <C>
Agreement Recitals
Allocation 2.07
Apportioned Obligations 6.02(b)
Assumption Agreement 2.08(c)
Backlog Contracts 3.19(a)(xiv)
Basket Amount 8.07(a)
BTG SEC Documents 3.04
Buyer Recitals
Buyer DC Plans 7.03
Buyer Indemnified Parties 8.02(a)
Cap Amount 8.02(a)
</TABLE>
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<PAGE> 19
<TABLE>
<S> <C>
Cash Consideration 2.06
Cash Escrow Amount 2.06
Closing 2.08
Confidentiality Agreement 9.09
Consideration 2.07(a)
Contact Person 5.04(d)
Current Inventory 1.01
Disposition 2.10(c)
Division Balance Sheet 3.05
Division Financial Statements 3.05
Environmental Permits 3.13(a)(2)
Escrow Agent 2.06
Escrow Agreement 2.06
Escrow Shares 2.06
First Meeting 5.01(a)
First Proxy Statement 5.02(a)
General Assignment 2.08(b)
GTSI Balance Sheet 4.06
GTSI SEC Documents 4.05
indemnified party 8.03(a)
indemnifying party 8.03(a)
Independent Accountant 2.07(a)
Initial Shares 2.06
JIT 2.10(b)
Market Value 2.06
Noncurrent Inventory 1.01
Post-Closing Tax Period 6.02(b)
Product Requirement 5.04(d)
Purchase Price 2.06
Sale Credits 2.10(d)
Second Meeting 5.01(b)
Second Proxy Statement 5.02(b)
Seller Indemnified Parties 8.02(b)
Sellers Recitals
Sellers' Cost 2.10(c)
Shortfall Amount 2.10(a)
Software 3.17(a)(3)
Tax Benefit 8.02(d)
Taxing Authority 1.01(a)
Third Party Claim 8.03(b)
Total Shares 2.06
Transfer Taxes 6.02(a)
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C>
VA3 Warehouse 2.10(b)
WARN Act 7.01(d)
</TABLE>
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. PURCHASE AND SALE. Except as otherwise expressly
provided in this Agreement, upon the terms and conditions of this Agreement,
Buyer agrees to purchase from Sellers for the Purchase Price, and Sellers
agrees to sell, convey, transfer, assign and deliver, or cause to be sold,
conveyed, transferred, assigned and delivered, to Buyer at the Closing, free
and clear of all Liens (except the Permitted Liens), the Acquired Assets.
SECTION 2.02. RETAINED ASSETS. Retained Assets shall be excluded
from the Acquired Assets.
SECTION 2.03. ASSUMED LIABILITIES. Upon the terms and conditions
of this Agreement and effective at the time of the Closing, and notwithstanding
any role any Seller may have as a prime contractor or responsible party under
any Contract or whether any of the Contracts have been novated, Buyer shall
assume and agree to pay, satisfy and discharge when due in accordance with
their terms, and Buyer shall fully and forever hold Sellers and their
Affiliates harmless against, any and all Assumed Liabilities.
SECTION 2.04. RETAINED LIABILITIES. Notwithstanding any provision
in this Agreement or any other writing to the contrary, Buyer is not assuming
any Retained Liabilities, and all Retained Liabilities shall be retained by and
remain Liabilities of Sellers. Buyer will have no liability with respect to,
and Sellers shall fully and forever hold Buyer and its Affiliates harmless from
and against, the Retained Liabilities.
SECTION 2.05. NONASSIGNABLE CONTRACTS. Anything contained herein
to the contrary notwithstanding, this Agreement shall not constitute an
agreement to transfer or assign any Acquired Contract or Acquired Assets, if an
assignment or transfer or attempted assignment or transfer thereof without the
consent of another Person would constitute a breach thereof or in any way
impair the rights of Buyer or any Seller thereunder. If any such consent is
not obtained or if an attempted assignment or transfer would be ineffective or
would impair either Sellers' or Buyer's rights or benefits under any such
Acquired Contract or Acquired Assets so that Buyer would not receive all such
rights or benefits (other than Government Contracts with respect to which
Section 5.03 shall govern), then, with respect to the period after the Closing
Date only, (a) Sellers shall use their commercially reasonable efforts to
provide or cause to be provided to Buyer, to the extent permitted by law, the
rights and benefits of any such Acquired Contract or Acquired Assets and
Sellers shall promptly pay or cause to be paid to Buyer when received all
moneys received by Sellers with respect
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<PAGE> 21
to any such Acquired Contract or Acquired Assets and (b) in consideration
thereof Buyer shall, to the extent they would constitute Assumed Liabilities,
pay, perform and discharge on behalf of Sellers all of Sellers' debts,
liabilities, obligations and commitments thereunder in a timely manner and in
accordance with the terms thereof. In addition, Sellers shall take such other
actions as may reasonably be requested by Buyer to place Buyer, insofar as
reasonably possible, in the same position as if such Acquired Contract or
Acquired Assets had been transferred as contemplated hereby and so all the
benefits and burdens relating thereto, including possession, use, risk of loss,
potential for gain and dominion, control and command, shall inure to Buyer. If
and when such consents and approvals are obtained, the transfer of the
applicable Acquired Contract or Acquired Assets shall be effected in accordance
with the terms and conditions hereof. Notwithstanding the foregoing, the
provisions of this Section 2.05 shall not relieve Sellers or Buyer of any of
their obligations under this Agreement with respect to any breach of any
Retained Liabilities or Assumed Liabilities or any representations, warranties,
covenants or agreements contained herein or in any of the Ancillary Agreements,
or with respect to any of their indemnification obligations contained herein or
therein. While it is acknowledged by Buyer that Sellers have not obtained any
required consents to the assignment of the Vendor Agreements, and that such
failure, by itself, is not a breach of this Agreement, Sellers hereby agree to
use commercially reasonable efforts to obtain such consents.
SECTION 2.06. PURCHASE PRICE. The Purchase Price payable by Buyer
to Sellers (the "Purchase Price") for the Acquired Assets shall be $7,825,265
in cash (representing $8 million less an adjustment for accrued vacation
liability and satisfaction of an outstanding invoice) (the "Cash
Consideration") and 15,375 shares of Series C Preferred Stock, payable at
Closing as follows: (a) $7,025,265 of the Cash Consideration shall be paid by
wire transfer to a bank account designated by BTG, as Sellers' agent, and
$800,000 of the Cash Consideration (the "Cash Escrow Amount") shall be paid by
wire transfer to an escrow agent (the "Escrow Agent") to be held in accordance
with the escrow agreement to be executed by the parties at the Closing in the
form of Exhibit 1 (the "Escrow Agreement"); and (b) by issuing to BTG, as
Sellers' agent, 15,375 shares of Series C Preferred Stock (the "Total Shares"),
and delivering 13,837 of the Total Shares (the "Initial Shares") to BTG, as
Sellers' agent, and 1,538 of the Total Shares (the "Escrow Shares") to the
Escrow Agent to be held in accordance with the Escrow Agreement. The "Market
Value" of the Total Shares or the Escrow Shares, as applicable, shall equal (a)
if Series C Preferred Stock, the aggregate Liquidation Preference of such
Series C Preferred Stock, and (b) if Common Stock, the product of (1) the
number of such Shares and (2) $5.125. The Purchase Price shall be paid as
provided in Section 2.08.
SECTION 2.07. ALLOCATION OF PURCHASE PRICE.
(a) The Purchase Price and the Assumed Liabilities
(collectively, the "Consideration"), to the extent properly taken into account
under Section 1060 of the Code, shall be allocated among the Acquired Assets as
set forth in this Section 2.07. No later than 30 days after the Closing Date,
Buyer shall deliver to Sellers a statement allocating the Consideration among
the Acquired Assets in accordance with Code Section 1060 and the regulations
promulgated thereunder (the "Allocation"). Sellers shall have a period of 10
days after the delivery of the Allocation to
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<PAGE> 22
present in writing to Buyer notice of any objections Sellers may have to the
Allocation. Unless Sellers timely object, the Allocation shall be binding on
the parties without further adjustment. If Sellers shall raise any objections
within the 10-day period, Sellers and Buyer shall negotiate in good faith and
use their best efforts to resolve such dispute. If the parties fail to agree
within 20 days after delivery of the notice, the disputed items shall be
resolved by Arthur Andersen LLP, 8000 Towers Crescent Drive, Suite 400, Vienna,
Virginia (the "Independent Accountant"). The Independent Accountant shall
resolve the dispute within 30 days after having the dispute referred to it.
The costs, fees and expenses of the Independent Accountant shall be borne
equally by Buyer and Sellers. Notwithstanding the foregoing, the parties agree
that $500,000 of the Purchase Price shall be allocated to the tangible assets
set forth in Attachment 1.3.
(b) Except as required by a Final Determination, Sellers
and Buyer agree to (1) be bound by the Allocation, (2) act in accordance with
the Allocation in the preparation of financial statements and filing of all Tax
returns (including filing Form 8594 with its federal income Tax return for the
taxable year that includes the date of the Closing) and in the course of any
Tax audit, Tax review or Tax litigation relating thereto and (3) take no
position and cause their Affiliates to take no position inconsistent with the
Allocation for federal and state income Tax purposes.
(c) Not later than 30 days prior to the filing of their
respective Forms 8594 relating to the Transactions, each party shall deliver to
the other party a copy of its Form 8594.
SECTION 2.08. CLOSING. The closing (the "Closing") of the purchase
and sale of the Acquired Assets and the assumption of the Assumed Liabilities
hereunder shall take place at the offices of Arent Fox Kintner Plotkin & Kahn,
1050 Connecticut Avenue, N.W., Washington, D.C., at 10:30 a.m. local time,
simultaneously with the execution and delivery of this Agreement; provided,
however, that the parties intend that such Closing shall be deemed to be
effective, and the Transactions shall be deemed to occur simultaneously at 5:00
p.m. on the Closing Date. At the Closing:
(a) Buyer shall (1) pay by wire transfer to BTG the Cash
Consideration less the Cash Escrow Amount and deliver by wire transfer to the
Escrow Agent the Cash Escrow Amount, and (2) deliver to BTG a certificate
evidencing the Initial Shares, registered in BTG's name and deliver to the
Escrow Agent a certificate evidencing the Escrow Shares, registered in BTG's
name, along with five undated stock powers executed by BTG with respect to the
Escrow Shares.
(b) Sellers shall assign and transfer to Buyer the
Acquired Assets by delivery of (1) a general assignment and bill of sale in
form and substance reasonably satisfactory to Buyer and Sellers (the "General
Assignment"), duly executed by Sellers, (2) an assignment of the Intellectual
Property, (3) the Ancillary Agreements, and (4) all such other good and
sufficient instruments of conveyance, assignment and transfer, and such
affidavits and other instruments in form and substance reasonably acceptable to
Buyer's counsel, as shall be effective to transfer to Buyer the Acquired
Assets. Sellers shall also deliver to Buyer (1) the executed stock powers
described in clause (a) above, (2) copies of all consents required to
consummate this Agreement, (3) the opinion of its
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<PAGE> 23
counsel, Hogan & Hartson L.L.P., in form and substance substantially as set
forth in Exhibit 15, (3) UCC termination statements or releases with respect to
all Liens (other than Permitted Liens) affecting the Acquired Assets or other
evidence in form and substance reasonably satisfactory to Buyer for each Lien
holder of Sellers that the Liability represented by any such Lien has been paid
or satisfied as of the Closing Date and that appropriate termination or release
documentation will be delivered by Sellers to Buyer promptly following the
Closing Date, and (4) such other customary closing documents Buyer may
reasonably request relating to the existence of Sellers and the authority of
Sellers for this Agreement and the Transactions, all in form and substance
reasonably satisfactory to Buyer.
(c) Buyer shall assume from Sellers the due payment,
performance and discharge of the Assumed Liabilities by delivery of (1) an
Assumption Agreement in form and substance reasonably satisfactory to Buyer and
Sellers (the "Assumption Agreement"), duly executed by Buyer, and (2) such
other good and sufficient instruments of assumption, in form and substance
reasonably acceptable to Sellers' counsel, as shall be effective to cause Buyer
to assume Assumed Liabilities as and to the extent provided in Section 2.03.
Buyer shall also deliver to Sellers (1) the Ancillary Agreements duly executed
by Buyer, (2) an employment agreement between Buyer and M. Dendy Young, (3) the
opinion of its counsel, Arent Fox Kintner Plotkin & Kahn, PLLC, in form and
substance substantially in the form of Exhibit 16, (4) the Series C Certificate
of Designation, which shall have been filed with the Secretary of State of
Delaware and have become effective and (5) such other customary closing
documents Sellers may reasonably request relating to the existence of Buyer and
the authority of Buyer for this Agreement and the Transactions, all in form and
substance reasonably satisfactory to Sellers.
SECTION 2.09. STOCK LEGENDS.
(a) The certificates evidencing the Series C Preferred
Stock issued to BTG pursuant to this Agreement, and, if applicable, the Common
Stock issued upon conversion of such Series C Preferred Stock, shall be
subject to the Standstill Agreement and shall bear the following legends:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY
TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF A STANDSTILL AGREEMENT DATED FEBRUARY 11, 1998
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<PAGE> 24
BY AND BETWEEN THE CORPORATION AND BTG, INC. AND MAY NOT BE
TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER UPON REQUEST AND
WITHOUT CHARGE A FULL OR SUMMARY STATEMENT OF THE POWERS DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF THE SHARES OF THE SERIES C PREFERRED STOCK."
(b) Upon receipt of an opinion of legal counsel
satisfactory to GTSI that the above-described Series C Preferred Stock or
Common Stock, as applicable, no longer constitutes "restricted securities"
under Rule 144 of the Securities Act, the foregoing legend is no longer
required under applicable securities laws, or the Series C Preferred Stock or
Common Stock, as applicable, is otherwise freely tradable without registration
under the Securities Act, GTSI shall, upon the request of the holder of such
stock and the submission of the certificate evidencing such stock, issue a
substitute certificate without the first paragraph of the foregoing restrictive
legend thereon.
(c) Upon receipt of an opinion of legal counsel
satisfactory to GTSI that the above-described Series C Preferred Stock or
Common Stock, as applicable, is no longer subject to the Standstill Agreement,
GTSI shall, upon the request of the holder of such stock and the submission of
the certificate evidencing such stock, issue a substitute certificate without
the second paragraph of the foregoing restrictive legend thereon.
SECTION 2.10. DISPOSITION OF NONCURRENT INVENTORY.
(a) The parties agree that (i) subject to Section 2.10(e), the
value of the Current Inventory transferred to Buyer at Closing is less than the
amount bargained for by $4.5 million (the "Shortfall Amount"), (ii) Sellers are
obligated to pay the Shortfall Amount to Buyer, and (iii) Buyer has agreed to
dispose of the Noncurrent Inventory in an effort to satisfy Sellers' obligation
to pay the Shortfall Amount, in accordance with the procedure set forth in this
Section 2.10.
(b) After the Closing Date, the Noncurrent Inventory will be
segregated by Buyer in a "logical" warehouse in each of Chattanooga, Tennessee
(the "CHI Warehouse") and Chantilly, Virginia (the "VA3 Warehouse"). All
transfers in and out of the VA3 Warehouse will automatically be recorded by
Buyer in its "just in time" distribution and logistics operating system ("JIT")
and all transfers in and out of the CHI Warehouse will automatically be
recorded by Buyer separately on its JIT system. Such record will include all
sales, warehouse transfers, returns to vendors, receipts and related
information with respect to the Noncurrent Inventory. Within five (5) Business
Days after the Closing Date, Buyer will deliver to Sellers a supplement to
Attachment 1.2 which identifies from the Inventory listed on Attachment 1.1
additional Current Inventory with an aggregate Sellers' Cost equal to $1
million. Such additional Current Inventory will not be subject to the
procedure in this Section 2.10 with respect to repayment of the Shortfall
Amount. Buyer agrees to provide to Sellers
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<PAGE> 25
on the fifteenth day after the end of each calendar month through September
1998, a report detailing the previous month's activity with respect to the
Shortfall Amount.
(c) Buyer will use commercially reasonable efforts to dispose of
the Noncurrent Inventory by sale to end users, return to vendors or liquidation
(each, a "Disposition"). Any proposed Disposition at a price less than ninety
percent (90%) of Sellers' Cost must be approved by Sellers in advance, which
approval shall not be unreasonably withheld. "Seller's Cost" means (i) with
respect to a particular item of Current Inventory, the Cost, listed on
Attachment 1.2, as which Sellers acquired such Current Inventory, (ii) with
respect to a particular item of Noncurrent Inventory received in the
Chattanooga Warehouse or the Virginia Warehouse as of the Closing Date, the
cost, listed on Attachment 1.1, at which Sellers acquired such Noncurrent
Inventory, and (ii) with respect to a particular item of Noncurrent Inventory
not received in the Chattanooga Warehouse or the Virginia Warehouse as of the
Closing Date, the cost at which Sellers acquire such Noncurrent Inventory as
reflected on the applicable purchase order, copies of which have been
delivered by Sellers to Buyer on the date hereof.
(d) The Shortfall Amount shall be reduced by the Sale Credits
until such time, if any, as the Shortfall Amount is reduced to zero. "Sale
Credits" means (i) Sellers' Cost, where the amount received by Buyer as a
result of a Disposition is equal to or greater than Sellers' Cost, or (ii) the
amount received by Buyer as a result of a Disposition, where such amount is
less than Sellers' Cost. Buyer shall promptly pay to Sellers any amounts
received as a result of a Disposition of Noncurrent Inventory in excess of the
Shortfall Amount, less a ten percent (10%) processing charge (which shall only
apply to Noncurrent Inventory sold after the Shortfall Amount has been reduced
to zero). Buyer shall notify Sellers in writing as soon as all of the
Noncurrent Inventory has been disposed of pursuant to this Section 2.10. Such
notice shall state the portion, if any, of the Shortfall Amount which remains
after the Disposition of the Noncurrent Inventory. Sellers shall pay such
amount in cash to Buyer within five days of Sellers' receipt of such notice.
Any insurance proceeds received by Buyer as a result of any casualty or loss of
Noncurrent Inventory shall be deemed to be amounts received by Buyer as a
result of a Disposition for purposes of this Section 2.10.
(e) The parties acknowledge that the Current Inventory has been
credited toward the Purchase Price in the full amount of Sellers' Cost as
reflected on Attachment 1.2, based on the assumption that such Current
Inventory is located in either the Chattanooga Warehouse or the Virginia
Warehouse as of the Closing Date. A physical count of the Current Inventory at
the Chattanooga Warehouse or the Virginia Warehouse will be performed by
representatives of Sellers and Buyer after the Closing. If it is determined as
a result of such count that any item of Current Inventory is missing, the
Shortfall Amount shall be increased by an amount equal to the Sellers' Cost
attributable to such Current Inventory.
(f) Notwithstanding the foregoing, if the Shortfall Amount has not
been paid in full to Buyer by October 30, 1998, Sellers shall pay to Buyer in
cash the unpaid portion of the Shortfall Amount on November 6, 1998. In such
event, the remaining Noncurrent Inventory may be disposed
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of by Buyer with no further obligation to Sellers. Sellers' obligation to pay
the Shortfall Amount is not subject to the Cap Amount set forth in Section
8.02(a) and Buyer's obligation to pay to Sellers amounts in excess of the
Shortfall Amount is not subject to the Cap Amount set forth in Section 8.02(b).
(g) The parties shall attempt to resolve any disputes with respect
to this Section 2.10 among themselves. If the parties are unable to do so, such
dispute shall be resolved by the submission by the parties to the Independent
Accountant of such documentary or other evidence as such parties may desire
(subject only to such rules of procedure or determinations of materiality and
relevance as the Independent Accountant may make). The parties shall provide
to the Independent Accountant (and each other) access to all information and
personnel reasonably relevant to the calculation in dispute and shall be bound
by and restricted to the claims theretofore made or the positions theretofore
asserted. The determination of the Independent Accountant will be set forth in
writing and delivered to the parties within 15 days after the submission of the
dispute and will be conclusive and binding upon the parties. Buyer will modify
the JIT as appropriate to reflect the resolution of any objections pursuant to
this Section 2.10(g). All fees and expenses relating to the services performed
by the Independent Accountant shall be borne pro rata by Sellers and Buyer in
proportion to the allocation by the Independent Accountant of the dollar
amounts in dispute between Sellers and Buyer such that the prevailing party
shall pay a lesser proportion of the fees and expenses.
SECTION 2.11. TANGIBLE PERSONAL PROPERTY. The tangible personal
property listed on Attachment 1.3 includes certain computer systems which, if
they are used or useful by Division Employees who are not employed by Buyer and
continue to be employed by Sellers as of the Closing Date, Sellers may elect to
retain. Any such retained personal property shall constitute Retained Assets
for all purposes of this Agreement. Sellers shall make such election no later
than February 12, 1998, and shall provide replacement systems (each, a
"Replacement System") therefor no later than February 26, 1998. Each
Replacement System shall consist of a Pentium 133 MHz computer and a 17-inch
monitor. In addition, a physical count of the office automation fixed assets,
including the computer systems, will be performed at Sellers' High Ridge,
Virginia facility, the Chattanooga Warehouse and the Virginia Warehouse will be
performed by representatives of Sellers and Buyer within five Business Days
after the Closing. If it is determined as a result of such count that there
are fewer than 304 computer systems (each consisting of a computer and a
monitor), Buyer shall so notify Sellers and Sellers shall promptly, but no
later than 30 days after receipt of such notice, cause to be delivered to
Buyer, at Sellers' cost and free and clear of Liens, the number of Replacement
Systems equal to the shortfall. Any such Replacement Systems shall be deemed to
be Acquired Assets for all purposes of this Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
To induce Buyer to enter into the Transaction Agreements and to
consummate the Transactions, Sellers represent and warrant to Buyer that the
statements contained in this Article 3 are correct and complete as of the date
of this Agreement, except as set forth in the Disclosure Schedule section
corresponding to the Section of this Agreement to which such representation or
warranty pertains:
SECTION 3.01. CORPORATE ORGANIZATION. Each Seller is a corporation
duly incorporated, validly existing and in good standing under the laws of the
Commonwealth of Virginia.
SECTION 3.02. CORPORATE AUTHORITY. Each Seller has, or, in the
case of any Ancillary Agreement executed after the date hereof, will have, the
requisite corporate power and authority to execute, deliver and perform each
Transaction Agreement to which it is or will be a party and to consummate the
Transactions. The execution, delivery and performance of each Transaction
Agreement by each Seller and the Transactions have been duly authorized by such
Seller's board of directors, and no other corporate proceedings on the part of
any Seller are necessary to authorize any Transaction Agreement or for Sellers
to consummate the Transactions. Each Transaction Agreement to which each
Seller is, or will be, a party is, or when executed and delivered will be
(assuming such agreement constitutes a valid and binding obligation of Buyer),
a valid and binding agreement of such Seller, enforceable against such Seller
in accordance with the terms thereof, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights generally, and by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
SECTION 3.03. ACQUISITION OF SERIES C PREFERRED STOCK.
(a) Sellers are purchasing the Series C Preferred Stock
solely for investment purposes, with no present intention of distributing or
reselling any of the Series C Preferred Stock or the Common Stock, if any,
issuable upon conversion thereof, or any interest therein. Sellers acknowledge
that the Series C Preferred Stock has not been, and the Common Stock, if any,
issuable upon conversion thereof will not be, registered under the Securities
Act.
(b) Sellers are aware of the applicable limitations under
the Securities Act relating to a subsequent sale, transfer, pledge, mortgage,
hypothecation, gift, assignment or other encumbrance of the Series C Preferred
Stock and the Common Stock, if any, issuable upon conversion thereof. Sellers
further acknowledge that such Series C Preferred Stock and Common Stock must be
held indefinitely unless subsequently registered under the Securities Act and
applicable state securities laws or an exemption from such registration is
available.
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(c) Sellers have received from GTSI adequate access to
financial and other information concerning GTSI, the Series C Preferred Stock
and the Common Stock, and Sellers have had the opportunity to ask questions of
and receive answers from GTSI concerning such Series C Preferred Stock and
Common Stock and to obtain therefrom any additional information necessary to
make an informed decision regarding the acquisition of such stock.
(d) Sellers have such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the acquisition of the Series C Preferred Stock. The investment in
the Series C Preferred Stock is suitable for Sellers upon the basis of the
facts regarding Sellers' financial situation and needs.
(e) Sellers realize that Buyer is relying on the validity
of their representations and agreements contained herein in issuing the Series
C Preferred Stock and the Common Stock, if any, issuable upon conversion
thereof, to them without registration under the Securities Act.
SECTION 3.04. BTG SEC DOCUMENTS.
(a) BTG has furnished the Buyer with a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement heretofore filed by BTG with the SEC since March 31, 1996 (the
"BTG SEC Documents"), which are all the documents (other than preliminary
material) that BTG was required to file with the SEC since March 31, 1996. As
of their respective dates, none of the BTG SEC Documents (including all
exhibits and schedules thereto and documents incorporated by reference therein)
contained any untrue statements of a material fact or omissions of a material
fact necessary so as not to render the statements therein misleading and in the
case of documents other than a registration statement, in light of the
circumstances under which they were made, and the BTG SEC Documents complied
when filed in all material respects with the then applicable requirements of
the Securities Act or the Exchange Act, as the case may be. BTG's financial
statements included in the BTG SEC Documents complied in all material respects
with the then applicable accounting requirements and the published SEC rules
and regulations with respect thereto, were prepared in accordance with GAAP
during the periods involved (except as may have been indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form 10-Q
promulgated by the SEC) and fairly present, in all material respects (subject,
in the case of the unaudited statements, to normal, year-end audit
adjustments), the consolidated financial position of BTG and its consolidated
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
(b) Except as disclosed in the BTG SEC Documents, since
September 30, 1997, no event has occurred which has had or is reasonably likely
to have a Material Adverse Effect on BTG and its subsidiaries, taken as a
whole, or on the Division.
SECTION 3.05. DIVISION FINANCIAL STATEMENTS. Disclosure Schedule
Section 3.05 sets forth the unaudited combined balance sheet of the Division as
of December 31, 1997 (the "Division
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Balance Sheet"), March 31, 1997 and March 31, 1996, and the unaudited combined
statements of income and cash flows of the Division for the twelve months ended
March 31, 1997, March 31, 1996 and March 31, 1995 and the nine months ended
December 31, 1997, together with the notes to such financial statements (the
"Division Financial Statements"). The Division Financial Statements have been
prepared from the books and records of BTG and its Subsidiaries relating to the
Division and, except as described in the notes thereto, have been prepared in
accordance with GAAP and fairly present, in all material respects, the
financial condition and the results of operations of the Division as of the
date and for the period indicated.
SECTION 3.06. NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Except as set forth on Disclosure Schedule Section
3.06(a), none of the execution, delivery or performance by any Seller of each
Transaction Agreement to which it is or will be a party or the consummation by
any Seller of the Transactions (i) will conflict with, or result in a violation
or breach of, its charter or bylaws or (ii) subject to the matters referred to
in clause 3.06(b) (i) and (ii) below, will conflict with, or result in a
violation or breach of, or constitute a default (with or without notice or
lapse of time or both) under, or give rise to any right of termination,
amendment, cancellation or acceleration of any obligation under, or result in
the creation of a Lien upon any of the properties or assets of, any Seller
under, (1) any of the terms, conditions or provisions of any Contract or of any
Permit to which such Seller is a party or by which any of their properties or
assets may be bound or (2) any judgment, order, decree, statute, law,
regulation or rule applicable to such Seller, except, in the case of this
clause (ii), for conflicts, violations, breaches, defaults, rights or Liens
that would not, individually or in the aggregate, (x) have a Material Adverse
Effect on the Acquired Business, (y) materially impair the ability of such
Seller to perform its material obligations under the Transaction Agreements or
(z) prevent or materially delay the consummation of the Transactions.
(b) No consent, approval, order, authorization of or
registration, declaration or filing with any Governmental Entity or any other
Person is required with respect to any Seller in connection with the execution,
delivery or performance by any Seller of each Transaction Agreement to which it
is or will be a party or the consummation by any Seller of the Transactions,
except for (i) assignment and novation of Government Contracts and (ii) the
other consents, approvals, orders, authorizations, registrations, declarations
and filings listed on Disclosure Schedule Section 3.06(b).
SECTION 3.07. NO UNDISCLOSED MATERIAL LIABILITIES. There are no
Liabilities of Sellers of any kind whatsoever relating to the Acquired
Business, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than:
(a) Liabilities provided for in the Division Balance
Sheet or disclosed in the notes thereto; and
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(b) except as set forth on Disclosure Schedule Section
3.07(b), other undisclosed Liabilities which, individually or in the aggregate,
are not material to the Acquired Business.
SECTION 3.08. ABSENCE OF CERTAIN EVENTS AND CHANGES. Except as set
forth on Disclosure Schedule Section 3.08, since December 31, 1997, Sellers
have conducted the Acquired Business in the ordinary course, consistent with
past practices, and there have not been (a) any events, changes or developments
which, individually or in the aggregate, have had or would reasonably be
expected to have a Material Adverse Effect on the Acquired Business (as
currently conducted and as conducted since December 31, 1997), or would
materially impair the ability of any Seller to perform its obligations under
the Transaction Agreements, or that would prevent or materially delay the
consummation of the Transactions, other than events, changes or developments
relating to the economy in general or resulting from industry-wide developments
affecting companies in similar businesses; (b)(1) any granting by any Seller to
any officer or management Division Employee of any increase in compensation,
except in the ordinary course of business (including in connection with
promotions) consistent with past practice or as was required under employment
agreements in effect as of December 31, 1997, (2) any granting by any Seller to
any such officer or management Division Employee of any increase in severance
or termination pay, except as part of a standard employment package to any
person promoted or hired (but not, in any case, to any of the five most senior
officers), or as was required under employment, severance or termination
agreements in effect as of December 31, 1997, or (3) except in the ordinary
course of business consistent with past practice, any entry by any Seller into
any employment, consulting, severance, termination or indemnification agreement
with any executive officer or management Division Employee; (c) any acquisition
or any sale, lease or disposition of any material assets or properties of the
Division by any Seller, except in the ordinary course of business, consistent
with past practice; (d) any change in accounting methods, principles or
practices by any Seller, except insofar as such change may have been required
by a change in GAAP; or (e) any entry into any agreement, arrangement or
commitment to take any of the actions set forth in this Section 3.08.
SECTION 3.09. COMPLIANCE WITH APPLICABLE LAWS. Sellers and the
Acquired Assets are in compliance with all statutes, laws, regulations, rules,
judgments, orders and decrees of all Governmental Entities applicable to them
that relate to the Acquired Business (including any statutes, laws,
regulations, rules, judgments, orders and decrees incorporated expressly, by
reference or by operation of law into, or otherwise applicable to, any
Government Contract) except where the failure to be in compliance would not,
individually or in the aggregate, have a Material Adverse Effect on the
Acquired Business, materially impair the ability of any Seller to perform its
obligations under the Transaction Agreements or prevent or materially delay the
consummation of the Transactions. No Seller has received any written notice of
any administrative, civil or criminal investigation or audit (other than Tax
audits) by any Governmental Entity relating to the Acquired Business which has
not been resolved. Notwithstanding the foregoing, this Section 3.09 shall not
apply to Tax matters specifically governed by Section 3.13 or environmental
matters specifically governed by Section 3.15.
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SECTION 3.10. TITLE TO AND SUFFICIENCY OF ASSETS.
(a) Sellers have as of the date of this Agreement good,
valid and marketable title to the Acquired Assets in each case free and clear
of any Liens other than Permitted Liens.
(b) The Inventory has been, or will be upon receipt at
the Virginia Warehouse or the Chattanooga Warehouse, paid for by Sellers,
consists of a quality and quantities which are usable and saleable upon
customary terms and conditions in the ordinary course of business and meet all
customer and warranty standards and requirements. Disclosure Schedule Section
3.10(b) lists by stock keeping unit and quantity all Inventory purchased by
Sellers without the manufacturer's standard warranty.
(c) Attachment 1.3 lists all tangible personal property
(other than Inventory) which are Acquired Assets and the location thereof. All
of such personal property is in good operating condition, subject to ordinary
wear and tear.
(d) Except for the Retained Assets, the Acquired Business
includes all right, title and interest in and to all Acquired Assets that are
used in or that are being held for use or are otherwise necessary in the
operation, as currently conducted by Sellers, of the Division.
(e) Disclosure Schedule Section 3.10(e) contains a
complete and correct list of all government-owned property or
government-furnished equipment, including tooling and test equipment, provided
under, necessary to perform the obligation under, or for which Buyer could be
held accountable under, the Government Contracts transferred to Buyer pursuant
to this Agreement and such government-owned property is maintained by Sellers
in accordance with government approved property management system.
SECTION 3.11. RESERVES. The Division Balance Sheet sets forth all
reserves with respect to the Division existing as of December 31, 1997 and as
of the date hereof for uncollectible accounts, discounts and any other
deductions related to accounts receivable.
SECTION 3.12. LITIGATION. There are no civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending, or to the knowledge of Sellers, threatened, against Sellers that,
individually or in the aggregate, would (a) have a Material Adverse Effect on
the Acquired Business, (b) materially impair the ability of any Seller to
perform its obligations under the Transaction Agreements or (c) prevent or
materially delay the consummation of the Transactions. There are no
outstanding judgments, orders, decrees, stipulations or awards against any
Seller or its properties or businesses that, individually or in the aggregate,
would have a Material Adverse Effect on the Acquired Business, materially
impair the ability of any Seller to perform its obligations under the
Transaction Agreements or prevent or materially delay the consummation of the
Transactions. Disclosure Schedule Section 3.12 sets forth, as of the date
hereof, (x) each suit, action or proceeding
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and (y) each criminal investigation, in each case pending (or, to the knowledge
of Sellers, threatened), with respect to the Acquired Business.
SECTION 3.13. TAXES.
(a) All Tax Returns required to be filed by the Sellers
before the date hereof have been filed except where the failure to file would
not have an adverse effect on any of the Acquired Assets.
(b) Except as set forth on Disclosure Schedule Section
3.13(b), there are no material claims or investigations pending or, to Sellers'
knowledge, threatened in writing with respect to any Tax of the Acquired
Business or any Taxes (other than Income Taxes) relating to the Acquired
Assets.
(c) There is no Tax sharing or allocation agreement under
which the Acquired Business will have any obligations after the Closing Date.
(d) Sellers have timely paid, and will timely pay, all
Tax liabilities which relate to the Acquired Assets and which are incurred in
or attributable to the Pre-Closing Tax Period, the non-payment of which would
result in a Lien on any Acquired Asset, would otherwise adversely affect the
Acquired Business or would result in the Buyer becoming liable therefor.
(e) The Acquired Business does not report any income in
accordance with Section 460 of the Code.
(f) All resale exemption certifications required with
respect to customers of the Division have been obtained, are listed in
Disclosure Schedule Section 3.13(f) and are in full force and effect.
SECTION 3.14. EMPLOYEE BENEFIT PLANS.
(a) Disclosure Schedule Section 3.14 (i) lists and
describes the material terms of each Employee Plan and Foreign Plan and (ii)
identifies each Employee Plan and Foreign Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code. No Employee
Plan or Foreign Plan is subject to Title IV of ERISA. There does not now
exist, nor do any circumstances exist that could result in, any Controlled
Group Liability that would be a liability of Buyer or any of its ERISA
Affiliates as a result of the Transactions. No Employee Plan or Foreign Plan
is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA or
a plan that has two or more contributing sponsors at least two of whom are not
under common control, within the meaning of Section 4063 of ERISA. Neither
Sellers nor any of their ERISA Affiliates have any liability for
post-retirement life, health, medical or other welfare benefits to Division
Employees,
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except as set forth in the Disclosure Schedule, and except for health
continuation coverage as required by Section 4980B of the Code or Part 6 of
Subtitle B of Title I of ERISA.
(b) Disclosure Schedule Section 3.14 lists, for each
Division Employee identified by Buyer to be hired as of the Closing Date,
Sellers' accrued vacation liability as of January 31, 1998.
SECTION 3.15. ENVIRONMENTAL MATTERS.
(a) (1) The Acquired Business is in compliance with
all applicable Environmental Laws except where the failure to be in compliance
would not, individually or in the aggregate, have a Material Adverse Effect on
the Acquired Business, materially impair the ability of any Seller to perform
its obligations under the Transaction Agreements or prevent or materially delay
the consummation of the Transactions.
(2) The Acquired Business has all Permits
required under Environmental Laws for the operation of the Acquired Business as
presently conducted (the "Environmental Permits") and there are no violations,
investigations or proceedings pending or, to the knowledge of Sellers,
threatened with respect to such Environmental Permits, except where the failure
to have such Environmental Permits or where the violation, investigation or
proceeding relating thereto would not, individually or in the aggregate, have a
Material Adverse Effect on the Acquired Business, materially impair the ability
of any Seller to perform its obligations under the Transaction Agreements or
prevent or materially delay the consummation of the Transactions.
(3) Since December 31, 1994, no notice,
notification, demand, request for information, citation, summons, complaint or
order has been received by or, to the knowledge of Sellers, is pending or
threatened by any Person against, any part of the Acquired Business or in
respect of any facilities it has used nor has any material penalty been
assessed against any of the Acquired Business with respect to any alleged
violation of any Environmental Law or liability thereunder, other than where
such notice, notification, demand, request for information, citation, summons,
complaint or order has been fully resolved, or where resolution would not,
individually or in the aggregate, have a Material Adverse Effect on the
Acquired Business, materially impair the ability of any Seller to perform its
obligations under the Transaction Agreements or prevent or materially delay the
consummation of the Transactions.
(4) No Hazardous Substance has been discharged,
generated, treated, manufactured, handled, stored, transported, emitted,
released or is present at any property now or previously owned, leased, used or
operated by any part of the Acquired Business in violation of any Environmental
Law, which violation, individually or in the aggregate, would have in a
Material Adverse Effect on the Acquired Business, materially impair the ability
of any Seller to perform its obligations under the Transaction Agreements or
prevent or materially delay the consummation of the Transactions.
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(b) Since January 1, 1994, there has been no
environmental investigation conducted of which Sellers have knowledge in
relation to the Acquired Business or any property or facility now or previously
owned or leased with respect to the Acquired Business with respect to any
matter which has had or would, individually or in the aggregate, have a
Material Adverse Effect on the Acquired Business, materially impair the ability
of any Seller to perform its obligations under the Transaction Agreements or
prevent or materially delay the consummation of the Transactions.
(c) The representations set forth in this Section 3.15
apply only to the facilities which are the subject of the sublease with respect
to the Chattanooga Warehouse, the Germany Lease and the sublease with respect
to the Virginia Warehouse, but apply to the Virginia Warehouse only with
respect to the period on and after January 1, 1997.
SECTION 3.16. BROKERS AND FINDERS. No Seller or any of its
directors, officers or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders fees in connection
with the Transactions.
SECTION 3.17. INTELLECTUAL PROPERTY.
(a) Unless otherwise indicated in Disclosure Schedule
Section 3.17(a), the Purchased Intellectual Property and the rights licensed or
assigned pursuant to the Ancillary Agreements constitute all of the
Intellectual Property (i) owned, developed or acquired by or on behalf of the
Sellers with respect to the Division or (ii) used by Sellers in the business
and operations of the Division. Unless otherwise indicated in Disclosure
Schedule Section 3.17(a), Sellers own, lease, license or have the right to use
the Purchased Intellectual Property (including with respect to owned
Intellectual Property, the exclusive right to use and license the same and have
the right to transfer the Purchased Intellectual Property to Buyer by Sellers'
sole act and deed). Disclosure Schedule Section 3.17(a) sets forth complete
and correct lists of:
(1) all patents, trademark registrations,
copyright registrations, mask work registrations and applications for any of
them which are part of the Purchased Intellectual Property;
(2) all license agreements granting to any Seller
license in Intellectual Property which licenses are included in the Acquired
Assets;
(3) all computer software programs, including
applications programs, operating system programs, network programs, database
programs, UNIX programs, internet programs, test programs and electronic data
interface programs, owned or used or held for use by any Seller in the business
or operations of the Division (the "Software"); and
(4) all licenses granted by any Seller to any
third party, including any other Seller, under any of the Purchased
Intellectual Property or Software.
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(b) Sellers own, lease, license or have the right to use
all the Software. Upon consummation of this Agreement, Buyer will be entitled
to continue to use all of the Purchased Intellectual Property, the rights
licensed pursuant to the Trademark License Agreement and the Software to the
same extent and under the same conditions that it has heretofore been used in
the Division, without financial obligations to any other Person. The Purchased
Intellectual Property, the rights licensed pursuant to the Trademark License
Agreement, the rights assigned pursuant to the Database and Software Agreement,
any Intellectual Property that constitutes a Retained Asset and Software
comprise all Intellectual Property and computer software programs necessary to
permit the operation of the Division by Sellers as now being conducted.
(c) To the knowledge of Sellers, no Purchased
Intellectual Property used in connection with the Division has been used,
divulged or appropriated for the benefit of any Person other than Sellers. No
Purchased Intellectual Property is owned or controlled by any officer, director
or employee of any Seller or any of its Affiliates.
(d) As of the date hereof, no Seller has made any claim
in writing of a violation, infringement, misuse or misappropriation by others
of rights of Sellers to or in connection with any Purchased Intellectual
Property used in connection with the Division.
(e) To the knowledge of Sellers, as of the date hereof,
there is no pending or threatened claim by any third Person of a violation,
infringement, misuse or misappropriation by any Seller in connection with the
Division of any Intellectual Property owned by any third Person, or of the
invalidity of any patent used in connection with the Division. To the knowledge
of Sellers, the conduct of the Acquired Business by Buyer following the Closing
in the manner currently conducted by Sellers will not result in the
infringement of any Intellectual Property owned by any Person. There are no
interferences or other contested inter partes proceedings, either pending or,
to the knowledge of Sellers, threatened, in any domestic or foreign copyright
office, patent and trademark office or any other Governmental Entity relating
to any pending application with respect to any Intellectual Property used in
connection with the Division.
SECTION 3.18. EMPLOYMENT MATTERS.
(a) Disclosure Schedule Section 3.18(a) sets forth (i) an
organizational chart for the Division as of the date of this Agreement
indicating the role of each Seller and its respective management in the
Division's operations; and (ii) a complete and accurate list of all Division
Employees as of December 18, 1997 showing for each: employer, name, current job
title or description, current salary level and any bonus, commission, deferred
compensation or other remuneration payable or expected to be paid with respect
to the twelve months ended March 31, 1998 in excess of $25,000, and describing
any existing written or oral compensation arrangement with such Employee.
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(b) There is no labor strike or work stoppage pending or,
to the knowledge of Sellers, threatened against the Acquired Business. Neither
Sellers nor any Affiliates of Sellers is a party to any collective bargaining
agreement relating to the Division Employees. To the knowledge of Sellers,
there is no material union representation or organizing effort pending or
threatened against any part of the Acquired Business.
(c) There are no unfair labor practice charges or
complaints pending or, to Sellers' knowledge, threatened by or on behalf of
any Division Employee or group of Division Employees.
(d) There are no complaints or charges pending or, to
Sellers' knowledge, threatened to be filed with any Governmental Entity or
arbitrator based on, arising out of, in connection with, or otherwise relating
to employment at the Division.
(e) Sellers are in compliance with all laws, and all
orders of any court, governmental agency or arbitrator relating to access to
facilities and employment, including such laws relating to wages, hours,
collective bargaining, discrimination, civil rights, affirmative action,
workers compensation, occupational safety and the payment of withholding and/or
social security and similar Taxes, except for any noncompliance which would not
have a Material Adverse Effect on the Acquired Business.
SECTION 3.19. CONTRACTS.
(a) Disclosure Schedule Section 3.19(a) lists all
Contracts described in clauses (i) through (xv) below to which any Seller is a
party and which relate to or involve the Division as currently operated by
Sellers or which are material to the continued operation of the Acquired
Business by Buyer. True, correct and complete copies of the Contracts referred
to in clauses (i)-(xv) below have been delivered to or made available to Buyer.
(i) Each Government Contract with respect to the
Division to which any Seller is a party;
(ii) Each note, debenture, letter of credit, bond
or surety, other evidence of indebtedness, guarantee, loan, credit or financing
agreement or instrument or other contract for money borrowed, including any
agreement or commitment for future loans, credit or financing in excess of
$75,000;
(iii) Each Contract not in the ordinary course of
business and involving expenditures or receipts of Sellers in excess of
$25,000;
(iv) Each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other Contract
affecting the ownership of, leasing of, title to, use of,
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or any leasehold or other interest in, any real or personal property and
involving aggregate payments in excess of $25,000;
(v) Each license agreement or other Contract with
respect to any Intellectual Property of Sellers or any other Person, including
any agreements with current or former employees, consultants, or contractors of
Seller regarding the ownership, appropriation or the nondisclosure of
Intellectual Property;
(vi) Each collective bargaining agreement or other
Contract to or with any labor union or other employee representative of a group
of employees relating to wages, hours, and other conditions of employment;
(vii) Each joint venture Contract, co-production or
partnership agreement, or limited liability company agreement;
(viii) Each Contract requiring capital expenditures
after the date hereof in an amount in excess of $25,000 or otherwise material
to Sellers;
(ix) Each distributorship, agency or
manufacturer's representative agreement;
(x) Each management, consulting or employment
Contract or severance agreement, including, without limitation, any Contract
(A) to employ or terminate executive officers or other personnel and other
Contracts with present or former officers, directors or shareholders of any
Seller or (B) that will result in the payment by, or the creation of any
commitment or obligation (absolute or contingent) to pay on behalf of any
Seller any severance, termination, "golden parachute," or other similar
payments to any present or former personnel following termination of employment
or otherwise as a result of the consummation of the Transactions;
(xi) Each distribution, franchise, license, sales
representative, commission, consulting, agency or advertising Contract which is
not cancelable on thirty (30) days notice without liability to any Seller;
(xii) Each material option to buy any property,
real or personal, or material option to sell any real property or personal
property;
(xiii) Each Contract containing covenants materially
limiting the freedom of any Seller to engage in any line of business or compete
with any Person anywhere in the world;
(xiv) Each open sales order, contract or firm
written quotation ("Backlog Contracts") for more than $10,000; and
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(xv) Each Contract pursuant to which any Seller is
required to indemnify a third party (other than with respect to product
warranties in the ordinary course of business).
(b) Except as set forth on Disclosure Schedule Section
3.19(a), all the Contracts listed pursuant to paragraph (a) hereof are (i) in
full force and effect and (ii) represent the legal, valid and binding
obligations of the Seller which is a party thereto and, to the knowledge of
Sellers, represent the legal, valid and binding obligations of the other
parties thereto. Except as set forth on Disclosure Schedule Section 3.19(b),
no condition exists or event has occurred which, with notice or lapse of time
or both, would constitute a default under such Contracts by any Seller or any
other party thereto, except where the occurrence of such event or existence of
any such condition would not have a Material Adverse Effect on the Division.
(c) Other than the TDA-3 proposal, Disclosure Schedule
Section 3.19(c) sets forth all bids, proposals or quotations for the sale of
goods or services by any Seller with respect to the Division and which were
outstanding (i) as of December 31, 1997 and (ii) as of the Closing Date. Other
than the TDA-3 proposal, Disclosure Schedule Section 3.19(c) identifies each
such bid, proposal or quotation by number and the party to which such bid,
proposal or quotation was made, the proposed price and Sellers' current
assessment of profit or loss at completion for each such bid, proposal or
quotation (it being understood that Sellers are not warranting the accuracy of
such current assessment). Except as set forth in Disclosure Schedule Section
3.19(c), there is no outstanding bid, proposal or quotation for the sale of
goods or services by any Seller with respect to the Division for which the
gross margin, as estimated in good faith by Sellers, would be less than 7% of
the proposed price set forth in such bid on the applicable Contract.
(d) Except as set forth on Disclosure Schedule Section
3.19(d), there are no Contracts for the sale of goods or services by any Seller
with respect to the Division as to which at the time of the most recent
scheduled contract milestone for any such Contract the work scheduled was more
than sixty (60) days late or, in the absence of scheduled contract milestones,
is currently estimated to be more than sixty (60) days late.
(e) Except as set forth on Disclosure Schedule Section
3.19(e), there are no Contracts, options or bids, proposals or quotations for
the sale of goods or services by any Seller with respect to the Division which
include provisions for a reduction in price or a liquidated damages clause for
late delivery.
(f) Except as set forth on Disclosure Schedule Section
3.19(f), there are no Contracts for the sale of goods or services by any Seller
with respect to the Division which require any Seller to be an account party to
a letter of credit or bank guarantee which allows the beneficiary to draw funds
without the specific consent of the account party, in the absence of an
arbitration or judicial ruling in favor of the beneficiary.
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(g) Except as set forth on Disclosure Schedule Section
3.19(g), (i) there is no outstanding bid, proposal or quotation for the sale of
goods or services by any Seller with respect to the Division where performance
of contractual effort will begin prior to contract award, and (ii) there are no
existing Contracts to which any Seller is a party with respect to the Division
where performance will continue while awaiting additional contractual funding.
(h) Except as set forth on Disclosure Schedule Section
3.19(h), there are no claims or requests for equitable adjustment outstanding
or, to the knowledge of Sellers, threatened under any Contracts in process.
SECTION 3.20. PERMITS. Sellers have all Permits relating to the
Acquired Business that are required to permit Sellers to carry on the
Division's business as it is presently conducted, except where the failure to
have such Permits would not, individually or in the aggregate, have a Material
Adverse Effect on the Acquired Business, materially impair the ability of any
Seller to perform its obligations under the Transaction Agreements or prevent
or materially delay the consummation of the Transactions; all such Permits are
in full force and effect; and Sellers are in compliance with the terms of such
Permits, except where the failure of such Permits to be in full force and
effect, or of any Seller to be in compliance with such Permits would not,
individually or in the aggregate, have a Material Adverse Effect on the
Acquired Business, materially impair the ability of any Seller to perform its
obligations under the Transaction Agreements or prevent or materially delay the
consummation of the Transactions.
SECTION 3.21. GOVERNMENT CONTRACTS.
(a) Sellers have complied in all material respects with
all applicable laws, regulations and contract provisions applicable to the
obtaining, formation, pricing, performance, billing, administration, and other
aspects of the Government Contracts listed on Disclosure Schedule Section
3.19(a), including compliance in all material respects with the Truth in
Negotiations Act, the Cost Principles and Cost Accounting Standards, the
Federal Acquisition Regulations (including FAR Part 39 with respect to "year
2000" compliance), the Buy American Act, the Trade Agreements Act, and with all
defective pricing, price, price reduction, or similar clauses contained or
incorporated in such Government Contracts, and Sellers are in compliance in all
material respects with the False Claims Act, or any similar applicable statutes
or regulations concerning false claims, false statements, defective pricing,
misrepresentation, or procurement integrity concerning any such Government
Contract, General Services Administration Multiple Award Schedule or Supply
Schedule, open market, commercial or other sale order involving or pursuant to
such Government Contracts, and Sellers are not aware of any allegation by any
Person that any Seller has not so complied.
(b) All of the Government Contracts relating to or
involving the Division have been legally awarded and each Seller which is a
party thereto is in compliance in all material respects with all terms and
conditions in such Government Contracts, including all terms and conditions
incorporated expressly by reference or by operation of law therein, and neither
the Sellers nor any
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other party has terminated, canceled or waived any material term or condition
of any such Government Contract.
(c) Except as set forth on Disclosure Schedule Section
3.21(c), no Seller has received any notice, written or oral, of performance or
administrative deficiencies relating to or involving any of such Government
Contracts which would have a Material Adverse Effect on the Acquired Business.
(d) The pricing, cost accounting, estimating, material
management and accounting, property and resource planning and procurement
systems relating to the Division have been properly disclosed to and, to the
extent required by applicable regulations, approved by the United States
government.
(e) To the Sellers' knowledge, no officer, director,
employee, agent, or representative of any Seller has made with respect to the
Division (1) any illegal political contributions (2) material payments from
corporate funds not recorded on the books and records of any Seller, (3)
payments from corporate funds that were falsely recorded on the books and
records of any Seller, (4) any payments from corporate funds, promises to pay,
or authorization of payment, or offer, gift or promise to give, to any
government officials or any foreign political party, official thereof or
candidate for foreign political office, or to any person while knowing that all
or a portion of such funds will be offered directly or indirectly to any
foreign official or any foreign political party, party official, or candidate
for foreign political office for the purpose of influencing the action of such
official, party official, or candidate for foreign political office or the
action of the government, or foreign political party, in order to obtain,
retain or direct business to or obtain, retain or direct licenses or other
special treatment for the Division.
(f) Except as set forth on Disclosure Schedule Section
3.21(f), neither Sellers, any of Sellers' Affiliates nor, to Sellers'
knowledge, any of their respective directors, officers or employees has been
debarred or suspended from participation in the award of Government Contracts
or subcontracts or from otherwise conducting business with the United States
government or any agency thereof, nor are there any facts or circumstances
which may form the basis of a debarment or suspension proceeding with respect
to the Sellers or any of Sellers' Affiliates or, to Sellers' knowledge, any of
their respective directors, officers or employees, in any such case, relating
to or involving the Division.
(g) Except as set forth on Disclosure Schedule Section
3.21(g), no Seller has received any notice of any "stop work orders", "cure
notice", "show cause notice" or any "terminations for convenience or default"
of any of the Government Contracts relating to or involving the Division.
(h) Sellers hold such security clearances as are required
to perform their respective Government Contracts or subcontracts. To Sellers'
knowledge, there are no facts or circumstances
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that could result in the suspension or termination of such clearances, or that
could render any Seller ineligible for such security clearances in the future.
All security measures required by the Department of Defense Industrial Security
Manual have been implemented.
(i) Except as set forth on Disclosure Schedule Section
3.21(i), there is no cost type Government Contract relating to or involving the
Division with a ceiling, cap or share ratio, which is or is likely to be
exceeded the result of which would have a Material Adverse Effect on the
Acquired Business.
SECTION 3.22. EXPORT CONTROL AND RELATED MATTERS.
(a) In connection with the Division, each Seller is in
compliance in all material respects with all United States and foreign Export
Control Laws.
(b) Except as set forth on Disclosure Schedule Section
3.22(b), each Seller has all necessary authority under the Export Control Laws
to conduct operations relating to the Division, including (i) all necessary
Permits for any pending export transactions, (ii) all necessary Permits for the
disclosure of information to foreign Persons and (iii) all necessary
registrations with Governmental Entities with authority to implement the Export
Control Laws.
(c) No Seller has participated directly or indirectly in
any boycotts or other similar practices in violation of the regulations of the
United States Department of Commerce or Section 999 of the Code.
SECTION 3.23. COOPERATIVE BUSINESS AGREEMENTS. Disclosure Schedule
Section 3.23 contains a complete and correct list of all of the written, oral
or "handshake" teaming arrangements, advance agreements, associate contractor
agreements, MOUs and MOAs, and modifications or amendments thereto, other than
TDA-3, to which any Seller is a party and which relate to or involve the
Division.
SECTION 3.24. BACKLOG.
(a) Disclosure Schedule Section 3.24(a) sets forth, with
respect to each Backlog Contract, the backlog of each Seller as it relates to
the Division as of (i) December 31, 1997 and (ii) as of the Closing Date, for
products and services to be provided by Sellers. Disclosure Schedule Section
3.24(a) includes the names of each customer, the dollar amount of backlog, any
dollar amount included which are unfunded by any Governmental Entity or other
customer in respect of undelivered orders, a brief description of the products
and services to be provided (or, in lieu thereof, the order therefor), the
proposed delivery dates therefor and any unexercised valid and subsisting
options in the backlog giving a brief description of the options and the
Contracts to which they relate.
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(b) Except as set forth in Disclosure Schedule Section
3.24(b), all of the Backlog Contracts (i) have been entered into in the
ordinary course of Sellers' business, and (ii) would, based on the facts as of
the Closing Date, be capable of performance by Sellers if Sellers retained the
Acquired Assets and the Assumed Liabilities, and made the planned capital
expenditures therefor, in accordance with the terms and conditions of each such
Contract.
SECTION 3.25. RESTRICTIVE AGREEMENTS. No Seller is a party to or
bound by any agreement, contract, policy, license, Permit, document,
instrument, arrangement or commitment relating to the Acquired Business that,
by its terms, would materially limit or restrict the freedom or ability of
Buyer or any of its Subsidiaries to compete in any line of business or with any
Person or in any geographic area after the Closing Date.
SECTION 3.26. SUPPLIERS. Except for the GSA letters of supply
(true and correct copies of which have been made available to Buyer),
Disclosure Schedule Section 3.26 sets forth a complete and accurate list of and
copies of Contracts with suppliers of products and services to which any Seller
is a party relating to the Division with a value in excess of $25,000 (a "Major
Supplier") during the year ended December 31, 1997. Sellers have delivered to
or otherwise made available for inspection by Buyer or its representatives
copies of such Contracts. Disclosure Schedule Section 3.26 also lists all
Sole-Source Suppliers with respect to the Division. No Major Supplier or
Sole-Source Supplier has declined to continue to act as such or has indicated
to any Seller any present or future intention to cease to do so or materially
adversely change the terms of such arrangements. Sellers have timely paid, and
will timely pay, all Liabilities which relate to the Contracts listed on
Disclosure Schedule Section 3.26 and which are incurred in or attributable to
the Pre-Closing Tax Period, the non-payment of which would result in a Lien on
any Acquired Asset, would otherwise adversely affect the Acquired Business or
would result in the Buyer becoming liable therefor.
SECTION 3.27. CUSTOMERS. Sellers have provided Buyer in respect of
the year ended December 31, 1997 a true and complete list of (i) the Division's
50 largest customers and (ii) the Division's sales from the 30 largest
customers. To the knowledge of Sellers, except as set forth on Disclosure
Schedule Section 3.27, (i) there are no outstanding disputes with any customer
referred to in clause (i) or (ii) of the previous sentence involving amounts in
excess of $10,000 individually or $75,000 in the aggregate with respect to any
single customer, and no customer referred to in clause (i) or (ii) of the
previous sentence has refused to continue to do business with the Division or
has stated to any Seller its intention not to continue to do business with the
Division.
SECTION 3.28. OWNERSHIP OF COMMON STOCK. No Seller or any
Affiliate of a Seller beneficially owns (as such term is defined in Rule 13d-3
under the Exchange Act) any Common Stock or has the right to acquire under any
circumstances, other than pursuant to this Agreement, any Common Stock.
SECTION 3.29. FULL DISCLOSURE. Neither this Agreement, any
Ancillary Agreement or the Disclosure Schedule contain any untrue statement of
a material fact or omit to state a material fact
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necessary to make the statements contained herein or therein not misleading, in
light of the circumstances under which they were made. There is no fact which
Sellers have not disclosed to Buyer in writing which any Seller presently
believes has or will have a Material Adverse Effect on the Division or on the
ability of any Seller to perform this Agreement, the Ancillary Agreements or
any Contracts to which any Seller is a party.
SECTION 3.30. CUMULATIVE EXCEPTIONS. The exceptions and
qualifications to the representations and warranties of Sellers in this Article
3 which are based upon such exceptions and qualifications not being "material"
or being "in all material respects," or not having a Material Adverse Effect
will not, individually or in the aggregate, have a Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
To induce Sellers to enter into the Transaction Agreements and to
consummate the Transactions, Buyer represents and warrants to Sellers that the
statements contained in this Article 4 are correct and complete as of the date
of this Agreement.
SECTION 4.01. CORPORATE ORGANIZATION AND QUALIFICATION. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware.
SECTION 4.02. CORPORATE AUTHORITY. Buyer has, or in the case of
any Ancillary Agreement executed after the date hereof, will have, the
requisite corporate power and authority to execute, deliver and perform each
Transaction Agreement and to consummate the Transactions. The execution,
delivery and performance by Buyer of each Transaction Agreement and the
consummation by it of the Transactions have been duly authorized by its Board
of Directors, and, except for approval by its stockholders of the Conversion
Proposal, no other corporate proceedings on its part (including stockholder
approval) are or will be necessary to authorize any Transaction Agreement or
for it to consummate the Transactions. Subject to stockholder approval of the
Conversion Proposal, each Transaction Agreement is, or when executed and
delivered will be (assuming such agreement constitutes a valid and binding
obligation of each applicable Seller), a valid and binding agreement of Buyer,
enforceable against Buyer in accordance with the terms thereof except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally, and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
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SECTION 4.03. NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) None of the execution, delivery or performance by
Buyer of each Transaction Agreement to which it is or will be a party or the
consummation by Buyer of the Transactions (i) subject to stockholder approval
of the Conversion Proposal and the effectiveness of the GTSI Charter Amendment,
will conflict with, or result in a violation or breach of, the Amended and
Restated GTSI Charter or the Amended and Restated GTSI Bylaws or (ii) subject
to the matters referred to in Section 4.03(b), will conflict with, or result in
a violation or breach of, or constitute a default (with or without due notice
or lapse of time or both) under, or give rise to any right of termination,
amendment, cancellation or acceleration of any obligation under, or result in
the creation of any Lien upon any of the properties or assets of Buyer (other
than inventory, including the Current Inventory acquired at the Closing) either
under (1) any of the terms, conditions or provisions of any Contract or of any
Permit to which Buyer is a party or by which any of its properties or assets
may be bound, or (2) any judgment, order, decree, statute, law, regulation or
rule applicable to Buyer, except, in the case of clause (ii), for conflicts,
violations, breaches, defaults, rights, losses or Liens that would not,
individually or in the aggregate, (x) materially impair the ability of Buyer to
perform its obligations under the Transaction Agreements or (y) prevent or
materially delay the consummation of the Transactions.
(b) No consent, approval, order or authorization of or
registration with any Governmental Entity or any other Person is required with
respect to Buyer in connection with the execution, delivery or performance by
Buyer of each Transaction Agreement to which it is or will be a party or the
consummation by it of the Transactions, except for (i) compliance with any
applicable requirements of the HSR Act, (ii) assignment and novation of
Government Contracts, and (iii) the consents, approvals, orders,
authorizations, registrations, declarations, filings and agreements listed on
Attachment 4.03.
SECTION 4.04. CAPITALIZATION OF GTSI.
(a) On the date hereof, upon the effectiveness of the
Closing, GTSI will have an authorized capitalization consisting of 10,000,000
shares of Common Stock, par value $.005 per share, and 580,850 shares of
undesignated preferred stock, par value $.25 per share, of which 6,756,180
shares of Common Stock and 15,375 shares of Series C Preferred Stock will be
issued and outstanding and 49,904 shares of Common Stock will be in the
treasury of GTSI. All of such issued and outstanding Common Stock has been
duly authorized and validly issued and is fully paid and nonassessable, and is
not subject to any preemptive rights of other stockholders. The Series C
Preferred Stock to be issued to BTG pursuant to this Agreement, when issued and
delivered and paid for at the Closing in accordance with the terms hereof, will
be validly issued, fully paid and nonassessable and not subject to any Liens or
preemptive rights, and BTG will not be subject to personal liability by reason
of being a holder of such shares. All other capital stock of GTSI to be
outstanding on the Closing Date shall have been duly authorized and validly
issued and shall be fully paid and nonassessable, and shall not have been
subject to any preemptive rights of other
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stockholders. The Common Stock is currently traded on the National Market
Segment of The Nasdaq Stock Market.
(b) There are no outstanding options, warrants, rights,
calls, commitments, conversion rights, rights of exchange, plans or other
agreements of any character providing for the purchase, issuance or sale of
GTSI capital stock, except as contemplated by this Agreement, or as disclosed
on Attachment 4.04(b).
SECTION 4.05. GTSI SEC DOCUMENTS.
(a) Buyer has furnished Sellers with a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement heretofore filed by GTSI with the SEC since December 31, 1996
(the "GTSI SEC Documents"), which are all the documents (other than preliminary
material) that GTSI was required to file with the SEC since December 31, 1996.
As of their respective dates, none of the GTSI SEC Documents (including all
exhibits and schedules thereto and documents incorporated by reference therein)
contained any untrue statements of a material fact or omissions of a material
fact necessary so as not to render the statements therein misleading and in the
case of documents other than a registration statement, in light of the
circumstances under which they were made, and the GTSI SEC Documents complied
when filed in all material respects with the then applicable requirements of
the Securities Act or the Exchange Act, as the case may be. GTSI's financial
statements included in the GTSI SEC Documents complied in all material respects
with the then applicable accounting requirements and the published SEC rules
and regulations with respect thereto, were prepared in accordance with
generally accepted accounting principles during the periods involved (except as
may have been indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q promulgated by the SEC) and fairly
present, in all material respects (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments), the consolidated financial
position of GTSI and its consolidated subsidiaries as at the dates thereof and
the consolidated results of their operations and cash flows for the periods
then ended. The consolidated balance sheet of GTSI and its consolidated
subsidiaries as September 30, 1997, is referred to herein as the "GTSI Balance
Sheet."
(b) Except as disclosed in the GTSI SEC Documents, since
September 30, 1997, no event has occurred which has had or is reasonably likely
to have a Material Adverse Effect on GTSI and its subsidiaries, taken as a
whole.
SECTION 4.06. NO GENERAL SOLICITATION. Neither GTSI nor any of its
Affiliates has engaged in any form of general solicitation or general
advertising in connection with the purchase and sale of GTSI securities
hereunder, nor made any other sales or solicited any other Persons to buy GTSI
securities that would require registration under the Securities Act of the
Common Stock contemplated to be sold and purchased hereunder.
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SECTION 4.07. TITLE TO SERIES C PREFERRED STOCK AND COMMON STOCK.
Upon consummation of the Closing, BTG shall have received from GTSI good and
marketable title to all of the Series C Preferred Stock issued to it, free and
clear of all Liens other than as set forth in the Standstill Agreement or
imposed by law. Upon stockholder approval of the Conversion Proposal and the
effectiveness of the GTSI Charter Amendment, BTG shall receive from GTSI good
and marketable title to all of the Common Stock issued to it upon conversion of
the Series C Preferred Stock, free and clear of all Liens other than as set
forth in the Standstill Agreement or imposed by law.
SECTION 4.08. BROKERS AND FINDERS. Except as set forth in
Attachment 4.08, none of Buyer or any of its directors, officers or employees
has employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the Transactions.
SECTION 4.09. FULL DISCLOSURE. Neither this Agreement or any
Ancillary Agreement contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained herein or
therein not misleading, in light of the circumstances under which they were
made. There is no fact which Buyer has not disclosed to Sellers in writing
which Buyer presently believes has or will have a Material Adverse Effect on
Buyer or on the ability of Buyer to perform this Agreement or the Ancillary
Agreements.
SECTION 4.10. CUMULATIVE EXCEPTIONS. The exceptions and
qualifications to the representations and warranties of Buyer in this Article 4
which are based upon such exceptions and qualifications not being "material" or
being "in all material respects," or not having a Material Adverse Effect will
not, individually or in the aggregate, have a Material Adverse Effect.
ARTICLE 5
COVENANTS OF BUYER AND SELLERS
Buyer and Sellers agree that:
SECTION 5.01. STOCKHOLDERS MEETINGS.
(a) Buyer shall take all action necessary, in accordance with
applicable law, the GTSI Charter and the GTSI Bylaws, to convene a special or
annual meeting of its stockholders (the "First Meeting") no later than January
1, 1999 for the purpose of, among other things, considering and taking action
upon a resolution to approve the Conversion Proposal. Buyer shall not hold or
convene a special or annual meeting of its stockholders for any purpose prior
to the First Meeting. The GTSI Board will recommend that holders of Common
Stock vote in favor of the adoption of Conversion Proposal at the First Meeting
and each current member of the GTSI Board will vote any Common Stock over which
he or she has voting power in favor of the Conversion Proposal.
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(b) If the Conversion Proposal is not approved at the First
Meeting, GTSI shall take all action necessary, in accordance with applicable
law, the GTSI Charter and the GTSI Bylaws, to convene a special or annual
meeting of its stockholders (the "Second Meeting") no later than January 1,
2000 for the purpose of, among other things, considering and taking action upon
a resolution to approve the Conversion Proposal. The GTSI Board will recommend
that holders of Common Stock vote in favor of the adoption of Conversion
Proposal at the Second Meeting and each current member of the GTSI Board will
vote any Common Stock over which he or she has voting power in favor of the
Conversion Proposal .
SECTION 5.02. PROXY STATEMENT.
(a) GTSI will, consistent with the timing contemplated in Section
6.01(a), prepare and file a proxy statement (the "First Proxy Statement") with
the SEC relating to the First Meeting. GTSI will use its reasonable good faith
efforts to respond to any comments of the SEC or its staff and to cause the
First Proxy Statement to be mailed to GTSI's stockholders as promptly as
practicable after responding to all such comments to the satisfaction of the
SEC or its staff. GTSI will provide Sellers with a copy of the preliminary
First Proxy Statement and all modifications thereto prior to filing or delivery
to the SEC and will consult with Sellers in connection therewith. GTSI will
notify Sellers promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the First Proxy Statement or for additional information and will supply
Sellers with copies of all correspondence between GTSI or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the First Proxy Statement or the First Meeting. Sellers will
cooperate and furnish promptly all information required (including audited or
unaudited financial statements for the Division) for inclusion in the First
Proxy Statement or any amendment or supplement thereto. If at any time prior
to the First Meeting there shall occur any event that should be set forth in an
amendment or supplement to the First Proxy Statement, GTSI will promptly
prepare and mail to its stockholders such an amendment or supplement. The
information provided by either party for use in the First Proxy Statement shall
be true and correct in all material respects without omission of any material
fact which is required to make such information no false or misleading. No
representation, covenant or agreement is made by either party with respect to
information supplied by the other party for inclusion in the First Proxy
Statement.
(b) If GTSI is obligated to hold the Second Meeting pursuant to
Section 5.01(b), GTSI shall, consistent with the timing contemplated in Section
5.01(b), prepare and file a proxy statement (the "Second Proxy Statement") with
the SEC relating to the Second Meeting. The rights and obligations of GTSI and
Sellers set forth in Section 5.02(a) with respect to the First Proxy Statement
shall apply equally to the Second Proxy Statement.
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SECTION 5.03. ASSIGNMENTS; NOVATION OF GOVERNMENT CONTRACTS.
(a) GOVERNMENT CONTRACTS. The parties acknowledge that,
in accordance with FAR Section 42.1204 and other applicable U.S. Government
policy and guidance, Sellers and Buyer are required to enter into a novation
agreement or agreements with the U.S. Government. The parties acknowledge and
agree that they are consummating the transactions hereunder prior to obtaining
consents to the assignment or novation of the Government Contracts. Buyer
hereby acknowledges that Sellers' failure to obtain such consents or novations
prior to Closing shall not, by itself, constitute a breach of this Agreement.
Sellers and Buyer will cooperate fully with each other and will use all
reasonable efforts to obtain consents to the assignment, or the novation, of
all Government Contracts, and Sellers hereby agree expeditiously to take all
action necessary to request in accordance with FAR Section 42.12 that the U.S.
Government execute novation agreements recognizing Buyer as the successor in
interest thereto. Sellers and Buyer shall use all reasonable efforts to obtain
approvals of all required novations or assignments, including the execution and
delivery of agency agreements appointing Buyer as an agent of Sellers with
respect to each Government Contract relating to or involving the Division until
such Government Contract is novated, and the provision of the guarantee of
performance required for novation of contracts pursuant to FAR Sections
42.1201, 42.1204(e). Nothing in this Agreement, however, shall require (i)
Sellers or Buyer to pay any consideration for any such consent or novation, or
(ii) Buyer to accept any conditions, requirements, amendments or limitations
(other than those contained in the underlying contract) which Buyer determines,
in its sole discretion, to be unacceptable.
(b) PERFORMANCE UNDER NON-ASSIGNED CONTRACTS. With
respect to any Government Contracts that cannot be assigned to Buyer or novated
on the Closing Date, Sellers and Buyer shall cooperate so that the performance
obligations of Seller thereunder shall, unless not permitted by such Government
Contract, be deemed to be subcontracted or delegated to Buyer until such
Government Contract has been assigned or novated. Buyer or any of its
Subsidiaries, as a subcontractor or delegate, shall perform such Government
Contracts and Sellers shall, as soon as practicable, pay over to Buyer in full
any amounts received by Sellers as a result of performance by Buyer of such
Government Contracts. Prior to the assignment or novation of such Government
Contracts to Buyer, Sellers, as the contracting party, shall take such timely
action as is reasonably necessary to allow Buyer or any of its Subsidiaries to
perform such Government Contracts and to protect any rights that may exist or
accrue under such Government Contracts until they are assigned or novated.
(c) ASSIGNMENT AFTER CLOSING. If, after the Closing
Date, Sellers and Buyer obtain the necessary consent for the assignment or
novation of a Government Contract for which an assignment or novation is
required, then such Government Contract shall be deemed to be assigned and
transferred to Buyer promptly after Sellers and Buyer obtain such consent or
novation. Sellers shall reimburse Buyer for any monetary benefit received by
Sellers (net of actual costs paid or incurred by Sellers in connection with
such Government Contract prior to consent or novation) that would have accrued
to Buyer had the Government Contract been assigned or novated as of the
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Closing Date. Any subcontract or other Government Contract which Sellers and
Buyer have theretofore entered into or agreed upon in respect of such contract
shall be terminated effective as of the date of such assignment.
(d) BIDS. Sellers and Buyer shall cooperate with each
other and use their best efforts to preserve all bids, quotations and proposals
made in the ordinary course of business of the Division and to facilitate the
award thereof consistent with applicable legal requirements. Any contracts
awarded to Sellers pursuant to such bids, quotations and proposals shall,
subject to the consent of Buyer, be deemed to be Assumed Liabilities and, in
the case of Contracts with the U.S. Government, shall be deemed to be
"Government Contracts" for purposes of this Agreement and shall be governed by
this Section 5.03. In any instance where, prior to Closing, Sellers and Buyer
have submitted a bid or proposal in response to the same solicitation, such
bids or proposals shall be kept confidential from the other party. Sellers and
Buyer shall disclose to the soliciting organization or Governmental Entity in
connection with such bids or proposals the existence of this Agreement and the
letter of intent related to this Agreement. Sellers agree to continue, subject
to reasonable business judgment, to pursue any such bids or proposals until
such time as an award decision has been made. This Section 5.03(d) shall not
apply to any proposal by Sellers or Buyer with respect to TDA-3.
(e) DEFERRED REVENUE. If after the Closing Date Buyer
performs services and/or delivers products under a Contract identified in
Attachment 5.03(e) with respect to which Sellers have deferred revenue recorded
as of the Closing Date, not to exceed the amount set forth in Attachment
5.03(e), Sellers shall pay promptly to Buyer the amount of such deferred
revenue recorded with respect to such services and/or products.
(f) RETURNED PRODUCTS. Buyer shall retain any Returned
Products and shall promptly pay to Sellers upon receiving a Returned Product an
amount equal to the then current fair market value of such Returned Product,
less a handling fee of ten percent (10%) of such amount. Sellers shall issue
to the customer who returned such Returned Product a credit equal to the amount
paid by such customer for such Returned Product. If Buyer ships to a customer
a replacement product for a Returned Product, and invoices the customer
therefor, and such customer does not pay the amount due under such invoice
within 30 days after the invoice is mailed, Buyer shall invoice Sellers for
such amount and Sellers shall pay such amount within 30 days after receipt of
such invoice.
SECTION 5.04. NONCOMPETE.
(a) For the period beginning on the Closing Date and
continuing until the sixth anniversary of the Closing Date, Sellers shall not,
and shall use their commercially reasonable efforts to cause their directors,
officers, employees and Affiliates not to: (i) cause, induce or encourage any
Division Employees who are or become employees of Buyer or its Affiliates to
leave such employment, provided that nothing in this Section 5.04(a)(i) shall
preclude Sellers from hiring any such employee responding to a generally
circulated employment advertisement; (ii) cause, induce or encourage any actual
or prospective customer, supplier, manufacturer or licensor of the Division or
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the Acquired Business, or any other Person who has a business relationship with
any Seller, to terminate or change any such actual or prospective relationship
in a manner which would be adverse to the Division or the Acquired Business; or
(iii) subject to Section 5.04(d), conduct, participate or engage, directly or
indirectly (whether as a principal, sole proprietor, partner, stockholder,
agent, consultant, subcontractor, joint venturer, team member or in any other
capacity), acquire, own or have any interest (other than a three percent (3%)
or less ownership in an entity whose securities are traded on a recognized
securities exchange or quotation system), in any business, or support any
product or any business, that is competitive with the Acquired Business or the
Division (as conducted on the Closing Date or at any time during the two years
immediately prior to the Closing Date). The covenant in the foregoing sentence
shall encompass the activities of each Seller and its directors, officers,
employees and Affiliates in all areas of the United States and in Europe.
Sellers acknowledge that the Division is a nationwide business and that its
scope also includes Europe and agree that this covenant is reasonable with
respect to its duration, geographical area and scope. Sellers' obligation
under this Section 5.04 shall include taking all steps reasonably necessary to
enforce Sections 7 and 8 of the Employment and Noncompetition Agreement dated
as of October 20, 1995 by and between Concept Automation, Inc. of America and
Steven Baldwin.
(b) The covenants and undertakings contained in this
Section 5.04 relate to matters which are of a special, unique and extraordinary
character and a violation of any of the terms of this Section 5.04 will cause
irreparable injury to Buyer, the amount of which will be impossible to estimate
or determine and which cannot be adequately compensated. Therefore, Buyer will
be entitled to an injunction, restraining order or other equitable relief from
any court of competent jurisdiction in the event of a breach of this Section
5.04. The rights and remedies provided by this Section 5.04 are cumulative and
in addition to any other rights and remedies which Buyer may have hereunder or
at law or in equity. If Buyer were to seek damages for any breach of this
Section 5.04, the portion of the Purchase Price delivered to Sellers hereunder
which is attributed by the parties to the foregoing covenant shall not be
considered a measure of or limit on such damages.
(c) The parties agree that, if any court of competent
jurisdiction in a final nonappealable judgment determines that a specified time
period, a specified geographical area, specified business limitation or any
other relevant feature of this Section 5.04 is unreasonable, arbitrary or
against public policy, then a lesser time period, geographical area, business
limitation or other relevant feature which is determined to be reasonable, not
arbitrary and not against public policy may be enforced against the applicable
party.
(d) Notwithstanding any other provision of this Section
5.04, if any Retained Contract requires any Seller to deliver products in a
manner that would be competitive with Buyer under Section 5.04(a) (a "Product
Requirement"), such Seller may nonetheless fulfill such Product Requirement
through a third party provided it first satisfies the following requirements.
Seller shall notify Buyer's Contact Person in writing of the Product
Requirement, including therein sufficient detail for Buyer to respond
professionally and setting forth a date by which Buyer must respond. Unless
another time period is specified in the notification and is reasonably required
to satisfy the
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Product Requirement, Buyer shall have three calendar days unless otherwise
specified to submit to Seller's Contact Person a written proposal for
fulfilling the Product Requirement. If such proposal is not received within
such three-day period or the other time period so specified, Seller may fulfill
the Product Requirement through another source. If Buyer's proposal is
received within the requisite period, Buyer and Seller shall negotiate in good
faith the terms under which Buyer would fulfill such Product Requirement. If
the parties are unable to reach agreement within a reasonable time and have
exhausted the dispute procedure in Section 5.04(e), Seller may fulfill the
Product Requirement through another source. Buyer's "Contact Person" shall
initially be William Johnson. Sellers' "Contact Person" shall initially be
Jack Littley.
(e) If the Contact Persons are unable to reach agreement
with respect to a Product Requirement, the matter, upon written request of
either party, shall be referred to the chief executive officer of the other
party for resolution. The chief executive officers shall promptly meet in a
good faith effort to resolve the dispute. If the chief executive officers do
not resolve the dispute within 14 calendar days after reference of the matter
to them, Seller shall be free to fulfill the Product Requirement through
another source.
(f) For a period of one year after the Closing Date,
Buyer shall not cause, induce or encourage any non-Division employee of Sellers
or its Affiliates to leave such employment; provided that nothing in this
Section 5.04(f) shall preclude Buyer from hiring any such employee responding
to a generally circulated employment advertisement.
SECTION 5.05. PUBLIC ANNOUNCEMENTS.
(a) The initial press release relating to the Transaction
Agreements will be a joint release. Buyer and Sellers will consult with each
other before issuing any further press release or making any other public
statement with respect to the Transaction Agreements and the Transactions that
differs substantially from previously approved statements and, except as may be
required by applicable law or any listing agreement with any securities
exchange or the Nasdaq Stock Market, will not issue any such press release or
make any such public statement unless the text of such statement shall first
have been agreed by the parties.
(b) Sellers and Buyer shall cooperate in making
communications with Division Employees with respect to Employee Plans
maintained by Sellers or Buyer and with respect to other matters arising in
connection with the purchase and sale of the Acquired Assets hereunder.
SECTION 5.06. FURTHER ASSURANCES. At and after the Closing Date,
Sellers will execute and deliver any bills of sale, assignments or assurances
and take and do, any other actions and things reasonably necessary to vest,
perfect or confirm of record or otherwise in Buyer any and all right, title and
interest in, to and under any of the rights, properties or assets of the
Acquired Business acquired or to be acquired by Buyer as a result of, or in
connection with, the purchase and sale of the Acquired Assets hereunder.
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SECTION 5.07. ADMINISTRATION OF ACCOUNTS.
(a) All payments and reimbursements made in the ordinary
course by any third party in the name of or to any Seller in connection with or
arising out of the Acquired Business after the Closing Date (including all
vendor rebates with respect to Current Inventory and Noncurrent Inventory sold
to Buyer pursuant to this Agreement and products sold after the Closing Date)
shall be held by such Seller in trust to the benefit of Buyer, and, immediately
upon receipt by such Seller of any such payment or reimbursement, such Seller
shall pay over to Buyer the amount of such payment or reimbursement without
right of set off.
(b) All payments and reimbursements made in the ordinary
course by any third party in the name of or to Buyer in connection with or
arising out of the Retained Assets and the Retained Liabilities after the
Closing Date (including vendor rebates with respect to Current Inventory and
Noncurrent Inventory sold to Buyer pursuant to this Agreement and products sold
on or prior to the Closing Date) shall be held by Buyer in trust to the benefit
of Sellers, and, immediately upon receipt by Buyer of any such payment or
reimbursement, Buyer shall pay over to BTG, as agent for Sellers, the amount of
such payment or reimbursement without right of set off.
SECTION 5.08. USE OF STATIONERY, ETC. To the extent that any
invoice, stationery or other printed materials acquired by Buyer pursuant to
this Agreement shall contain the name "BTG" or the name of any other Seller or
its Affiliates, Buyer may continue to use such materials in respect of the
Acquired Business until the earlier to occur of (i) the 180th day after the
Closing Date and (ii) the date on which the existing supply thereof shall be
exhausted, and neither Sellers nor any Affiliate of Sellers shall prohibit or
bring any action to enjoin the use of such materials by Buyer; provided that
Buyer shall in any event be entitled to use such materials in accordance with
the terms of the Trademark License Agreement, Novation Subcontracts, Royalty
Subcontracts and Distribution Agreement.
SECTION 5.09. NASDAQ FILINGS. Buyer shall make in a timely fashion
all notice and other filings required by The Nasdaq Stock Market with regard to
the issuance of the Series C Preferred Stock and the issuance of the Common
Stock upon conversion of the Series C Preferred Stock.
SECTION 5.10 PENTAGON STORE. Sellers agree to use commercially
reasonable efforts to make available for Buyer's use at Sellers' store at the
Pentagon, at no cost to Buyer, one desk and three passes, and to permit Buyer
to showcase "GTSI" on the premises.
SECTION 5.11 WARRANTY SERVICE. Sellers agree to cooperate with Buyer
after the Closing to identify all products shipped under warranty by Sellers on
or before the Closing Date and to identify and perform at its own cost such
warranty requirements at Buyer's request.
SECTION 5.12. REASONABLE EFFORTS. Each party will use reasonable
efforts to take, or cause to be taken, all actions necessary, proper or
advisable under applicable laws and regulations to comply with the foregoing
covenants.
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ARTICLE 6
TAX MATTERS
SECTION 6.01. TAX COVENANTS.
(a) All Returns required to be filed with any Taxing
Authority on or before the Closing Date with respect to any Pre-Closing Tax
Period by, or with respect to, the Acquired Business will be filed when due in
accordance with all applicable laws (taking into account any extension of a
required filing date) and Sellers shall pay or cause to be paid all Taxes as
shown on such Returns and all other Returns required to be filed with respect
to the Acquired Business (excluding any separate Returns required to be filed
by the Acquired Business) with respect to any Pre-Closing Tax Period will be
filed by Sellers when due (taking into account any extension of a required
filing date) and Sellers shall pay or cause to be paid all Taxes as shown on
such Returns.
(b) If any claim or demand for Taxes with respect to any
Pre-Closing Tax Period of the Acquired Business is asserted in writing against
Buyer or any of its Affiliates, Buyer shall notify Sellers as promptly as
practicable (taking into account the time in which a response is required), but
in no event later than 10 days of such claim or demand, and shall give Sellers
such information with respect thereto as Sellers may reasonably request.
Sellers may discharge, at any time, its indemnification obligation with respect
to such Taxes under this Agreement by paying to Buyer the amount of the
indemnifiable loss (inclusive to any amount payable under Section 10.02(d)),
calculated on the date of such payment. Sellers may, at their own expense,
participate in and assume the defense of any such claim, suit, action or
proceeding (including any Tax audit). If Sellers assume such defense, Buyer
shall have the right (but not the duty) to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed
by Sellers. Whether or not Sellers choose to defend or prosecute any claim,
all of the parties hereto shall cooperate in the defense or prosecution
thereof. Sellers shall not be liable under Section 8.03 with respect to any
Tax referred to in this Section 6.01(b) resulting from a claim or demand the
defense of which Sellers were not offered the opportunity to assume as provided
under this Section 6.01(b) to the extent Sellers' Liability under this
Agreement is adversely affected as a result thereof.
(c) For all purposes of the Agreement, except as provided
in Section 6.02, all Taxes for a taxable period which includes (but does not
end on) the Closing Date shall be allocated based upon a closing-of-the-books
method.
SECTION 6.02. TRANSFER AND PROPERTY TAXES.
(a) All excise, sales, use, value added, registration
stamp, recording, documentary, conveyancing, franchise, property, transfer,
gains and similar Taxes, levies, charges and fees including any deficiencies,
interest, penalties, additions to tax or additional amounts excluding any
Income Taxes (collectively, "Transfer Taxes") incurred in connection with the
Transactions shall be borne by
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Sellers. Buyer and Sellers shall use reasonable efforts to minimize the amount
of all Transfer Taxes and shall cooperate in providing each other with any
appropriate resale exemption certifications and other similar documentation.
Sellers shall make the filings, reports, or returns and to handle any audits or
controversies with respect to any applicable Transfer Taxes, and Buyer shall
cooperate with respect thereto as necessary.
(b) All property Taxes and similar ad valorem obligations
levied with respect to the Acquired Assets or the assets of the Acquired
Business for a taxable period which includes (but does not end on) the Closing
Date (collectively, the "Apportioned Obligations") shall be apportioned between
Sellers and Buyer based on the number of days of such Taxable period included
in the Pre-Closing Tax Period and the number of days of such Taxable period
after the Closing Date (with respect to any such Taxable period, the
"Post-Closing Tax Period"). Sellers shall be liable for the proportionate
amount of such taxes that is attributable to the Pre-Closing Tax Period, and
Buyer shall be liable for the proportionate amount of such Taxes that is
attributable to the Post-Closing Tax Period. Upon receipt of any bill for
property Taxes relating to the Acquired Assets or the assets of the Acquired
Business, each of Sellers and Buyer shall present a statement to the other
setting forth the amount of reimbursement to which each is entitled under this
Section 6.02(b) together with such supporting evidence as is reasonably
necessary to calculate the proration amount. The proration amount shall be
paid by the party owing it to the other within 30 days after delivery of such
statement. If either Sellers or Buyer shall make any payment for which it is
entitled to reimbursement under this Section 6.02(b), the other party shall
make such reimbursement promptly but in no event later than 10 days after the
presentation of a statement setting forth the amount of reimbursement to which
the presenting party is entitled along with such supporting evidence as is
reasonably necessary to calculate the amount of reimbursement.
SECTION 6.03. COOPERATION. Buyer and Sellers agree to furnish or
cause to be furnished to each other, upon request, as promptly as practicable,
such information and assistance relating to the Acquired Business and the
Acquired Assets (including access to books and records) as is reasonably
necessary for the filing of all Tax Returns, the making of any election
relating to Taxes, the preparation for any audit by any taxing authority, and
the prosecution or defense of any claim, suit or proceeding relating to any
Tax. Buyer and Sellers shall retain all books and records with respect to
Taxes pertaining to the Acquired Assets for a period of at least six years
following the Closing Date. At the end of such period, each party shall
provide the other with at least 30 days prior written notice before destroying
any such books and records, during which period the party receiving such notice
can elect to take possession, at its own expense, of such books and records.
Sellers and Buyer shall cooperate with each other in the conduct of any audit
or other proceeding relating to Taxes involving the Acquired Assets or the
Acquired Business. Sellers agree to provide Buyer with such information
relating to the Division as is necessary to permit Buyer to file appropriate
payroll Tax Returns, including determining the extent to which wages paid by
Sellers are to be taken into account in determining Buyer's annual wage
limitations for social security Tax purposes.
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SECTION 6.04. REFUNDS. Sellers shall be entitled to any credits or
refunds of Taxes of the Acquired Business with respect to any Pre-Closing Tax
Period, including interest thereon, and Buyer shall pay or cause prompt payment
to be made to Sellers of any credits or refunds of such Taxes and interest
thereon received by Buyer or any of its Affiliates, reduced by any Income Taxes
payable on account of interest on such credits or refunds.
ARTICLE 7
EMPLOYEE BENEFITS
SECTION 7.01. EMPLOYEES; ALLOCATION OF LIABILITIES; WARN ACT.
(a) Prior to and on February 14, 1998, all obligations
for salaries, wages, vacation, sick leave, severance, bonuses, other employment
benefits and related payroll items with respect to the Division Employees shall
be Retained Liabilities and shall be the responsibility of and paid by Sellers.
(b) As of and after February 15, 1998, Buyer shall have
the right, in its sole discretion, to hire some or all of the Division
Employees and, upon such hiring, all obligations for salaries, wages, vacation
(except as set forth in the following sentence), sick leave, severance,
bonuses, commissions and other employment benefits and related payroll items
with respect to the Division Employees accrued with respect to the period prior
to such hiring shall remain the responsibility of and paid by Sellers and such
obligations with respect to Division Employees not hired by Buyer shall be the
responsibility of and paid by Sellers. Buyer shall assume all accrued vacation
with respect to Division Employees that Buyer hires on or after the Closing and
Sellers shall remit to Buyer a cash payment or payments in an amount equal to
(i) the value of such accrued vacation, to the extent that such amount exceeds
$100,000 in the aggregate, promptly after such Division Employees are hired by
Buyer, less (ii) $161,959 which has been deducted from the cash portion of the
Purchase Price.
(c) The terms and conditions of the Division Employees
hired by Buyer shall be upon such terms and conditions as Buyer, in its sole
discretion, shall determine. Upon such hiring, all obligations for salaries,
wages, vacation (except as set forth in Section 7.01(b)), sick leave,
severance, bonuses, commissions and other employment benefits and related
payroll items with respect to such persons with respect to the period after
such hiring shall be the responsibility of and paid by Buyer. Upon request of
Buyer, Sellers shall provide Buyer reasonable access to data before and after
the Closing (including computer data and personnel records) regarding the ages,
dates of hire, benefits, compensation and job description of the Division
Employees. Sellers will provide Buyer with reasonable opportunities to enter
into discussions with and to advise any of the Division Employees concerning
the terms of any future employment of such individuals by Buyer and will permit
Buyer reasonable access to Division Employees for such purpose. Sellers shall
not discourage
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any Division Employees from accepting an offer of employment, if any, made by
Buyer to such Employee. Buyer and Sellers shall cooperate in preparing and
disbursing materials concerning the Transactions or the effect of the
Transactions upon the Division Employees' employment or the terms or conditions
of the Division Employees' employment. Buyer and Sellers shall provide each
other with reasonable opportunity to review any written materials and to attend
any scheduled meetings concerning the foregoing.
(d) Sellers agree to provide any required notice under
the Worker Adjustment and Retraining Notification Act, as amended (the "WARN
Act"), and any similar statute, and otherwise to comply with any such statute
with respect to any "plant closing" or "mass layoff" as defined in the WARN Act
or similar event affecting Division Employees not hired by Buyer as of February
15, 1998. Sellers shall indemnify and hold harmless Buyer with respect to any
liability under the WARN Act or similar statute arising with respect to
Division Employees not hired by Buyer as of February 15, 1998. Buyer agrees to
provide any required notice under the WARN Act and any similar statute, and
otherwise to comply with any such statute with respect to any "plant closing"
or "mass layoff" as defined in the WARN Act or similar event affecting any
Division Employees hired by Buyer as of February 15, 1998 and thereafter
terminated by Buyer. Buyer shall indemnify and hold harmless Sellers with
respect to any liability under the WARN Act or similar statute arising with
respect to any Division Employees hired by Buyer as of February 15, 1998 and
thereafter terminated by Buyer.
SECTION 7.02. EMPLOYEE PLANS AND FOREIGN PLANS. Except as provided
in Section 7.01(b), all Liabilities under Employee Plans and Foreign Plans
shall be Retained Liabilities.
SECTION 7.03. DEFINED CONTRIBUTION PLANS. Effective as of
February 14, 1998, each Seller shall amend any defined contribution retirement
plan qualified under Section 401(a) of the Code and maintained by such Seller
or one of its ERISA Affiliates (1) to cause the active participation of the
Division Employees therein to cease as of February 14, 1998 and (2) to permit
Division Employees to elect to take distributions (subject to applicable law)
of their accounts thereunder (including to the extent practicable, in Buyer's
reasonable judgment, any plan loans) and, if such Employees so elect, to roll
them over, directly or otherwise, in accordance with applicable law and
regulations, to an individual retirement account or to one or more defined
contribution retirement plans qualified under Section 401(a) of the Code and
maintained by Buyer or one of its ERISA Affiliates (the "Buyer DC Plans"), and
the Buyer DC Plans shall accept such rollovers.
ARTICLE 8
SURVIVAL; INDEMNIFICATION
SECTION 8.01. SURVIVAL. The representations and warranties of Buyer
and Sellers contained in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith shall survive the Closing
until the first anniversary of the Closing Date; provided, however,
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that (i) the representations and warranties set forth in Section 3.15 shall
survive the Closing until the second anniversary of the Closing Date, (ii) the
representations and warranties in Sections 3.13 shall survive until the
expiration of the statute of limitations applicable to the matters covered
thereby, giving effect to any mitigation, waiver or extension thereof and (iii)
the representations and warranties set forth in Section 4.07 shall survive
indefinitely. Notwithstanding the preceding sentence, any representation or
warranty in respect of which indemnity may be sought under this Agreement shall
survive the time at which it would otherwise terminate pursuant to the
preceding sentence, if notice of the inaccuracy or breach thereof giving rise
to such right of indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time. All covenants and agreements of
the parties contemplating performance after the Closing Date shall survive the
Closing Date for a period ending at the earlier of the date such covenant or
agreement is performed or the expiration of the statute of limitations for any
claim relating thereto.
SECTION 8.02. INDEMNIFICATION.
(a) Sellers hereby indemnify Buyer and each of its
Subsidiaries, and each of Buyer's and such Subsidiaries' respective officers,
directors, employees and agents, and each of the heirs, executors, successors
and assigns of the foregoing (the "Buyer Indemnified Parties"), against and
agree to defend and hold them harmless from any and all Damages incurred or
suffered by any of them arising out of or relating to (i) any misrepresentation
or breach of warranty made by Sellers contained in this Agreement or in any
certificate delivered pursuant hereto or in connection herewith (provided,
however, that Sellers shall not be required to indemnify the Buyer Indemnified
Parties with respect to such misrepresentations or breaches (A) unless the
aggregate amount of Damages for which indemnity would otherwise be payable or
has previously been paid exceeds $100,000 (the "Basket Amount"), at which time
and at all times thereafter the Buyer Indemnified Parties shall be entitled to
the full amount of all claims without deduction of $100,000, or (B) to the
extent that the aggregate amount of Damages for which indemnity would otherwise
be payable exceeds the sum of the Cash Escrow Amount and the Market Value of
the Escrow Shares (the "Cap Amount"); (ii) breaches of covenants or obligations
of Sellers contained herein; or (iii) any Retained Liability. For purposes of
this Section 8.02(a), the Basket Amount and the Cap Amount shall not apply to
clauses (ii) and (iii) in the foregoing sentence, including in respect of any
Retained Liabilities which also constitute misrepresentations or breaches of
warranties under clause (i) thereof.
(b) Buyer hereby indemnifies Sellers, each of Sellers'
respective officers, directors, employees and agents, and each of the heirs,
executors, successors and assigns of the foregoing (the "Seller Indemnified
Parties"), against and agrees to defend and hold it harmless from any and all
Damages incurred or suffered by any of them arising out of or relating to (i)
any misrepresentation or breach of warranty made by Buyer contained in this
Agreement or in any certificate delivered pursuant hereto or in connection
herewith (provided, however, that Buyer shall not be required to indemnify the
Seller Indemnified Parties with respect to such misrepresentations or breaches
(A) unless the aggregate amount of Damages for which indemnity would otherwise
be payable or has previously been paid exceeds the Basket Amount, at which time
and at all times thereafter the Seller
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Indemnified Parties shall be entitled to the full amount of all claims without
deduction of $100,000, or (B) to the extent that the aggregate amount of
Damages for which indemnity would otherwise be payable exceeds the Cap Amount;
(ii) breaches of covenants or obligations of Buyer contained herein; (iii) any
Assumed Liability (including Liabilities with respect to Buyer's performance
under the Acquired Contracts after the Closing Date). For purposes of this
Section 8.02(b), the Basket Amount and the Cap Amount shall not apply to
clauses (ii) or (iii) in the foregoing sentence, including in respect of any
Assumed Liabilities which also constitute misrepresentations or breaches of
warranties under clause (i) thereof.
(c) The amount of any indemnifiable losses or other
liability for which indemnification is provided under this Agreement shall be
net of any amounts actually recovered by the indemnified party from third
parties (including amounts actually recovered under insurance policies) with
respect to such indemnifiable losses or other liability. Any indemnifying
party hereunder shall be subrogated to the rights of the indemnified party upon
payment in full of the amount of the relevant indemnifiable loss. An insurer
who would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification
provision hereof, have any subrogation rights with respect thereto. If any
indemnified party recovers an amount from a third party in respect of an
indemnifiable loss for which indemnification is provided in this Agreement
after the full amount of such indemnifiable loss has been paid by an
indemnifying party or after an indemnifying party has made a partial payment of
such indemnifiable loss and the amount received from the third party exceeds
the remaining unpaid balance of such indemnifiable loss, then the indemnified
party shall promptly remit to the indemnifying party the excess (if any) of (i)
the sum of the amount theretofore paid by the indemnifying party in respect of
such indemnifiable loss plus the amount received from the third party in
respect thereof, less (ii) the full amount of such indemnifiable loss or other
liability.
(d) The amount of any indemnifiable losses or other
liability for which indemnification is provided under this Article 8 shall be
increased by any Tax imposed on the receipt of any indemnity payment with
respect thereto and decreased to take account of the tax benefit arising from
any credit, deduction, amortization, exclusion from income or other allowance
associated with the Damages giving rise to the payment received by the
Indemnitee ("Tax Benefit"). The amount of such decrease shall be the present
value as of the date of any indemnification payment under this Article 8 of
each Tax Benefit multiplied by (i) the combined effective federal and state
corporate tax rates in effect at the time of the indemnity payment or (ii) in
the case of a credit, 100 percent. The present value of any Tax Benefit shall
be determined using the Applicable Interest Rate and assuming the party being
indemnified has sufficient Taxable income or other Tax attributes to permit the
utilization of such Tax Benefit at the earliest possible time. Any payment
pursuant to this Article 8 will be treated as non-Taxable to the indemnified
party except to the extent that a Final Determination causes such payment to be
Taxable. If any Final Determination renders any payment made pursuant to this
Article Taxable to the recipient, the indemnifying party shall pay an amount
that reflects the Tax consequences to the indemnified party of receiving such
payment.
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SECTION 8.03. INDEMNIFICATION PROCEDURES.
(a) Subject to Section 6.01(c), upon receipt by any
Person who may seek indemnity pursuant to Section 8.02 (the "indemnified
party") of actual notice of a loss, claim, Damage, liability or action in
respect of which indemnity may be sought, such indemnified party shall promptly
notify the Person against whom such indemnity may be sought (the "indemnifying
party") in writing (provided, however, that the failure to so notify the
indemnifying party shall only relieve the indemnifying party of its obligations
hereunder to the extent such failure actually prejudices such indemnifying
party in its defense of the loss, claim, Damage, liability or action) and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate, in such indemnified party's reasonable judgment, due to actual
or potential differing interests between them, in which case such fees and
expenses shall be paid by the indemnifying party. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all indemnified parties
and that all such fees and expenses shall be reimbursed as they are incurred.
Subject to the terms of Section 8.03(c), the indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(b) Upon receipt of the notice described in the first
sentence of Section 8.03(a), an indemnifying party shall promptly notify the
indemnified party of its election to defend or to seek to settle or compromise,
at such indemnifying party's own expense and by such indemnifying party's own
counsel, any claim, action, inquiry or investigation commenced by any person (a
"Third Party Claim") and of its acknowledgment of its indemnification
obligation hereunder. If the indemnifying party elects to assume
responsibility for defending such Third Party Claim, the indemnifying party
shall so notify the claimant or plaintiff of such election and request that all
communications relating to such Third Party Claim be made, delivered or
addressed to the indemnifying party and the indemnified party. After notice by
the indemnifying party to the indemnified party of its election to
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assume the defense of a Third Party Claim, subject to the indemnified party's
rights to separate counsel paid for by the indemnifying party pursuant to
Section 8.03(a), so long as such indemnifying party continues such defense in
good faith, the indemnifying party shall have no further obligation to the
indemnified party in respect of legal or other expenses not yet incurred by the
indemnified party in connection with such Third Party Claim and shall promptly
reimburse any such expenses already incurred.
(c) If an indemnifying party does not elect to assume
responsibility for a Third Party Claim (which decision not to assume may only
be made in the case of a good faith dispute that a claim is not properly the
subject of an indemnification obligation pursuant to this Article 8), an
indemnified party may not settle or compromise any claim without prior written
notice to the indemnifying party, which shall have the option within 10 days
following such notice (i) to disapprove the settlement and assume all past and
future responsibility for the claim, including reimbursing the indemnified
party for prior expenditures relating thereto, (ii) to disapprove the
settlement and continue to refrain from participation in the defense of the
claim, in which event the indemnifying party shall have no further right to
contest the amount or reasonableness of the settlement if the indemnified party
elects to proceed therewith, (iii) to approve the amount of the settlement,
reserving the indemnifying party's right to contest the indemnified party's
indemnity right, or (iv) to approve and agree to pay the settlement (and all
expenditures of the indemnified party relating thereto). If no response is
received by the indemnified party, the indemnifying party shall be deemed to
have elected option (ii).
ARTICLE 9
MISCELLANEOUS
SECTION 9.01. ENTIRE AGREEMENT. This Agreement, together with the
Ancillary Agreements and the Confidentiality Agreement, constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior written and oral and all contemporaneous oral agreements
and understandings with respect to the subject matter hereof, including the
letter of intent with respect to the Transactions dated December 18, 1997, as
amended on January 9, 1998 and January 23, 1998.
SECTION 9.02. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy
or similar writing) and shall be given,
if to any Seller, to:
Edward H. Bersoff
President and Chief Executive Officer
BTG, Inc.
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3877 Fairfax Ridge Road
Fairfax, VA 22030
telecopier: (703) 383-4000
with a copy to:
David B. H. Martin
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
telecopier: (202) 637-5910
if to Buyer, to:
M. Dendy Young
President and Chief Executive Officer
Government Technology Services, Inc.
4100 Lafayette Center Drive
Chantilly, VA 20151
telecopier: (703) 222-5217
with a copy to:
Gerald P. McCartin
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Ave., N.W.
Washington, DC 20036-5339
telecopier: (202) 857-6395
or such other address as such party may hereafter specify for the purpose by
notice to the other parties hereto. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such telecopy
is transmitted to the telecopy number specified in this section and the
appropriate telecopy confirmation is received, or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 9.03. AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or
waived prior to the Closing Date if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by Sellers and Buyer or in
the case of a waiver, by the party against whom the waiver is to be effective.
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<PAGE> 62
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 9.04. SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of parties hereto and
their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto except that Buyer may
assign its rights and obligations to any one or more wholly owned Subsidiary or
Subsidiaries of Buyer (but no such assignment shall relieve Buyer of its
obligations hereunder); provided, however, that, without the prior consent of
Buyer, Sellers may collaterally assign their rights hereunder, subject to the
terms and conditions hereunder and without relieving Sellers of any obligation
or liability hereunder, to a lender or lenders as security for Sellers'
obligations to such lender or lenders.
SECTION 9.05. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the Commonwealth of Virginia
regardless of the law that might otherwise govern under principles of conflicts
of laws applicable thereto, except with respect to matters of corporate law as
they apply to Buyer, which shall be governed by the Delaware General
Corporation Law.
SECTION 9.06. COUNTERPARTS; EFFECTIVENESS. 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. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 9.07. EXPENSES OF SALE. Except as otherwise provided in this
Agreement, each party will be solely responsible for such party's legal,
accounting, and other costs and expenses associated with the Transactions.
SECTION 9.08. TERMS GENERALLY. The definitions in Article 1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Attachments, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and
Attachments, Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. Except as otherwise expressly provided herein, all terms of
an accounting or financial nature shall be construed in accordance with GAAP.
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<PAGE> 63
SECTION 9.09. CONFIDENTIALITY AND PUBLICITY. The provisions of the
Confidentiality Agreement between Buyer and Seller dated November 25, 1997, as
amended by Amendment No. One (the "Confidentiality Agreement"), will continue
in full force and effect. Without limitation of the foregoing, neither party
shall, nor shall permit its representatives to, make any public disclosure or
generate any publicity concerning the subject matter of this Agreement
including, without limitation, the terms or the identity of the parties hereto,
without the prior written approval of the other party except (in the reasonable
opinion of its counsel) as required by law (including any disclosures required
in connection with filings under applicable securities laws and regulations)
after prior notice to the other party and except that Buyer and Sellers may
issue a joint press release in a mutually agreeable form, upon the execution of
this Agreement by all of the parties hereto.
SECTION 9.10. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.
SECTION 9.11. BULK TRANSFER LAWS. Buyer and Sellers hereby agree to
waive the compliance by either party with the provisions of Article 6 of the
Uniform Commercial Code as it is in effect in the states where the Acquired
Assets may be located and any other "bulk sales" or "bulk transfer" laws of any
jurisdiction in connection with the Transactions. Sellers unconditionally
agree to indemnify and hold harmless Buyer against any and all Damages relating
to the failure to so comply with such provisions or laws.
SECTION 9.12. SPECIFIC PERFORMANCE. Each of the parties acknowledges
and agrees that the other party would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
agrees that the other party shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter (subject to the provisions set
forth in Section 9.14), in addition to any other remedy to which it may be
entitled, at law or in equity.
SECTION 9.13. REMEDIES CUMULATIVE. The remedies provided herein are
in addition to, and not in derogation of, any statutory, equitable, or common
law remedy any party may have with respect to a breach of this Agreement or
with respect to the Division or the Transactions, provided that the sole remedy
with respect to a breach of a representation or warranty under this Agreement
(other than such a breach which is also a Retained Liability or an Assumed
Liability) shall be pursuant to Article 8.
SECTION 9.14. JURISDICTION. Each of the parties consents to the
exclusive jurisdiction of the federal courts of the Eastern District of
Virginia for any legal action, suit or proceeding arising out of or in
connection with this Agreement or the Transactions, and agrees that any such
action, suit, or proceeding may be brought only in such courts. If such forum
is not available, each of the parties
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<PAGE> 64
consents to the exclusive jurisdiction of the Circuit Court of Fairfax County,
Virginia, for any such action, suit or proceeding. Each of the parties further
waives any objection to the laying of venue for any suit, action or proceeding
in such courts. Each of the parties agrees to accept and acknowledge service
of any and all process that may be served in any suit, action or proceeding.
Each of the parties agrees that any service of process upon it mailed by
registered or certified mail, return receipt requested to such party at the
address provided in Section 9.02 shall be deemed in every respect effective
service of process upon such party in any such suit, action or proceeding.
Each of the parties agrees to waive any right it might have to a trial by jury
in any such suit, action or proceeding.
SECTION 9.15. JOINT AND SEVERAL LIABILITY. Notwithstanding anything
herein to the contrary, for all purposes of this Agreement (a) each Seller
hereby agrees that (i) it shall be deemed to have made herein all of the
representations and warranties made by all other Sellers herein and under the
other Transaction Agreements and (ii) it is jointly and severally obligated and
liable for the obligations and liabilities of all other Sellers herein.
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<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
GOVERNMENT TECHNOLOGY SERVICES, INC.,
a Delaware corporation
By: /s/ STEPHEN L. WAECHTER
-------------------------------------
Stephen L. Waechter
Chief Financial Officer
BTG, INC.,
a Virginia corporation
By: /s/ EDWARD H. BERSOFF
-------------------------------------
Edward H. Bersoff, President and
Chief Executive Officer
BTG TECHNOLOGY SYSTEMS, INC.,
a Virginia corporation
By: /s/ EDWARD H. BERSOFF
---------------------------------------
Edward H. Bersoff, President and
Chief Executive Officer
CONCEPT AUTOMATION, INC. OF AMERICA,
a Virginia corporation
By: /s/ EDWARD H. BERSOFF
---------------------------------------
Edward H. Bersoff, President and
Chief Executive Officer
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<PAGE> 1
STANDSTILL AGREEMENT
between
GOVERNMENT TECHNOLOGY SERVICES, INC.
and
BTG, INC.
Dated as of February 12, 1998
<PAGE> 2
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT (this "Agreement"), dated as of
February 12, 1998, is entered into between Government Technology Services,
Inc., a Delaware corporation ("GTSI"), and BTG, Inc., a Virginia corporation
("BTG").
W I T N E S S E T H:
WHEREAS, GTSI and BTG are parties to an Asset Purchase
Agreement dated as of February 12, 1998 (the "Purchase Agreement"), pursuant to
which GTSI has acquired from BTG substantially all of the assets of BTG,
subject to specified exceptions, used or held for use in the Division;
WHEREAS, pursuant to the Purchase Agreement, BTG will receive
at Closing shares ("Shares") of GTSI's Series C 8% Cumulative Redeemable
Convertible Preferred Stock, par value $.25 per share ("Preferred Stock"),
which are automatically convertible to into GTSI common stock, par value $.005
per share ("Common Stock") upon Stockholder Approval as provided in the Series
C Certificate of Designations; and
WHEREAS, GTSI and BTG desire to make certain representations,
warranties and agreements in connection with such acquisition of Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 For purposes of this Agreement, the following
terms shall have the following meanings. Terms used but not defined herein
shall have the same meanings as in the Purchase Agreement.
"13D Group" shall mean any group of Persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Securities which would be
required under Section 13(d) of the Exchange Act and the rules and regulations
thereunder to file a statement with the SEC on Schedule 13D as a "person"
within the meaning of Section 13(d)(3) of the Exchange Act if such group shall
have Beneficial Ownership representing more than 5% of the total combined
voting power of all Voting Securities then outstanding.
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<PAGE> 3
"Beneficial Ownership" shall mean ownership of Voting Securities by a
Person, whether the interest in Voting Securities is held directly or
indirectly (including by nominee), and shall include interests that would be
treated as owned through the application of Section 544 of the Code, as
modified by Section 856(h)(1)(B) of the Code. Notwithstanding anything herein
to the contrary, Beneficial Ownership shall not include any Voting Securities
acquired by Edward H. Bersoff from GTSI in his capacity as a director of GTSI.
The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
"BTG Board" shall mean the board of directors of BTG.
"BTG Designee" shall have the meaning set forth in Section 4.01(a).
"BTG Group" shall have the meaning set forth in Section 2.01.
"Business Day" shall mean a day that is not a Saturday, a Sunday or a
day on which banking institutions in the State of New York are not required to
be open. Unless specifically stated as a Business Day, all days referred to
herein shall mean calendar days.
"Call Option" shall have the meaning set forth in Section 3.01(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the Recitals to
this Agreement.
"Continuing Directors" shall refer to all persons serving as members
of the BTG Board as of the date hereof, together with all other persons whose
election to such Board shall subsequently be either effected by, or recommended
to, the stockholders of BTG by at least two-thirds of the Continuing Directors
then in office.
"Conversion Proposal" shall have the meaning set forth in Section
2.01(c).
"Dividend Shares" shall have the meaning set forth in Section 3.02(a).
"GTSI Board" shall mean the board of directors of GTSI.
"Independent" means any person who is not (a) a director, officer or
employee of, or otherwise paid any compensation or remuneration by, any member
of the BTG Group or (b) an officer or employee of, or otherwise paid any
compensation or remuneration (other than directors' fees) by, GTSI.
"Joint Designee" shall have the meaning set forth in Section 4.01(a).
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<PAGE> 4
"Market Price" for any Voting Securities as of any date shall refer to
the average of the closing per share prices of Common Stock on the Nasdaq
National Market (or any national market on which the Common Stock may then be
traded) for the 10 consecutive trading days prior to such date.
"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock
company or other entity and also includes a group as that term is used for
purposes of Section 13(d)(3) of the Exchange Act.
"Preferred Stock" shall have the meaning set forth in the Recitals to
this Agreement.
"Purchase Agreement" shall have the meaning set forth in the Recitals
to this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall have the meaning set forth in the Recitals to this
Agreement.
"Stockholder Approval" shall mean the approval of the Conversion
Proposal by the holders of a majority of the outstanding Common Stock entitled
to vote thereon at an annual or special meeting of the holders of Common Stock
called for the purpose of, among other things, considering and taking action
upon a resolution to approve the Conversion Proposal.
"Transfer" shall mean any issuance, sale, transfer, gift, assignment,
devise or other disposition, as well as any other event that causes any Person
to acquire Beneficial Ownership or constructive ownership, or any agreement to
take any such actions or cause any such events, of Voting Securities or the
right to vote or receive dividends on Voting Securities, including (a) a change
in the capital structure of GTSI, (b) a change in the relationship between two
or more Persons which causes a change in ownership of Voting Securities by
application of Section 544 of the Code, as modified by Section 856(h), (c) the
granting or exercise of any option or warrant (or any disposition of any option
or warrant), pledge, security interest, or similar right to acquire Voting
Securities, (d) any disposition of any securities or rights convertible into or
exchangeable for Voting Securities or any interest in Voting Securities or any
exercise of any such conversion or exchange right and (e) Transfers of
interests in other entities that result in changes in Beneficial Ownership or
constructive ownership of Voting Securities; in each case, whether voluntary or
involuntary, whether owned of record, constructively owned or Beneficially
Owned and whether by operation of law or otherwise. The terms "Transferring"
and "Transferred" shall have the correlative meanings.
"Voting Securities" shall mean the outstanding securities of GTSI
entitled to vote generally for the election of directors, including the Common
Stock, or securities convertible into, or entitling
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<PAGE> 5
the holder thereof to acquire, such voting securities. "Voting Securities"
shall not include the Preferred Stock.
ARTICLE II
CERTAIN RIGHTS, COVENANTS AND
AGREEMENTS OF BTG
SECTION 2.01. Restrictions on Certain Actions by BTG. BTG
agrees that for so long as this Agreement shall remain in effect it shall not,
nor shall it permit any of its affiliates (as such term is defined in Rule
12b-2 of the General Rules and Regulations promulgated under the Exchange Act)
(BTG, together with such affiliates, the "BTG Group"), directly or indirectly,
without the prior written consent of GTSI duly authorized by a majority of the
members of the GTSI Board, to:
a. acquire, directly or indirectly, by purchase or otherwise,
i. if the BTG Group Benefically Owns any Preferred Stock
and subject to Section 3.02 hereof, and other than
pursuant to conversion to Common Stock as a result of
Stockholder Approval, any Beneficial Ownership,
except by way of stock dividends or other
distributions or offerings made available by GTSI to
holders of Voting Securities generally, if after such
acquisition the members of the BTG Group would
Beneficially Own in the aggregate 5% or more of the
total combined voting power of the Voting Securities
outstanding immediately following any such
acquisition; provided that no Voting Securities may
be acquired by any member of the BTG Group prior to
the earlier of (x) the date of the first
stockholders' meeting at which a vote is taken with
respect to the Conversion Proposal and (y) January 1,
1999; or
ii. if the Preferred Stock has been converted to Common
Stock as a result of Stockholder Approval, any
Beneficial Ownership, except by way of stock
dividends or other distributions or offerings made
available by GTSI to holders of Voting Securities
generally, if after such acquisition the members of
the BTG Group would Beneficially Own in the aggregate
more than 30.8% of the total combined voting power of
the Voting Securities outstanding immediately
following any such acquisition;
b. deposit any Voting Securities in a voting trust or subject them
to any arrangement or agreement with respect to the voting
thereof;
c. "solicit" proxies with respect to Voting Securities under any
circumstance or become a "participant" in a "solicitation" (as
such terms are defined in Regulation 14A of the
4
<PAGE> 6
General Rules and Regulations promulgated under the Exchange
Act) in opposition to the recommendation of a majority of the
directors of GTSI with respect to any matter; provided that
if Stockholder Approval has not been obtained by the earlier
of the second stockholders' meeting after the issuance of the
Preferred Stock or January 1, 2000, nothing in this Agreement
shall prohibit the BTG Group from soliciting proxies or
becoming a participant in a solicitation for the sole purpose
of proposing and voting in favor of a proposal (the
"Conversion Proposal") to require the conversion of Preferred
Stock into Common Stock in accordance with the terms of the
Preferred Stock and to amend GTSI's certificate of
incorporation to increase the number of authorized shares of
Common Stock to facilitate such conversion; provided further
that nothing in this Agreement shall prohibit the BTG Group
from soliciting proxies or becoming a participant in a
solicitation in opposition to any proposal by the GTSI Board
which, if adopted, would adversely affect (i) the rights of
the holders of Preferred Stock, if then Beneficially Owned by
any member of the BTG Group, or (ii) the rights of the BTG
Group under Article IV hereof;
d. except with respect to the Conversion Proposal, initiate,
propose or otherwise solicit stockholders of GTSI for the
approval of one or more stockholder proposals relating to GTSI
at any time, or induce or attempt to induce any other Person
to initiate any stockholder proposal with respect to GTSI;
e. join a partnership, limited partnership, syndicate or other
group, or otherwise act in concert with any other Person,
for the purpose of acquiring, holding, voting or disposing
of Voting Securities, or otherwise become a "person" within
the meaning of Section 13(d)(3) of the Exchange Act (in each
case, other than solely with members of the BTG Group); or
f. make any proposal to the GTSI Board or otherwise with respect
to the acquisition of any Beneficial Ownership by any member
of the BTG Group or with respect to a merger or consolidation
with, or a sale of a substantial portion of GTSI's assets to,
any member of the BTG Group, if such proposal would be of a
kind such that public disclosure thereof might reasonably be
required under applicable law (each such proposal, an
"Acquisition Proposal").
SECTION 2.02. Restrictions on Transfers of Common Stock. BTG
agrees that, for so long as this Agreement shall remain in effect, it shall
not, nor shall it permit any member of the BTG Group to, directly or
indirectly, without the prior written consent of GTSI duly authorized by a
majority of the members of the GTSI Board, transfer any Voting Securities,
other than:
a. to a wholly owned subsidiary of BTG, or by any such Person to
BTG;
b. pursuant to Rule 144 ("Rule 144") of the General Rules and
Regulations promulgated under the Securities Act (without giving effect to
subsection (k) of Rule 144);
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<PAGE> 7
c. pursuant to any tender or exchange offer that shall have been
recommended to the stockholders of GTSI by the GTSI Board;
d. pursuant to any bona fide public offering of Voting Securities
(including any sale made pursuant to Rule 144), provided that, in cases other
than public offerings of Voting Securities underwritten by one or more
underwriters selected by GTSI, no sales of Voting Securities shall be made to
any Person or related group of Persons (other than the aforementioned
underwriter or underwriters) who is known by any member of the BTG Group to be
acquiring in such public offering more than 2% of the total combined voting
power of all Voting Securities then outstanding; or
e. as a result of any pledge or hypothecation to a bona fide
financial institution to secure a bona fide loan, or the foreclosure of any
lien or encumbrance which may be placed upon any Voting Securities (whether
voluntarily or involuntarily).
With respect to permitted Transfers of Voting Securities by
BTG pursuant to paragraphs (a) or (e) above, any buyer or transferee of such
Voting Securities shall as a precondition to the consummation of the proposed
Transfer be required to execute in writing an agreement to be bound by the
terms hereof, which agreement to be bound shall be in form and substance
reasonably satisfactory to GTSI. The pledge of Voting Securities to
NationsBank, N.A., as agent, pursuant to the terms of the Amended and Restated
Stock Security Agreement dated as of October 31, 1997, as modified by the First
Modification to Amended and Restated Stock Security Agreement dated as of the
date hereof (the "First Modification"), by and between NationsBank, N.A., as
agent, and BTG, attached hereto as Exhibit A, is hereby acknowledged and
agreed.
SECTION 2.03 Procedures Regarding Beneficial Ownership
Limitations.
a. GTSI shall not knowingly give effect on GTSI's books to any
purported acquisition, directly or indirectly, by purchase or otherwise, of any
Beneficial Ownership, except by way of stock dividends or other distributions
or offerings made available by GTSI to holders of Voting Securities generally,
if such acquisition is prohibited by Section 2.01(a) and if GTSI has actual
knowledge thereof.
b. GTSI shall give its transfer agent stop-transfer instructions
with respect to any proposed acquisition, directly or indirectly, by purchase
or otherwise, of any Beneficial Ownership, except by way of stock dividends or
other distributions or offerings made available by GTSI to holders of Voting
Securities generally, if such acquisition is prohibited by Section 2.01(a) and
if GTSI has actual knowledge thereof.
6
<PAGE> 8
ARTICLE III
CERTAIN RIGHTS, COVENANTS
AND AGREEMENTS
SECTION 3.01. GTSI Call Option.
a. After the date the Preferred Stock is converted to Common
Stock as a result of Stockholder Approval, GTSI shall have the option (the
"Call Option") to repurchase all, but not less than all, of the Voting
Securities Beneficially Owned by the BTG Group if any of the following shall
occur:
i. the Continuing Directors shall fail to constitute a
majority of the BTG Board;
ii. no member of any slate of directors recommended by
the BTG Board standing at any election of a class of
directors shall be elected to the BTG Board by the
stockholders of BTG in such election; or
iii. the BTG Board shall approve, or BTG shall execute, a
definitive agreement providing for a merger or
consolidation of BTG, a sale of all or substantially
all of BTG's assets or any similar transaction, other
than (A) a transaction pursuant to which more than
50% of the voting securities of the surviving
corporation shall be owned by former stockholders of
BTG, or (B) a transaction where, immediately
following such transaction, the Continuing Directors
immediately prior to the transaction shall constitute
at least a majority of the board of directors of the
surviving corporation.
b. If GTSI shall elect to exercise the Call Option to purchase
Voting Securities, such Call Option shall be exercised within 30 days following
the occurrence of any of the triggering events described in paragraphs
(i)-(iii) of subsection (a) above and shall be settled (except as provided
below) within 10 days following exercise thereof by payment of an amount equal
to the product of the number of shares of Common Stock or units of Voting
Securities so to be repurchased multiplied by a price per share equal to the
Market Price of such securities on such settlement date; provided, however,
that GTSI shall have the right, in lieu of promptly settling the exercise of
the Call Option, to direct BTG, which shall direct the other members of the BTG
Group if any Voting Securities shall be held by such other members at such
time, to sell the Voting Securities covered thereby in transactions in the open
market. BTG shall thereupon sell, and shall cause all other members of the BTG
Group to sell, such securities in such transactions as soon thereafter as
reasonably practicable. If the members of the BTG Group shall be unable to sell
all of such Voting Securities within 12 months following the date on which GTSI
shall notify BTG of GTSI's election to require the BTG Group to satisfy the
Call Option by means of
7
<PAGE> 9
open market sales, GTSI shall be obligated to either (A) purchase the remaining
Voting Securities at the Market Price for such securities at the time such
purchase shall be effected, or (B) rescind its exercise of the Call Option. If
GTSI shall elect to purchase Voting Securities pursuant to clause (A) in the
preceding sentence, settlement thereof shall be made by GTSI within 10 days
following notification to the BTG Group of such election. Notwithstanding
anything to the contrary herein, neither BTG nor any member of the BTG Group
shall have any obligation hereunder to Transfer any Voting Securities to the
extent that such Transfer would be in violation of any applicable law, rule or
regulation.
SECTION 3.02 Obligation of BTG to Dispose of Securities
in Certain Circumstances.
a. If, upon or after the conversion of the Preferred Stock into
Common Stock as a result of Stockholder Approval, the aggregate percentage
ownership of the BTG Group of the total combined voting power of the
outstanding Voting Securities (excluding from such calculation any Common Stock
issued to BTG upon conversion of the Preferred Stock which is attributable to
any accrued dividend on such Preferred Stock (the "Dividend Shares")) shall at
any time increase for any reason to more than 30.8% of such total combined
voting power, BTG shall upon the written request of GTSI dispose of, or cause
the disposal of, such excess by promptly selling in open market transactions a
sufficient number of Voting Securities such that after such sales the BTG Group
shall beneficially own in the aggregate (excluding from such calculation the
Dividend Shares) not more than 30.8% of the total combined voting power of the
then- outstanding Voting Securities.
b. If BTG shall be required to dispose of, or cause the disposal
of, Voting Securities pursuant to subsection (a) above, but shall for any
reason fail to complete such disposal process within one year from the date on
which such disposal requirement shall have been triggered, GTSI shall have the
right to repurchase a sufficient number of shares of Common Stock from the BTG
Group to reduce the BTG Group's aggregate ownership interest to such required
level; provided that the price paid by GTSI for such Common Stock shall be the
Market Price of such Common Stock on the date such repurchase is consummated.
c. The parties hereto acknowledge that, unless waived by GTSI,
the resale restrictions provided for in Section 2.02 shall apply to any sales
of Voting Securities which the BTG Group may be obligated to make pursuant to
this Section 3.02.
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<PAGE> 10
ARTICLE IV
BOARD OF DIRECTORS
SECTION 4.01 BTG Designee; Joint Designee.
a. After the date the Preferred Stock has been converted to
Common Stock as a result of Stockholder Approval and until such time as the BTG
Group Beneficially Owns in the aggregate less than 15% of GTSI's issued and
outstanding Voting Securities, (i) the BTG Group shall be entitled to designate
one person in its sole discretion for nomination to the holders of Common Stock
for election to the GTSI Board (the "BTG Designee"), (ii) the BTG Group shall
be entitled to designate one additional person for nomination to the holders of
Common Stock for election to the GTSI Board (the "Joint Designee"), who shall
be an Independent person approved by the GTSI Board in its sole discretion as
set forth in Section 4.01(b), and (iii) GTSI agrees to nominate and recommend
for approval such BTG Designee and such Joint Designee at each annual meeting
of holders of Common Stock for the purpose of electing directors to the GTSI
Board. The BTG Designee and the Joint Designee shall be nominated for election
to the GTSI Board annually at the time of each annual meeting of stockholders
for a term of office to expire at the first succeeding annual meeting of
stockholders after such election and until such director's successor is duly
elected and has qualified or until his earlier resignation or removal.
b. With respect to designating the Joint Designee, the BTG Group
shall give written notice to the Secretary of GTSI of the identity of the
person nominated by the BTG Group. Such written notice shall be executed,
manually, or by photocopy or facsimile, by an authorized officer of BTG on
behalf of the BTG Group and, with respect to the nomination and election of
succeeding Joint Designees, shall be timely if received at the Corporation's
principal executive office not fewer than 90 days nor more than 120 days before
the meeting of stockholders at which such director is to be elected. The
person so nominated shall be Independent. Upon receipt of such written notice,
the GTSI Board shall have 17 Business Days in which to approve or disapprove
such nominee. If the GTSI Board approves such nominee, such nominee shall be
the Joint Designee and GTSI shall nominate such Joint Designee at the next
annual meeting of holders of Common Stock for the purpose of electing directors
to the GTSI Board. If the GTSI Board disapproves such nominee, the Secretary
of GTSI shall immediately give written notice thereof to BTG on behalf of the
BTG Group. If such a written notice from the Secretary has not been received by
BTG 17 Business Days after the receipt by GTSI of such written notice of
nomination, the GTSI Board shall be conclusively deemed to have approved such
nominee to be the Joint Designee and GTSI shall nominate such Joint Designee at
the next annual meeting of holders of Common Stock for the purpose of electing
directors to the GTSI Board. If such written notice from the Secretary has been
so received within such 17 Business Days, the BTG Group may nominate another
Independent person by written notice to the Secretary, subject to the same
approval process as herein above provided. Such process of nomination and
approval or disapproval shall continue until an Independent person is nominated
who is approved or deemed to be approved by the GTSI Board. No nominations for
such Joint Designee shall be made or received other than as described in this
Section 4.01(b). Any election of such Joint Designee to the GTSI Board shall be
by the holders of Common Stock.
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c. A vacancy of the BTG Designee position on the GTSI Board shall
be filled by the GTSI Board, after written designation by the BTG Group. A
vacancy of the Joint Designee position on the GTSI Board shall be filled by the
GTSI Board, following nomination by the BTG Group, pursuant to the procedure
described in Section 4.01(b). Directors chosen pursuant to any of the
foregoing provisions shall hold office for a term expiring at the next annual
meeting of stockholders and until their successors are duly elected and have
qualified or until their earlier resignation or removal. At such time as the
BTG Group Beneficially Owns in the aggregate less than 15% of GTSI's issued and
outstanding Voting Securities, the BTG Designee shall be deemed to have
resigned immediately as of such date.
SECTION 4.02 Limitation on BTG Nominees. Without the
prior written consent of GTSI, duly authorized by a majority of its directors
other than any directors who are BTG nominees pursuant to the terms of the
Series C Certificate of Designation and Section 4.01 hereof, neither BTG nor
any member of the BTG Group shall have in the aggregate more than two nominees
on the GTSI Board. In connection with the election of directors to the GTSI
Board, the BTG Group agrees to vote its Voting Securities in favor of any GTSI
nominee to the GTSI Board who (i) is a member of the GTSI Board as of the date
of this Agreement or (ii) becomes a member of the GTSI Board after the date of
this Agreement in an election in which the BTG Group voted its Voting
Securities in his or her favor, in either case in at least the same proportion
as the percentage of other Voting Securities cast for the election of such
nominee.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 Term and Termination. This Agreement shall
continue in effect until at least the sixth anniversary of the date of the
Closing and thereafter for so long as the BTG Group Beneficially Owns (a) in
the aggregate five percent or more of the total combined voting power of Voting
Securities or (b) Preferred Stock, but in no event longer than the tenth
anniversary of the date of the Closing.
SECTION 5.02 Further Assurances; Required Filings. Each
of the parties shall, without further consideration, use reasonable efforts to
execute and deliver to the other such additional documents and take such other
action as the other may reasonably request to carry out the intent of this
Agreement and the transactions contemplated hereby, including the preparation
of any disclosure document that BTG may employ in connection with any permitted
disposition of Voting Securities hereunder if the plan of distribution relating
to such disposition shall reasonably require the preparation of such a
document.
SECTION 5.03 Amendment and Waiver. This Agreement may not
be modified, amended, altered or supplemented except by a written agreement
signed by GTSI and BTG which shall be authorized by all necessary corporate
action of each party. Each party may waive any condition to the obligations of
such party hereunder.
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SECTION 5.04 Successors and Assigns. This Agreement
shall be binding upon and shall inure to the benefit of and be enforceable by
the successors of the parties hereto. Except as otherwise provided herein, this
Agreement shall not be assignable.
SECTION 5.05 Notice. Any notice required or permitted
hereunder shall be given in writing and shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
To GTSI:
M. Dendy Young
President and Chief Executive Officer
Government Technology Services, Inc.
4100 Lafayette Center Drive
Chantilly, VA 20151-1200
telecopier: (703) 222-5217
With a copy to:
Gerald P. McCartin
Arent Fox Kinter Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, DC 20036-5339
telecopier: (202) 857-6395
To BTG:
Edward H. Bersoff
President and Chief Executive Officer
BTG, Inc.
3877 Fairfax Ridge Road
Fairfax, Virginia 22030-7448
telecopier: (703) 383-4000
With a copy to:
David B. H. Martin
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, DC 20004
telecopier: (703) 637-5910
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex or ordinary mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any party may change the
address to which notices,
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requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
SECTION 5.07 Interpretation of Agreement. Any
reference in this Agreement to an Article or a Section is a reference to an
article hereof or a section hereof, respectively, and to a subsection, a
paragraph, or a clause is, unless otherwise stated, a reference to a
subsection, a paragraph or a clause of the Section or subsection in which the
reference appears. The words "hereof," "herein," "hereto," "hereunder" and the
like mean and refer to this Agreement as a whole and not merely to the specific
Article, Section, subsection, paragraph or clause in which the respective word
appears. References to statutes or regulations are to be construed as
including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to. The captions and headings
used in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
SECTION 5.08 Severability. If any term or provision of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invali dated.
SECTION 5.09 Entire Agreement. This Agreement and
the Purchase Agreement contain the entire understanding of the parties with
respect to the subject matter herein. There are no restrictions, agreements,
promises, warranties, covenants or undertakings other than those expressly set
forth herein and in the Purchase Agreement with respect to any matter. This
Agreement, together with the Purchase Agreement, supersedes all prior
agreements and understandings between the parties with respect to its subject
matter.
SECTION 5.10 Exercise of Rights. No failure or delay on
the part of either party in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights or
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
SECTION 5.11 Governing Law. This Agreement shall be
governed by and interpreted in accordance with the internal laws of the
Commonwealth of Virginia.
SECTION 5.12 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
GOVERNMENT TECHNOLOGY SERVICES, INC.
By: /s/ STEPHEN L. WAECHTER
----------------------------------
Name: Stephen L. Waechter
Title: Chief Financial Officer
BTG, INC.
By: /s/ EDWARD H. BERSOFF
----------------------------------
Name: Edward H. Bersoff
Title: President and Chief
Executive Officer
<PAGE> 1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES C 8% CUMULATIVE REDEEMABLE CONVERTIBLE
PREFERRED STOCK, $0.25 PAR VALUE PER SHARE,
OF
GOVERNMENT TECHNOLOGY SERVICES, INC.
--------------------------------
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
--------------------------------
GOVERNMENT TECHNOLOGY SERVICES, INC., a Delaware corporation (the
"Corporation"), certifies that, pursuant to the authority contained in Article
FOURTH of its Amended Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Corporation's board of directors (the "Board") duly adopted the
following resolution creating a series of preferred stock of the Corporation
designated as "Series C 8% Cumulative Redeemable Convertible Preferred Stock."
RESOLVED, that pursuant to the authority vested in the Board in
accordance with the provisions of the Corporation's Amended Certificate of
Incorporation, a series of preferred stock of the Corporation designated as
"Series C 8% Redeemable Convertible Cumulative Preferred Stock" be, and hereby
is, created, and that the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and the special rights of the
shares of such series, and the qualifications, limitations or restrictions
thereof, are as follows:
1. Designation and Amount. The series of preferred stock established
hereby shall be designated the "Series C 8% Cumulative Redeemable Convertible
Preferred Stock," with a par value of $0.25 per share (the "Series C Preferred
Stock"), and the authorized number of shares of Series C Preferred Stock shall
be 100,000.
2. Rank. The Series C Preferred Stock shall, with respect to dividend
distributions and distributions upon the voluntary or involuntary liquidation,
dissolution and winding-up of the Corporation, rank (i) senior to all classes
of Common Stock and each other class of Capital Stock of the Corporation or
series of preferred stock of the Corporation hereafter created which is not
Senior Stock or Parity Stock ("Junior Stock"), (ii) pari passu with any Parity
Stock and (iii) junior to any Senior Stock. There is no Senior Stock or Parity
Stock outstanding on the date hereof and such stock may not be authorized or
issued except in accordance with Section 7(b).
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3. Dividends. (a) Dividend Rate. Subject to the provisions of Section
3(c), commencing on the Dividend Commencement Date, the Holders shall be
entitled to receive, when, as and if declared by the Board, but only out of
funds legally available therefor, distributions in the form of cash dividends
on each share of Series C Preferred Stock at a rate of 8% per annum of the
Liquidation Preference and no more. All dividends (i) shall accrue and be
cumulative, whether or not declared by the Board, on a daily basis from (1) the
Dividend Commencement Date with respect to Initial Series C Preferred Stock and
(2) the Original Issuance Date with respect to Series C Preferred Stock the
Original Issuance Date of which is after the Initial Issue Date, and (ii) when,
as and if declared by the Board, shall be payable annually in arrears on each
Dividend Payment Date commencing with the first Dividend Payment Date after (1)
the Dividend Commencement Date with respect to Initial Series C Preferred Stock
and (2) the Original Issuance Date with respect to Series C Preferred Stock the
Original Issuance Date of which is after the Initial Issue Date. If any
Dividend Payment Date occurs on a date that is not a Business Day, any accrued
dividends otherwise payable on such Dividend Payment Date shall be payable on
the next succeeding Business Day. Each dividend shall be payable with respect
to Series C Preferred Stock held by Holders as they appear on the Corporation's
stock books on each Dividend Record Date. Dividends shall cease to accrue and
accumulate in respect of Series C Preferred Stock on any Redemption Date or
Conversion Date, as the case may be.
(b) Dividend Payments. Dividends on account of arrears for any past
Dividend Period and dividends in connection with any Redemption pursuant to
Section 5(a) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders on such date as may be fixed by the
Board.
(c) Dividends Paid in Series C Preferred Stock. Notwithstanding
anything herein to the contrary, the Corporation shall, at its option, be
entitled in respect of any Dividend Period, in lieu of either paying any part
or all of a dividend in cash or permitting the unpaid dividend to accrue
additional dividends thereon, as provided in Section 3(f)(ii), to declare and
pay any part or all of such dividend in additional fully paid and nonassessable
shares of Series C Preferred Stock with a Liquidation Preference equal to the
amount of the dividend payable in Series C Preferred Stock, with a fractional
number of shares to be issued in payment of any such dividend as the result
thereof to be rounded to the nearest 1/100th of share. The Corporation shall
reserve 84,625 authorized but unissued shares of Series C Preferred Stock for
purposes of this Section 3(c) and not for any other purpose. On or before the
15th Business Day after the Dividend Payment Date in respect of which shares of
Series C Preferred Stock will be issued as a dividend, the Corporation will
prepare and mail to each holder of Series C Preferred Stock a certificate
setting forth the determination of the number of shares of Series C Preferred
Stock issuable in payment of such dividend. A dividend payment in Series C
Preferred Stock shall not be considered paid if the Corporation has not caused
share certificates representing such Series C Preferred Stock to be mailed or
delivered to the holders of the Series C Preferred Stock on which such dividend
is being paid on or before the 15th Business Day after the applicable Dividend
Payment Date. If the above-mentioned share certificates are not mailed or
delivered on or before the 15th Business Day
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after the applicable Dividend Payment Date, such unpaid dividends shall from
and after the applicable Dividend Payment Date accrue additional dividends in
respect thereof at the rate of 8% per annum as provided in Section 3(f)(ii),
until such accrued and unpaid dividends have been paid in full.
(d) Junior Stock Dividends, Redemptions, etc. So long as any Series C
Preferred Stock is outstanding, the Corporation shall not declare, pay or set
apart for payment any dividend on any Junior Stock or make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any Junior Stock, or any
warrants, rights, calls or options exercisable for any Junior Stock (except for
the purchase, redemption or other retirement of such securities which are debt
securities or Senior Stock or Parity Stock) or make any distribution in respect
thereof, either directly or indirectly, and whether in cash, obligations or
Capital Stock of the Corporation (or securities convertible or exchangeable for
obligations or Capital Stock of the Corporation) or other property (other than
dividends, payments, purchases, acquisitions, redemptions, retirements or
distributions in Junior Stock and cash in lieu of fractional shares) and shall
not permit any Subsidiary of the Corporation directly or indirectly to do any
of the same in respect of such Junior Stock (other than dividends, payments,
purchases, acquisitions, redemptions, retirements or distributions in Junior
Stock and cash in lieu of fractional shares) unless and until all dividend
arrearages on the Series C Preferred Stock have been paid in full (whether in
cash or in additional Series C Preferred Stock as provided in Section 3(c)) or
declared and a sum of money or a number of shares of additional Series C
Preferred Stock sufficient for the payment thereof has been set apart.
(e) Pro Rata Dividend Payments. Unless and until all dividend
arrearages on the Series C Preferred Stock have been paid in full (whether in
cash or in additional Series C Preferred Stock as provided in Section 3(c)),
all dividends declared by the Board upon Series C Preferred Stock or Parity
Stock, if any, shall be declared pro rata with respect to all Series C
Preferred Stock and Parity Stock then outstanding so that the amounts of any
dividends declared per share on the Series C Preferred Stock and such Parity
Stock bear the same ratio to each other at the time of declaration as all
accrued and unpaid dividends on the Series C Preferred Stock and the Parity
Stock bear to each other.
(f) Dividend Computations. (i) Dividends payable on the Series C
Preferred Stock shall be computed by multiplying 8% by the Liquidation
Preference and multiplying the result by a fraction, the numerator of which
shall be the number of days in the particular Dividend Period or, as the case
may be, the actual number of days lapsed in the Dividend Period for which
payable, and the denominator of which shall be 365.
(ii) For any Dividend Period in which dividends are not paid in full
(whether in cash or in additional Series C Preferred Stock as provided in
Section 3(c)) on the Dividend Payment Date next succeeding the end of such
Dividend Period, then on such Dividend Payment Date such accrued and unpaid
dividends shall be added, solely for the purpose of calculating
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<PAGE> 4
dividends payable on the Series C Preferred Stock outstanding immediately prior
to such Dividend Payment Date, to the Liquidation Preference at the beginning
of the Dividend Period succeeding the Dividend Period as to which such
dividends were not paid and shall thereafter accrue additional dividends in
respect thereof at the rate of 8% per annum until such accrued and unpaid
dividends have been paid in full.
(iii) The holders of Series C Preferred Stock shall not be entitled to
any dividends whether payable in cash, property or stock in excess of the full
cumulative dividends, as provided in Section 3 on the Series C Preferred Stock.
4. Liquidation Preference. (a) Liquidation, Dissolution or Winding-Up.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Corporation, the Holders shall be entitled to
be paid out of the assets of the Corporation available for distribution to its
stockholders an amount equal to the Liquidation Preference for each share
outstanding plus all accrued but unpaid dividends thereon (which accrued but
unpaid dividends shall only be paid in the form of cash) to the date of such
liquidation, dissolution or winding-up, before any payment shall be made or any
assets distributed to the holders of any Junior Stock. If, however, the assets
of the Corporation are not sufficient to pay in full the liquidation payments
payable to the Holders and the holders of any outstanding Parity Stock, then
the holders of all such shares shall share ratably in such distribution of
assets in accordance with the amounts which would be payable on such
distribution if the amount to which the Holders and the holders of any
outstanding Parity Stock are entitled were paid in full. Except as provided in
this Section 4(a), Holders shall not be entitled to any distribution in the
event of liquidation, dissolution or winding-up of the affairs of the
Corporation.
(b) Asset Transfers, Mergers and Consolidations. For the purposes of
this Section 4, neither the sale, conveyance, exchange or transfer (for cash,
stock, securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger of the
Corporation with or into one or more corporations shall be deemed to be a
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Corporation.
5. Redemption. (a) The Corporation (or any Subsidiary thereof) may, at
the Corporation's option redeem at any time on or after the Dividend
Commencement Date, from any source of funds legally available therefor, in
whole but not in part, as provided in Section 5(b), all of the Series C
Preferred Stock, at a redemption price payable in cash equal to (i) in respect
of a Redemption Date (as defined below) during the period from the Dividend
Commencement Date to, but not including, the date on which the Second Meeting
is held, at the Initial Redemption Price and (ii) in respect of a Redemption
Date on or after the Adjustment Date, at the Adjusted Redemption Price.
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<PAGE> 5
(b) Redemption Procedure. At least 10 Business Days and not more than
60 days prior to the date fixed by the Board for any redemption of the Series C
Preferred Stock (the "Redemption Date"), written notice (the "Redemption
Notice") shall be given by first class mail, postage prepaid, to each Holder on
the record date fixed for such redemption of the Series C Preferred Stock at
such Holder's address as the same appears on the Corporation's stock books.
The Redemption Notice shall state:
(1) that such notice constitutes a Redemption Notice pursuant to
Section 5(a);
(2) the Redemption Price;
(3) the Redemption Date;
(4) that the Holder is to surrender to the Corporation his certificate
or certificates representing the Series C Preferred Stock to be redeemed,
specifying the place or places where, and the manner in which, certificates for
Series C Preferred Stock are to be surrendered for redemption;
(5) that dividends on the Series C Preferred Stock to be redeemed
shall cease to accumulate on the Redemption Date, unless the Corporation
defaults in the payment of the amounts necessary for such redemption, in which
case, dividends shall continue to accumulate from the Redemption Date until
such payment is made; and
(6) all funds necessary for such redemption shall, as of the
Redemption Date, have been set aside by the Corporation separate and apart from
its other funds, in trust for the benefit of the Holders pursuant this Section
5.
(ii) Each Holder shall surrender the certificate or certificates
representing such Series C Preferred Stock to the Corporation, duly endorsed,
in the manner and at the place designated in the Redemption Notice, and on the
Redemption Date the full Redemption Price for such shares so surrendered shall
be payable in cash to the Person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired.
(iii) If, on or before the Redemption Date, all funds necessary for
such redemption shall have been set aside by the Corporation, separate and
apart from its other funds, in trust for the pro rata benefit of the Holders of
the shares so called for redemption, so as to be and continue to be available
therefor, then, notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation, all shares so
called for redemption shall no longer be deemed outstanding on and after such
Redemption Date, and all rights with respect to such shares shall forthwith on
such Redemption Date cease and terminate, except only the right of the Holders
thereof to receive the amount payable on
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<PAGE> 6
redemption thereof, without interest. Any interest accrued on such funds shall
be paid to the Corporation from time to time, as it may request.
(iv) Any funds so set aside or deposited, as the case may be, by the
Corporation and unclaimed as of 90 days after such Redemption Date shall be
released or repaid to the Corporation, after which the Holders of the shares so
called for redemption shall look only to the Corporation for payment thereof.
6. Automatic Conversion. (a) Conversion and Effectiveness. As of the
Conversion Date, the Series C Preferred Stock shall automatically be
reclassified as, and converted into, Common Stock, without any action of the
Holder, as follows (the "Conversion"):
(i) Each share of Series C Preferred Stock shall be converted into
such number of fully paid and nonassessable shares of Common Stock that equals
the Liquidation Preference of the share of Series C Preferred Stock plus all
accrued but unpaid dividends thereon to, but not including, the Conversion Date
divided by the Conversion Price, provided, however, that if the Conversion Date
occurs after the Dividend Commencement Date, the Corporation shall be entitled,
in lieu of issuing Common Stock in respect of all or any part of the accrued
but unpaid dividends, to pay in cash all or any part of such unpaid dividends
(the "Cash Election").
(ii) If the Corporation elects to exercise the Cash Election, it shall
do so on a pro rata basis in respect of the outstanding Series C Preferred
Stock; and
(iii) Within 10 Business Days after the Conversion Date, written
notice of the Conversion and, if applicable, of the Cash Election shall be
given by first class mail, postage prepaid, to each Holder at such Holder's
address as the same appears on the Corporation's stock books, which notice
shall state (1) the number of shares of Common Stock into which the Series C
Preferred Stock has been converted and, if the Cash Election has been
exercised, that all or, as the case may be, that a specified part of the
accrued but unpaid dividends will be paid in cash pursuant to the Cash
Election, (2) the Conversion Date and (3) that the Holder is to surrender to
the Corporation his certificate or certificates formerly representing the
Series C Preferred Stock that has been converted into Common Stock and, if the
Cash Election has been exercised, the right to receive cash in an amount equal
to all or such portion of the accrued but unpaid dividends, as the case may be,
for which the Cash Election was exercised (the "Cash Portion").
(b) Conversion Procedures. The Holder of any Series C Preferred Stock
converted shall surrender the certificate representing such Series C Preferred
Stock (the "Series C Preferred Stock Certificate") at the office or agency then
maintained by the Corporation for the transfer of the Series C Preferred Stock.
Such Holder shall state in the notice tendered with the Series C Stock
Certificate the name or names (with addresses) in which the certificate or
certificates for Common Stock which shall be issuable upon such conversion
shall be issued, and such
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<PAGE> 7
notice shall be accompanied by transfer taxes, if required. Each Series C
Preferred Stock Certificate surrendered for conversion shall, unless the shares
issuable on conversion are to be issued in the same name as the registration of
such Series C Preferred Stock Certificate, be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Corporation
duly executed by, the Holder or such Holder's duly authorized attorney.
As promptly as practicable, but in no event later than 10 Business
Days, after the surrender of such Series C Preferred Stock Certificate and the
receipt of such notice and funds, if any, as aforesaid, the Corporation shall
issue and shall simultaneously deliver at such office or agency to such Holder,
or on his written order, a certificate or certificates for the number of shares
of Common Stock issuable upon the conversion of such Series C Preferred Stock
represented by the Series C Preferred Stock Certificate so surrendered or
portion thereof in accordance with the provisions of this Section 6. If less
than all of the Series C Preferred Stock represented by a Series C Preferred
Stock Certificate surrendered for conversion is to be converted into Common
Stock as a result of the exercise of the Cash Election, the Corporation shall
simultaneously deliver to or upon the written order of the Holder of such
Series C Preferred Stock Certificate a check in an amount equal to the Cash
Portion.
Upon the Conversion Date, (i) all Series C Preferred Stock shall no
longer be deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall forthwith
cease, except only the right of the Holders thereof, subject to the provisions
of this Section 6, to receive Common Stock in exchange therefor and, if the
Cash Election has been exercised, the Cash Portion, and (ii) the person or
persons entitled to receive the Common Stock into which their Series C
Preferred Stock has been converted shall be treated for all purposes, including
dividends and other distributions thereafter in respect of Common Stock, as
having become the owners of such Common Stock.
If any Series C Preferred Stock shall be called for redemption
pursuant to Section 5, such shares shall no longer be subject to conversion
into Common Stock under this Section 6.
(c) The Conversion Price at which Series C Preferred Stock is
convertible into Common Stock shall be subject to adjustment from time to time
as provided in this Section 6(c) (unless otherwise indicated, all calculations
under this Section 6(c) shall be made to the nearest $0.01):
(i) In case the Corporation shall (A) declare a dividend or make a
distribution on the outstanding Common Stock in Capital Stock of the
Corporation, (B) subdivide or reclassify the outstanding Common Stock into a
greater number of shares (or into other securities or property), or (C) combine
or reclassify the outstanding Common Stock into a smaller number of shares (or
into other securities or property), the Conversion Price in effect at the close
of business on the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution, or to be affected by such
subdivision, combination or other reclassification, shall be adjusted by
multiplying such Conversion Price by a fraction, the
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<PAGE> 8
numerator of which shall be the total number of outstanding shares of Common
Stock immediately prior to such event, and the denominator of which shall be
the total number of outstanding shares of Common Stock immediately after such
event. An adjustment made pursuant to this subparagraph (i) shall become
effective immediately after the record date for such event, or, if there is no
record date, upon the effective date for such event. Any Common Stock issuable
in payment of a dividend shall be deemed to have been issued immediately prior
to the time of the record date for such dividend for purposes of calculating
the number of outstanding shares of Common Stock under subparagraphs (ii) and
(iii) below. Adjustments pursuant to this subparagraph shall be made
successively whenever any event specified above shall occur.
(ii) In case the Corporation shall fix a record date for the issuance
of rights, options or warrants to all holders of Common Stock entitling them
for a specified period not to exceed 21 days from the date of such issuance to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion
price or exchange price per share, subject to normal antidilution adjustments)
less than the Current Market Price (as defined in subparagraph (vii) below) of
Common Stock on such record date, the Conversion Price in effect at the close
of business on such record date shall be reduced by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, options or
warrants plus the number of shares of Common Stock which the aggregate offering
exercise price for the total number of shares of Common Stock covered by such
rights, options or warrants would purchase at the Current Market Price as of
such record date, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, options or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase in connection with such rights, options or warrants.
Such adjustment shall be made whenever such rights, options or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants. In case any rights, options or warrants referred to in this
subparagraph (ii) in respect of which an adjustment shall have been made shall
expire unexercised the Conversion Price shall be readjusted at the time of such
expiration to the Conversion Price that would have been in effect if no
adjustment had been made on account of the distribution or issuance of such
expired rights, options or warrants.
(iii) In case the Corporation shall fix a record date for the making
of a distribution to all holders of Common Stock (A) of shares of any class
other than Common Stock, (B) of evidences of indebtedness of the Corporation or
any Subsidiary, (C) of assets or other property or (D) of rights, options or
warrants (excluding those rights, options or warrants resulting in an
adjustment pursuant to subparagraph (ii) above), then in each such case the
Conversion Price shall be reduced so that such price shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the effectiveness of the Conversion Price reduction contemplated by this
subparagraph (iii) by a fraction, the numerator of which shall be the Current
Market Price per share of Common Stock as of the record date for such
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distribution, less the then fair market value (as determined by the Board,
whose reasonable determination shall be described in a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board and to be in full force and effect on the date of such
certification (a "Board Resolution")) of the portion of the securities,
evidences of indebtedness, assets, property or rights, options or warrants so
distributed, as the case may be, which is applicable to one share of Common
Stock, and the denominator of which shall be the Current Market Price per share
of Common Stock as of the record date for such distribution. Such adjustment
shall be made successively whenever such a record date is fixed.
(iv) In case the Corporation shall issue Common Stock for a
consideration per share less than the Current Market Price per share on the
date the Corporation fixes the offering price of such additional shares, the
Conversion Price shall be adjusted immediately thereafter so that it shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares plus the number of shares of Common Stock
which the aggregate consideration received (determined as provided in
subparagraph (vi) below) for the issuance of such additional shares would
purchase at the Current Market Price per share and the denominator shall be the
number of shares of Common Stock outstanding immediately after the issuance of
such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(v) In case the Corporation shall issue any securities convertible
into or exchangeable for Common Stock (excluding (A) securities issued in
transactions resulting in adjustment pursuant to subparagraphs (ii) and (iii)
above, (B) Series C Preferred Stock, and (C) upon conversion of any of such
securities) for a consideration per share of Common Stock deliverable upon
conversion or exchange of such securities (determined as provided in
subparagraph (vi) below and subject to normal antidilution adjustments) less
than the Current Market Price per share in effect immediately prior to the
issuance of such securities, the Conversion Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities plus the number of shares
of Common Stock which the aggregate consideration received (determined as
provided in subparagraph (vi) below) for such securities would purchase at the
Current Market Price per share and the denominator shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
maximum number of shares of Common Stock deliverable upon conversion of or in
exchange for such securities at the initial conversion or exchange price or
rate. Such adjustment shall be made successively whenever such an issuance is
made.
Upon the termination of the right to convert or exchange such
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustments made upon the
issuance of such convertible or exchangeable
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<PAGE> 10
securities been made upon the basis of the delivery of only the number of
shares of Common Stock actually delivered upon conversion or exchange of such
securities and upon the basis of the consideration actually received by the
Corporation (determined as provided in subparagraph (vi) below) for such
securities.
(vi) For purposes of any computation pursuant to subparagraphs (iv) or
(v) above, the following shall apply:
(A) notwithstanding the provisions of subparagraph (iv) or
subparagraph (v), no adjustment to the Conversion Price will be made (1) upon
the exercise of any of the options outstanding on the date hereof under the
Corporation's existing stock option plans or stock option agreements or upon
the exercise of any warrants of the Corporation outstanding on the date hereof;
(2) upon the issuance or exercise of options or warrants which may hereafter be
granted with the Board's approval, or exercised, under any employee benefit
plan of the Corporation to officers, directors, employees or consultants, but
only with respect to such options or warrants as are exercisable at prices no
lower than the Closing Price of the Common Stock as of the date of grant
thereof; (3) upon the sale of Common Stock pursuant to stock purchase or
similar plans of the Corporation to officers, directors, employees or
consultants, but only with respect to such sales at prices no lower than 85% of
the Closing Price of the Common Stock as of the date provided in the respective
plan; or (4) upon the sale of any Common Stock, warrants to purchase Common
Stock or convertible securities in a firm commitment underwritten public
offering, including shares sold upon the exercise of any overallotment option
granted to the underwriters in connection with such offering; or (5) with
respect to the issuance of Common Stock upon conversion of the Series C
Preferred Stock, adjusted as appropriate in each case in connection with any
stock split, merger, recapitalization or similar transaction;
(B) in the case of the issuance of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case shall
any deductions be made for any commissions, discounts, placement fees or other
expenses incurred by the Corporation for any underwriting or placement of the
issue or otherwise in connection therewith;
(C) in the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair market value thereof as determined by the Board, whose
reasonable determination shall be described in a Board Resolution; and
(D) in the case of the issuance of securities convertible into or
exchangeable for Common Stock, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Corporation for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Corporation upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (A) and (B) of this subparagraph (vi)).
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(vii) For the purpose of any computation under this Certificate of
Designation, (A) the "Current Market Price" per share at any date shall be
deemed to be the average of the daily Closing Price for the Common Stock for
the 10 consecutive Trading Days commencing 14 Trading Days before such date,
and (B) the "Closing Price" of the Common Stock means the last reported sale
price regular way reported on the NASDAQ Stock Market or its successor, or, if
not listed or admitted to trading on the NASDAQ Stock Market or its successor,
the last reported sale price regular way reported on any other stock exchange
or market on which the Common Stock is then listed or eligible to be quoted for
trading, or as reported by the National Quotation Bureau Incorporated.
(viii) In any case in which this Section shall require that an
adjustment shall become effective immediately after a record date for an event,
the Corporation may defer until the occurrence of such event (A) issuing to the
Holder of any Series C Preferred Stock converted after such record date and
before the occurrence of such event the Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and above
the Common Stock issuable upon such conversion before giving effect to such
adjustment and (B) paying to such Holder an amount in cash in lieu of a
fractional share of Common Stock pursuant to Section 6(h); provided, however,
that the Corporation shall deliver to such Holder a due bill or other
appropriate instrument evidencing such Holder's rights to receive such
additional Common Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
(ix) The Corporation may make such reductions in the Conversion Price,
in addition to those required pursuant to other subparagraphs of this Section
6, as it considers to be advisable so that any event treated for federal income
tax purposes as a dividend of stock or stock rights shall not be taxable to the
recipients.
(x) In case of any consolidation with or merger of the Corporation
into another corporation, or in case of any sale or conveyance of assets to
another corporation of the assets of the Corporation as an entirety or
substantially as an entirety, lawful and adequate provisions shall be made
whereby each Holder of Series C Preferred Stock shall have the right to
receive, from such successor or purchasing corporation, as the case may be,
upon the basis and upon the terms and conditions specified herein, in lieu of
the Common Stock immediately theretofore receivable upon the conversion of such
Series C Preferred Stock, the kind and amount of shares of stock, other
securities, property or cash or any combination thereof receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock into which such Series C Preferred Stock might have been
converted immediately prior to such consolidation, merger, sale or conveyance.
In the case of any such consolidation, merger or sale of substantially all the
assets, appropriate provision shall be made with respect to the rights and
interests of the Holders to the end that the provisions hereof (including
provisions for adjustment of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of any conversion rights
hereunder.
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(xi) In case of any reclassification or change of the Common Stock
issuable upon conversion of Series C Preferred Stock (other than a change in
par value, or from par value to no par value, or as a result of a subdivision
or combination, but including any change in the Common Stock into two or more
classes or series of shares), or in case of any consolidation or merger of
another corporation into the Corporation in which the Corporation is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
Common Stock (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination, but including any change
in the Common Stock into two or more classes or series of shares), lawful and
adequate provisions shall be made whereby each Holder of Series C Preferred
Stock shall have the right to receive, upon the basis and upon the terms and
conditions specified herein, in lieu of the Common Stock immediately
theretofore receivable upon the conversion of such Series C Preferred Stock,
the kind and amount of shares of stock, other securities, property or cash or
any combination thereof receivable upon such reclassification, change,
consolidation or merger, by a holder of the number of shares of Common Stock
into which such Series C Preferred Stock might have been converted immediately
prior to such reclassification, change, consolidation or merger.
(xii) If the Corporation repurchases (by way of tender offer, exchange
offer or otherwise) any Common Stock for a per share consideration which
exceeds the Current Market Price of a share of Common Stock on the date
immediately prior to such repurchase, the Conversion Price shall be reduced so
that such price shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph (xii) by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such acquisition multiplied by the Current Market Price per share of
the Common Stock on the immediately preceding Trading Day, and the denominator
shall be the sum of (A) the fair market value (as determined in good faith by
the Board) of the aggregate consideration payable to stockholders as a result
of such acquisition, and (B) the product of the number of shares of Common
Stock outstanding immediately following such acquisition and the Current Market
Price per share of the Common Stock on such immediately preceding Trading Day,
such reduction to become effective immediately prior to the opening of business
on the day following such acquisition.
(xiii) If any event occurs as to which the foregoing provisions of
this Section 6(c) are not strictly applicable or, if strictly applicable, would
not, in the good faith judgment of the Board, fairly protect the conversion
rights of the Series C Preferred Stock in accordance with the essential intent
and principles of such provisions, then the Board shall make such adjustments
in the application of such provisions, in accordance with such essential intent
and principles, as shall be reasonably necessary, in the good faith opinion of
the Board, to protect such conversion rights as aforesaid, but in no event
shall any such adjustment have the effect of increasing the Conversion Price,
or otherwise adversely affect the Holders.
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(xiv) For purposes of Section 6(c), Common Stock owned or held at any
relevant time by, or for the account of, the Corporation in its treasury or
otherwise, shall not be deemed to be outstanding for purposes of the
calculation and adjustments described therein.
(xv) Nothing in this Section 6 shall in any way affect the
Corporation's right to redeem the Series C Preferred Stock as provided in
Section 5, including redemptions in contemplation of transactions referred to
in the foregoing provisions of this Section 6(c).
(d) Conversion Price Adjustment Deferred. Notwithstanding the
foregoing provisions of this Section 6, (i) no adjustment in the number of
shares of Common Stock into which any Series C Preferred Stock is convertible
shall be required unless such adjustment would require an increase or decrease
in such number of shares of at least 1% and (ii) no adjustment in the
Conversion Price shall be required unless such adjustment would require an
increase or decrease in the Conversion Price of at least $.01 per share;
provided, however, that any adjustments which by reason of this paragraph (d)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 6 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(e) Adjustment Report. Whenever any adjustment is required in the
shares into which any Series C Preferred Stock is convertible, the Corporation
shall forthwith cause a notice of such adjustment, setting forth the adjusted
Conversion Price and the calculation thereof to be mailed to the Holders at
their respective addresses as shown on the Corporation's stock books.
(f) Common Stock. For the purposes of this Section 6, the term "Common
Stock" shall mean (i) the Common Stock or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value or from no par value to par value, or
from par value to no par value. If at any time as a result of an adjustment
made pursuant to the provisions of Section 6(c), the Holder of any Series C
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive any other class of stock such other shares so receivable upon
conversion of any Series C Preferred Stock shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock contained in Section 6(c), and
the other provisions of this Section 6 with respect to the Common Stock shall
apply on like terms to any such other shares.
(g) Fractional Shares. The Corporation shall not be required to issue
fractional shares of Common Stock upon the conversion of any Series C Preferred
Stock. If more than one share of Series C Preferred Stock shall be surrendered
for conversion at one time by the same Holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares so surrendered. If any fractional interest in a
share of Common Stock would be deliverable upon the conversion of any Series C
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<PAGE> 14
Preferred Stock, the Corporation may pay, in lieu thereof, in cash the
appropriate amount based on the Conversion Price.
7. Voting Rights. The Series C Preferred Stock shall have only the
following voting rights:
(a) Series C Director; Joint Director.
(i) The number of directors of the Corporation shall be as from
time to time fixed by, or determined in the manner provided in, the Charter
and the Corporation's bylaws. One such director shall be designated as a
"Series C Director" and shall be elected by the Majority Holders voting
together as a single class and one such director shall be designated as "Joint
Director" and shall be an Independent director nominated by the Majority
Holders and approved by the Board in its sole discretion. The rights of the
Holders with respect to the Joint Director shall automatically terminate if
the total Liquidation Preference with respect to the Series C Preferred Stock
owned by the Initial Purchaser plus all accrued and unpaid dividends thereon
falls below 66 2/3% of the total Liquidation Preference of the then outstanding
Series C Preferred Stock plus all accrued and unpaid dividends thereon. The
Majority Holders shall have the exclusive right to remove such Series C
Director without cause at any time and to designate another individual as the
Series C Director. The term of office of the first Series C Director shall
commence upon the nomination and election of such Director, at the option of
the Majority Holders at any time after the Initial Issue Date, to expire at the
annual meeting of stockholders held in 1998. The Series C Director shall be
elected annually at the time of each annual meeting of stockholders for a term
of office to expire at the first succeeding annual meeting of stockholders
after his election and until his successor is duly elected and has qualified
or until his earlier resignation or removal. Such election may be effected
by written consent executed by the Majority Holders.
(ii) With respect to filling the vacancy on the Board with respect
to the initial Joint Director, the Holders shall give written notice to the
Secretary of the Corporation of the identity of the person nominated by such
holders. Such written notice shall be executed, manually, or by photocopy or
facsimile, by the Majority Holders. The person so nominated shall be
Independent. Upon receipt of such written notice, the Board shall have 17
Business Days in which to approve or disapprove such nominee. If the Board
approves such nominee, such nominee shall immediately fill such vacancy. If
the Board disapproves such nominee, the Secretary of the Corporation shall
immediately give written notice thereof to all Holders. If such a written
notice from the Secretary has not been received by such Holders 17 business
days after the receipt by the Corporation of such written notice of nomination,
the Board shall be conclusively deemed to have approved such nominee and such
nominee shall immediately fill such vacancy. If such written notice from the
Secretary has been so received within such 17 Business Days, such Holders may
nominate another Independent person by written notice to the Secretary, subject
to the same approval process as herein above provided. Such process of
nomination and approval or disapproval shall continue until an Independent
person is nominated who is approved or
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deemed to be approved by the Board. No nominations for such director shall be
made or received other than as described in this Section 7(a)(ii).
(iii) With respect to the nomination and election of succeeding
Joint Directors, the Holders shall give timely written notice to the Secretary
of the Corporation of the identity of the person nominated by such Holders.
Such written notice shall be executed, manually, or by photocopy or facsimile,
by the Majority Holders. Such written notice shall be timely if received at
the Corporation's principal executive office not fewer than 90 days nor more
than 120 days before the meeting of stockholders at which such director is to
be elected. The person so nominated shall be Independent. Upon receipt of such
written notice, the Board shall have 17 Business Days in which to approve or
disapprove such nominee. If the Board disapproves such nominee, the Secretary
of the Corporation shall immediately give written notice thereof to all
Holders. If such a written notice from the Secretary has not been received by
such Holders 17 Business Days after the receipt by the Corporation of such
written notice of nomination, the Board shall be conclusively deemed to have
approved such nominee. If such written notice from the Secretary has been so
received within such 17 Business Days, such Holders may nominate another
Independent person by written notice to the Secretary, subject to the same
approval process as herein above provided. Such process of nomination and
approval or disapproval shall continue until an Independent person is nominated
who is approved or deemed to be approved by the Board. No nominations for such
director shall be made or received other than as described in this Section
7(a)(iii). Election of such person shall be by the holders of Common Stock.
(iv) A vacancy of the Series C Director position shall be filled
only by a majority vote of or written consent of the Majority Holders. A
vacancy of the position of Joint Director shall be filled only by the Board,
following nomination by the Majority Holders, pursuant to the procedure
described in Section 7(a)(ii). Directors chosen pursuant to any of the
foregoing provisions shall hold office for a term expiring at the next annual
meeting of stockholders and until their successors are duly elected and have
qualified or until their earlier resignation or removal. If none of the Series
C Preferred Stock remains outstanding, the Series C Director shall be deemed to
have resigned immediately as of such date.
(b) Issuance of Senior or Parity Stock. So long as any Series C
Preferred Stock is outstanding, without the affirmative vote or consent of the
Majority Holders, voting or consenting, as the case may be, as one class, given
in person or by proxy, either in writing or by resolution adopted at an annual
or special meeting, the Corporation shall not (i) issue, or reclassify any
authorized stock of the Corporation into, or issue any obligation or security
convertible into or evidencing a right to purchase, any Senior Stock or Parity
Stock or any preferred stock having voting rights senior or equal to those of
the Series C Preferred Stock, (ii) reclassify the Series C Preferred Stock, or
(iii) amend its Charter or this Certificate of Designation for the Series C
Preferred Stock so as to affect adversely the specified rights, preferences,
privileges or voting rights of Holders or to increase or decrease the
authorized number of shares of Series C Preferred Stock. Nothing in the
immediately preceding sentence
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shall prohibit or otherwise restrict the Company from issuing Series C
Preferred Stock pursuant to Section 3(c).
(c) Number of Votes. In any case in which the Holders shall be
entitled to vote as a separate class pursuant to this Section 7 or pursuant to
Delaware law, each Holder shall be entitled to one vote for each share of
Series C Preferred Stock then held.
(d) No Vote on Other Matters. Except as provided above or as may be
required by Delaware law, the Holders shall not be entitled to vote on any
matters submitted to holders of the Corporation's Capital Stock.
8. Exclusion of Other Rights. Except as may otherwise be required by
Delaware law, the Series C Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights,
other than those specifically set forth in this Certificate of Designation.
9. Reissuances. Series C Preferred Stock that has been issued and
reacquired by the Corporation (or any Subsidiary thereof) in any manner,
including shares surrendered to the Corporation upon conversion, and shares
purchased or redeemed, shall (upon compliance with any applicable provisions of
the laws of Delaware) have the status of authorized and unissued preferred
stock undesignated as to series of preferred stock and may be re-designated and
reissued as part of any series of preferred stock.
10. Business Day. If any payment or redemption shall be required by
the terms hereof to be made on a day that is not a Business Day, such payment
or redemption shall be made on the immediately succeeding Business Day.
11. Headings of Sections. The headings of the various Sections hereof
are for convenience of reference only and shall not affect the interpretation
of any of the provisions hereof.
12. Severability of Provisions. If any right, preference or limitation
of the Series C Preferred Stock set forth in this Certificate of Designation
(as it may be amended from time to time) is invalid, unlawful or incapable of
being enforced by reason of any rule or law or public policy, all other rights,
preferences and limitations set forth in this Certificate of Designation (as so
amended) which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
13. Record Holders. The Corporation and the transfer agent, if any,
for the Series C Preferred Stock may deem and treat the record holder of any
Series C Preferred Stock as the
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<PAGE> 17
true and lawful owner thereof for all purposes, and neither the Corporation nor
any agent thereof shall be affected by any notice to the contrary.
14. Notice. All notices and other communications provided for or
permitted to be given to the Corporation hereunder shall be made by hand
delivery, next day air courier or certified first-class mail to the Corporation
at its principal executive offices at Government Technology Services, Inc.,
4100 Lafayette Center Drive, Chantilly, Virginia 20151-1200, telecopy number
(703) 502-2121, Attention: General Counsel, or to such other address as the
Corporation shall have designated by written notice to the Holders.
15. Amendments. This Certificate of Designation may be amended without
notice to or the consent of any Holder to cure any ambiguity, defect or
inconsistency or to make any other amendment provided that any such amendment
does not adversely affect the rights of any Holder. Any provisions of this
Certificate of Designation may also be amended by the Corporation with the vote
or written consent of the Majority Holders.
16. Definitions. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Adjustment Date" means the earlier of (a) January 1, 2000 and (b) the
date on which the Second Meeting is held if at such Meeting Stockholder
Approval is not obtained.
"Adjusted Redemption Price" means in respect to the referenced Series
C Preferred Stock the sum of (a) its Liquidation Preference; (b) all accrued
and unpaid dividends thereon to, but not including, the Redemption Date; and
(c) an amount equal to 2% of the sum of (i) its Liquidation Preference and (ii)
all accrued and unpaid dividends thereon attributable to the period commencing
with the Adjustment Date through, but not including, the Redemption Date.
"Board" means the Corporation's board of directors.
"Board Resolution" has the meaning set forth in Section 6(c)(iii).
"Business Day" means a day that is not a Saturday, a Sunday or a day
on which banking institutions in the State of New York are not required to be
open. Unless specifically stated as a Business Day, all days referred to herein
shall mean calendar days.
"Capital Stock" means, with respect to any Person, any and all shares,
partnership interests, participations, rights in, or other equivalents (however
designated and whether voting or nonvoting) of, such Person's capital stock.
"Cash Election" has the meaning set forth in Section 6(a)(i).
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"Cash Portion" has the meaning set forth in Section 6(a)(iii).
"Certificate of Designation" means this entire Certificate of
Designations, Preferences and Rights of Series C Preferred Stock.
"Charter" means the Corporation's certificate of incorporation, as
amended from time to time.
"Charter Amendment" means an amendment to the Charter increasing the
number of authorized shares of Common Stock from 10,000,000 to 20,000,000.
"Closing Price" has the meaning set forth in Section 6(c)(vii).
"Common Stock" means shares of Common Stock, par value $0.005 per
share, of the Corporation.
"Conversion" has the meaning set forth in Section 6(a).
"Conversion Date" means that the date on which the Charter Amendment
has been filed with the Secretary of State of the State of Delaware and has
become effective under the General Corporation Law of the State of Delaware.
"Conversion Proposal" means the resolution to be presented to the
holders of Common Stock at the First Meeting and, if necessary, the Second
Meeting, with respect to the approval of (a) the reclassification and
conversion of the Series C Preferred Stock into Common Stock pursuant to
Section 6 and (b) the Charter Amendment.
"Conversion Price" means, initially, $5.125 and, thereafter, such
price as adjusted pursuant to Section 6.
"Corporation" means Government Technology Services, Inc., a Delaware
corporation.
"Current Market Price" has the meaning set forth in Section 6(c)(vii).
"Dividend Commencement Date" means the earlier of (a) January 1, 1999
and (b) the date on which the First Meeting is held if at such meeting
Stockholders Approval is not obtained.
"Dividend Payment Date" means each anniversary of the Dividend
Commencement Date.
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"Dividend Period" means the dividend period from and including the
Dividend Commencement Date to, but not including, the first Dividend Payment
Date, and thereafter, each annual period from, and including, the Dividend
Payment Date to, but not including, the next Dividend Payment Date.
"Dividend Record Date" means the date designated by the Board at a
time a dividend is declared; provided, however, that such date shall not be
more than 30 days prior to the respective Dividend Payment Date or such other
date designated by the Board for the payment of dividends in respect of Series
C Preferred Stock.
"First Meeting" means a special or annual meeting of the holders of
Common Stock held before January 1, 1999 for the purpose of, among other
things, considering and taking action upon a resolution to approve the
Conversion Proposal.
"Holder" means a record holder of one or more outstanding shares of
Series C Preferred Stock.
"Independent" means any person who is not (a) a director, officer or
employee of, or otherwise paid any compensation or remuneration by, any Holder
or (b) an officer or employee of, or otherwise paid any compensation or
remuneration (other than directors' fees) by, the Corporation.
"Initial Issue Date" means February 12, 1998.
"Initial Purchaser" means BTG, Inc., a Virginia corporation.
"Joint Director" has the meaning set forth in Section 7.
"Initial Redemption Price" means in respect to the referenced Series B
Preferred Stock the sum of (a) its Liquidation Preference; (b) all accrued and
unpaid dividends thereon to, but not including, the Redemption Date; and (c) an
amount computed by multiplying 8% of the Liquidation Preference by a fraction,
the numerator of which shall be the number of days from, and including, the
Redemption Date to, but not including, the earlier of the (i) first anniversary
of the date of the First Meeting and (ii) January 1, 2000, and the denominator
of which shall be 365.
"Initial Series C Preferred Stock" means the 15,375 shares of Series C
Preferred Stock issued to the Initial Purchaser on the Initial Issuance Date.
"Junior Stock" has the meaning set forth in Section 2.
"Liquidation Preference" means, at any time, $1,000 per share of
Series C Preferred Stock.
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"Majority Holders" means Holders of Series C Preferred Stock that has
a total Liquidation Preference plus accrued and unpaid dividends thereon that
represents a majority of the total Liquidation Preference of all outstanding
Series C Preferred Stock, plus all accrued and unpaid dividends thereon.
"Original Issuance Date" means the date upon which the referenced
Series C Preferred Stock was originally issued by the Corporation.
"Parity Stock" means any class or series of stock the terms of which
provide that it is entitled to participate pari passu with the Series C
Preferred Stock with respect to any dividend or distribution or upon
liquidation, dissolution or winding-up of the affairs of the Corporation.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, business trust, joint-stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Redemption Date" has the meaning set forth in Section 5(b).
"Redemption Notice" has the meaning set forth in Section 5(b).
"Redemption Price" means, the Initial Redemption Price or, as the case
may be, the Adjusted Redemption Price.
"Second Meeting" means the special or annual meeting of the holders of
Common Stock held after the First Meeting (at which Stockholders Approval was
not obtained) but before January 1, 2000, for the purpose of, among other
things, considering and taking action upon a resolution to approve the
Conversion Proposal.
"Senior Stock" means any class or series of stock the terms of which
provide that it is entitled to a preference to the Series C Preferred Stock
with respect to any dividend or distribution or upon voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation.
"Series C Director" has the meaning set forth in Section 7 (a)(i).
"Series C Preferred Stock" means the 8% Cumulative Redeemable
Convertible Preferred Stock, Series C, par value $0.25 per share, of the
Corporation.
"Series C Preferred Stock Certificate" has the meaning set forth in
Section 6(b).
"Stockholder Approval" means the approval of the Conversion Proposal
by the holders of a majority of the outstanding Common Stock entitled to vote
thereon at the First Meeting or, as the case may be, the Second Meeting.
20
<PAGE> 21
"Subsidiary" means, (i) with respect to any Person, a corporation a
majority of whose Capital Stock with voting power under ordinary circumstances
to elect directors is at the time, directly or indirectly, owned by such
Person, by a Subsidiary of such Person or by such Person and a Subsidiary of
such Person, or (ii) any other Person (other than a corporation) of which at
least a majority of the voting interest is at the time, directly or indirectly,
owned by such Person, by a Subsidiary of such Person or by such Person and a
Subsidiary of such Person.
"Trading Day" shall mean a day on which securities are traded or
quoted on the national securities exchange or quotation system or in the
over-the-counter market used to determine the Closing Price.
21
<PAGE> 22
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by Stephen L. Waechter, its Chief Financial Officer, and attested
by Judith B. Kassel, its Acting General Counsel and Corporate Secretary, this
11th day of February, 1998.
GOVERNMENT TECHNOLOGY
SERVICES, INC.
By: /s/ STEPHEN L. WAECHTER
--------------------------------
Name: Stephen L. Waechter
Title: Chief Financial Officeer
ATTEST:
By: /s/ JUDITH B. KASSEL
----------------------------
Name: Judith B. Kassel
Title: Acting General Counsel and
Corporate Secretary
<PAGE>
Exhibit 99.1
[GTSI Logo] Government Technology Services, Inc.
4100 Lafayette Center Drive
Chantilly, VA 20151-1200
(703) 502-2000
www.gtsi.com
CONTACT:
Fern Krauss
(301) 424-9140 or
(703) 502-2054
[email protected]
GTSI AND BTG SIGN DEFINITIVE AGREEMENT
GTSI Purchases BTG's Product Division
CHANTILLY, VA (February 12, 1998) - Government Technology Services, Inc.
(GTSI) (Nasdaq:GTSI) and BTG, Inc. (Nasdaq:BTGI) today announced that they
signed the definitive agreement for and completed the sale to GTSI of
substantially all of the BTG division assets responsible for reselling
computer hardware, software, and systems to the Federal Government. Under
the terms of the sale, GTSI provided 15,375 shares of a new series of
preferred stock, designated Series C 8% cumulative redeemable preferred
stock and $8 million in cash to BTG. The preferred stock is nonvoting
except for the right to elect one member of the GTSI board. Under the
terms of the sale, BTG also has the right to nominate a second director
subject to GTSI's consent.
GTSI will seek shareholder approval at its upcoming annual meeting for
conversion of the preferred stock to three million shares of common stock.
If shareholder approval is obtained, the preferred stock will automatically
convert to common stock. If shareholder approval is not obtained,
dividends, payable annually in cash or preferred stock at GTSI's option,
will begin to accrue on the preferred stock at an annual rate of 8% and the
preferred stock will become redeemable by GTSI at an initial redemption
price equal to the liquidation preference of $1,000 per share (or
$15,375,000) in the aggregate) plus accrued but unpaid dividends. If
conversion is not approved at the first shareholders meeting, GTSI has
agreed to seek approval at the next shareholders' meeting.
Dendy Young, President and CEO of GTSI, stated, "This transaction will
cement GTSI's position as a leading federal channel information technology
reseller and enable the company to better compete in the federal
information technology segment. We are focusing on the vital issue of
successfully combining the workforces of GTSI and the BTG division to
better serve our customers." Mr. Young added, "I welcome Dr. Bersoff to our
Board."
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<PAGE>
GTSI and BTG Sign Definitive Agreement Page -2-
Dr. Edward Bersoff, President and CEO of BTG, said he was very pleased
that the transaction had been completed. "This allows BTG to focus on and
grow our core business, providing engineering, networking, and integration
services and support to government and commercial clients." He attributed
the company's dynamic growth to BTG's skilled work force.
Except for historical information, all of the statements, including
the benefits of the transaction for both companies, expectations and
assumptions contained in the foregoing are "forward-looking statements"
(within the meaning of the Private Securities Litigation Reform Act of
1995) that involve a number of risks and uncertainties. It is possible that
the assumptions made by management for purposes of such statements may not
materialize. Actual results may differ materially from those projected or
implied in any forward-looking statements. In addition to the above
factors, other important factors that could cause actual results to differ
materially are those listed in the Company's most recent report on Form
10-K and included from time to time in other documents filed by the Company
with the Securities and Exchange Commission.
ABOUT THE COMPANIES
BTG provides information technology solutions to government and
commercial clients. The company specializes in systems engineering,
integration and network services. The company is headquartered in Fairfax,
Virginia. Additional information on BTG is available on the Internet at
www.btg.com, by e-mail at [email protected], or by calling 703-383-8000.
GTSI is one of the largest dedicated government resellers providing
broad-based information technology solutions. The Company offers access to
over 100,000 information technology products from more than 2,000
manufacturers. Headquartered in the Washington metropolitan area, GTSI
employs approximately 550 people and provides products and services to
Federal, state and local government customers worldwide. Founded in 1983,
GTSI has been ranked by Computer Reseller News as one of the top 10
resellers nationwide every year since 1993, when CRN began ranking
resellers. Further information may be obtained on the Internet at
www.gtsi.com.
-30-
GTSI is a registered service mark of Government Technology Services, Inc.
BTG is a federally registered trademark of BTG, Inc. All other trademarks
and service marks are proprietary to their respective owners.
