<PAGE>
[GTSI Logo]
GOVERNMENT TECHNOLOGY SERVICES, INC.
4100 LAFAYETTE CENTER DRIVE
CHANTILLY, VIRGINIA 20151-1200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders
(the "Annual Meeting") of Government Technology Services, Inc., a Delaware
corporation (the "Company"), will be held at 9:00 a.m. on Tuesday, May 12,
1998, at the Company's headquarters located at 4100 Lafayette Center Drive
in Chantilly, Virginia, for the following purposes, each as more fully
described in the attached Proxy Statement:
1. To approve the conversion of the Company's Series C Preferred
Stock into Common Stock (subject to approval of proposal 2
below).
2. To amend the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 10,000,000
to 20,000,000.
3. To elect eight directors to serve for the ensuing year.
4. To approve an amendment to the Company's 1996 Stock Option Plan
to increase by 1,000,000 the number of shares of Common Stock
authorized for issuance thereunder (subject to approval of
proposal 2 above).
5. To transact such other business as may properly come before the
Annual Meeting or any adjournment(s) thereof.
Only record holders of common stock at the close of business on March
16, 1998 are entitled to notice of, and to vote at, the Annual Meeting and
at any adjournment(s) thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting in person,
in order to ensure your representation at the Annual Meeting, please mark,
sign, date and return the enclosed proxy card as promptly as possible in
the postage-prepaid envelope enclosed for that purpose. Any stockholder
attending the Annual Meeting may vote in person even if such stockholder
has returned a proxy.
By Order of the Board of Directors
Judith B. Kassel
Corporate Secretary
Chantilly, Virginia
April 13, 1998
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[GTSI Logo]
GOVERNMENT TECHNOLOGY SERVICES, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of
Directors (the "Board") of Government Technology Services, Inc. ("GTSI" or
the "Company") for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Tuesday, May 12, 1998 at 9:00 a.m., Eastern Time,
or at any adjournment(s) thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Stockholders. The Annual
Meeting will be held at the Company's headquarters located at 4100
Lafayette Center Drive in Chantilly, Virginia.
These proxy solicitation materials are being first mailed on or about
April 13, 1998 to all stockholders entitled to vote at the Annual Meeting.
Only stockholders of record at the close of business on March 16, 1998
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. At the Record Date, 6,806,084 shares of common stock were issued
and, after giving effect to 49,904 shares held in treasury, 6,756,180
shares were outstanding.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Corporate
Secretary of the Company a written notice of revocation or a duly executed
proxy bearing a later date or by attending the Annual Meeting and voting in
person.
VOTING AND SOLICITATION
As to all matters to be voted upon at the Annual Meeting, each
stockholder is entitled to one vote for each share of the Company's common
stock (the "Common Stock") held. The presence in person or by proxy of a
majority of the outstanding shares of Common Stock entitled to vote
constitutes a quorum for the conduct of business at the Annual Meeting.
Approval of Proposal 1 and Proposal 2 requires the affirmative vote of a
majority of the outstanding Common Stock. With respect to Proposal 3, if a
quorum is present at the Annual Meeting, the nominees for director
receiving the highest number of votes up to the number of directors to be
elected will be elected. With respect to Proposal 4, the affirmative vote
of a majority of shares present in person or by proxy and entitled to vote
is required for approval. Abstentions are included in the determination of
the number of shares present and entitled to vote for purposes of
determining the presence of a quorum and where approval of a matter
requires the affirmative vote of a majority of the shares present in person
or by proxy and entitled to vote at the Annual Meeting. Broker non-votes
are counted as shares that are present and entitled to vote for purposes of
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2
determining a quorum. If a broker indicates on the proxy that it does not
have discretionary authority to vote on a particular matter as to certain
shares, those shares will be counted for purposes of determining the
presence of a quorum but will not be treated as present and entitled to
vote with respect to that matter.
IF A STOCKHOLDER RETURNS A PROXY AND NO INSTRUCTIONS ARE GIVEN, SUCH
SHARES WILL BE VOTED "FOR" EACH NOMINEE AS DIRECTOR AND "FOR" EACH OF THE
OTHER PROPOSALS IN THIS PROXY STATEMENT.
The cost of this solicitation will be borne by the Company. The
Company has retained the services of Corporate Investor Communications,
Inc. to solicit proxies from brokers and nominees and to distribute proxy
materials to brokerage houses, banks, custodians and other nominee holders.
The estimated cost of such services is approximately $14,500 including out-
of-pocket expenses. Pursuant to Securities and Exchange Commission ("SEC")
rules, the Company will reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may be solicited
personally or by telephone or telegram by certain of the Company's
directors, officers and regular employees, without additional compensation.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's annual meeting of
stockholders to be held in 1999, including the nomination of persons to
serve on the Board of Directors, must be received by the Company's
Secretary not later than December 11, 1998, for inclusion in the proxy
statement for that meeting. It is recommended that stockholders submitting
proposals direct them to the Secretary of the Company via certified mail,
return receipt requested, in order to ensure timely delivery. No
stockholder proposals were received with respect to the Annual Meeting
scheduled for May 12, 1998.
ABSENCE OF APPRAISAL RIGHTS
Under Delaware law, objecting stockholders will have no appraisal,
dissenters' or similar rights (i.e., the right to seek a judicial
determination of the "fair value" of the Common Stock and to compel the
Company to purchase their Common Stock for cash in that amount) with
respect to matters presented at the Annual Meeting, and the Company will
not voluntarily accord such rights to stockholders.
FORWARD-LOOKING STATEMENTS
This Proxy Statement, including certain documents incorporated herein
by reference, contains "forward-looking" statements that involve certain
risks and uncertainties. Actual results may differ materially from results
express or implied by such forward-looking statements, based on numerous
factors. Such factors include, but are not limited to, competition in the
government markets, buying patterns of the Company's customers, general <PAGE>
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3
economic and political conditions, results of negotiations with the
Company's lenders concerning a new credit facility, changes in laws and
government procurement regulations, and other risks described in this Proxy
Statement and in the Company's other SEC filings. For these statements,
the Company claims the protection of the safe harbor for forward-looking
statements under the Private Securities Litigation Reform Act of 1995.
PROPOSAL 1 --
APPROVAL OF THE CONVERSION OF THE COMPANY'S
SERIES C PREFERRED STOCK INTO COMMON STOCK
BACKGROUND AND DESCRIPTION OF AND REASONS FOR CONVERSION PROPOSAL
The Board submits and recommends for stockholder approval a proposal
(the "Conversion Proposal") to convert the Company's Series C 8% Cumulative
Redeemable Convertible Preferred Stock, $0.25 par value per share (the
"Series C Preferred Stock"), an aggregate of 15,375 shares of which were
recently issued to BTG, Inc., into 3,000,000 shares of Common Stock, $0.005
par value per share (the "Common Stock"). In addition, the Board submits
and recommends for stockholder approval a proposal to amend the Company's
certificate of incorporation increasing the number of authorized shares of
Common Stock from 10,000,000 to 20,000,000 (the "Charter Amendment
Proposal"). See "Proposal 2."
CONVERSION OF SERIES C PREFERRED STOCK INTO COMMON STOCK. On February
12, 1998, the Company and BTG, Inc. and two of its subsidiaries
(collectively "BTG") entered into an asset purchase agreement (the "Asset
Purchase Agreement") under which the Company acquired from 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 consisted primarily of
inventory and rights under certain contracts and intangible personal
property, along with furniture, fixtures, supplies and equipment. In
addition, the Company assumed certain BTG liabilities to be performed under
specified BTG contracts relating to the Division and certain liabilities
arising from the ownership or operation of the acquired assets after the
closing. The Company paid at closing $7,325,265 in cash (after a $174,735
adjustment for accrued vacation liability and satisfaction of an
outstanding invoice owed by BTG) and issued 15,375 shares, having a
liquidation preference of $15,375,000, of the Series C Preferred Stock.
The Company paid 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 the Company up to
$4.5 million to the extent that there is a shortfall in the amounts that
the Company receives from dispositions of certain inventory acquired.
Subsequent to the closing, BTG delivered to the Company certain other
inventory for which BTG has submitted an invoice in the amount of
$3,500,000, as estimated by BTG, payable net 90 days. The Company and BTG
are engaged in discussions regarding the manner of crediting and disposing
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4
of such inventory and payment therefor under the Asset Purchase Agreement
or under a possible amendment or supplement thereto, or other agreement,
that the parties may negotiate.
Pursuant to the Asset Purchase Agreement, the Company agreed to
convene a meeting of stockholders no later than January 1, 1999 (the "First
Meeting") to approve the Conversion Proposal and the Charter Amendment
Proposal. If the Conversion Proposal and the Charter Amendment Proposal
are 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 and the Charter
Amendment Proposal are approved at the Annual Meeting, which will be the
First Meeting, the Series C Preferred Stock will be converted into
3,000,000 shares of Common Stock. If the Conversion Proposal and the
Charter Amendment Proposal are not approved at the Annual Meeting, (a) the
Company has agreed to convene a second meeting of stockholders no later
than January 1, 2000 (the "Second Meeting") to approve the Conversion
Proposal and the Charter Amendment Proposal, and (b) the Series C Preferred
Stock will begin to accrue dividends. See "Comparison of Series C
Preferred Stock and Common Stock - Dividends."
The Company agreed to recommend that holders of Common Stock vote in
favor of the Conversion Proposal and the Charter Amendment Proposal and
each member of the Board at the time of execution of the Asset Purchase
Agreement agreed to vote any Common Stock over which he or she has voting
power in favor of such Proposals.
The Company's acquisition of the Division, as structured in the
original letter of intent executed on December 18, 1997, contemplated the
payment of $8 million in cash and the issuance of 3,000,000 shares of
Common Stock to BTG, subject to the prior approval of the Company's
stockholders. As events unfolded after the original letter of intent was
executed, however, the Company and BTG concluded that the delay in
consummation of the transaction necessitated by the stockholder approval
requirement would jeopardize the transaction's viability. Thus, to
expedite the transaction, and thereby preserve its value, on January 9,
1998, the Company and BTG amended the letter of intent in pertinent part to
provide for (i) the issuance of the Series C Preferred Stock at the
closing, which did not necessitate prior stockholder approval, and (ii) the
subsequent solicitation of stockholder approval of the Conversion Proposal
and the Charter Amendment Proposal. It was a condition to BTG's agreement
to the revised structure, however, that the Board agree to recommend the
Conversion Proposal and the Charter Amendment Proposal to the Company's
stockholders. The Board believed and was prepared to recommend to the
stockholders that the terms of the acquisition as originally envisioned,
including the issuance of Common Stock, were fair and in the stockholders'
best interests and, therefore, the Board agreed to this condition.
The Board has determined that it is in the best interests of the
Company to convert the Series C Preferred Stock into Common Stock as
described herein.
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Approval of the Conversion Proposal requires the affirmative vote of
the holders of a majority of the outstanding Common Stock. The Company
cannot effect the Conversion Proposal without approval of the Charter
Amendment Proposal, which requires the affirmative vote of the holders of a
majority of the outstanding Common Stock.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
CONVERSION PROPOSAL.
EFFECTS OF CONVERSION PROPOSAL AND CHARTER AMENDMENT PROPOSAL
Issuance of Common Stock to BTG in exchange for Series C Preferred
Stock, as a result of approval of the Conversion Proposal and the Charter
Amendment Proposal at the Annual Meeting, would have the following effects
on the holders of Common Stock:
1. The Series C Preferred Stock, along with its preferential rights,
including liquidation, dividend and other rights and preferences, would be
eliminated, as would the Company's ability to redeem such Preferred Stock.
2. The outstanding Common Stock would be increased by 3,000,000
shares, representing approximately 30.8% of the then outstanding Common
Stock. This would dilute the voting power of the Common Stock holders,
although the BTG Group has agreed in the Standstill Agreement (as defined
below), subject to certain qualifications, to vote its Common Stock in
favor of the Board's nominees for director in at least the same proportion
as the percentage of other votes cast for the election of such nominees.
3. The issuance of the Common Stock to BTG would limit BTG's equity
interest in the Company to 30.8%. If the Conversion Proposal and the
Charter Amendment Proposal are not approved, the Series C Preferred Stock
would begin to accrue dividends in the form of additional shares of Series
C Preferred Stock at the rate of at least 8% per annum for so long as such
Preferred Stock remains outstanding. This dividend accrual would result in
an annual increase in BTG's equity interest in the Company and a
corresponding annual dilution of the Common Stock holders' equity interest
in the Company. In this connection, while the Company is entitled under
the terms of the Series C Preferred Stock to pay dividends in cash in lieu
of additional shares of Series C Preferred Stock, the Company is currently
precluded from doing so under the terms of its credit agreement and, in any
event, the Company does not anticipate that cash dividends will be paid in
the foreseeable future.
The foregoing description of certain effects is qualified in its
entirety by reference to the detailed comparison of the terms of the Series
C Preferred Stock and the Common Stock set forth in "Comparison of Series C
Preferred Stock and Common Stock" below.
Authorization of additional shares of Common Stock could, under
certain circumstances, have a dilutive effective and anti-takeover effect.
The Company's issuance of additional shares of Common Stock could reduce
earnings per share and dilute the economic interests of the Company's <PAGE>
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stockholders. Also, the Company could issue the additional Common Stock in
an effort to impede a hostile attempt to obtain control of the Company,
thereby diluting the voting power of the outstanding Common Stock and
increasing the potential cost of acquiring control of the Company. The
Board, however, is not aware of any attempt by a third party to take
control of the Company and the Board has not submitted the Conversion
Proposal in response to any takeover attempt.
Conversion of the Series C Preferred Stock to 3 million shares of
Common Stock would have a dilutive effect on net tangible book value per
share. At December 31, 1997, the Company's historical net tangible book
value was approximately $39.3 million, or $5.82 per share. Giving effect
to the acquisition of the BTG Division as if it had occurred at January 1,
1997, and assuming the conversion of the Preferred Stock to Common Stock
had occurred as of the same date, net tangible book value would have been
approximately $52.3 million, or $5.36 per share. If the preferred stock is
not assumed to be converted, net tangible book value would have been $52.3
million, or $7.74 per share.
The Conversion of the Series C Preferred Stock to Common Stock would
have an anti-dilutive effect on earnings per share due to the Company's
loss position during 1997. The Company's historical loss per share at
December 31, 1997 was $0.76. Giving effect to the acquisition of the BTG
Division as if it had occurred at January 1, 1997, and assuming the
conversion of the Preferred Stock to Common Stock had occurred as of the
same date, the Company's loss per share would have been $0.49. If the
preferred stock is not assumed to be converted, loss per share would have
been $0.71.
The conversion of Preferred Stock to Common Stock is not expected to
have any Federal income tax effect on the existing holders of Common Stock.
If the Conversion Proposal is not approved at the Annual Meeting
(whether or not the Charter Amendment Proposal is approved), (a) the Series
C Preferred Stock will not be converted into Common Stock (unless and until
conversion is approved by the stockholders at a subsequent meeting); (b)
the Series C Preferred Stock will begin to accrue dividends; and (c) the
Board intends to resubmit the Conversion Proposal for approval of
stockholders no later than January 1, 2000, pursuant to the Company's
obligations under the Asset Purchase Agreement.
INTERESTS OF CERTAIN PERSONS
In considering the Board's recommendation to vote in favor of the
Conversion Proposal and the Charter Amendment Proposal, stockholders should
consider that the Company's directors and officers may have certain
interests that are different from, or in addition to, the interests of
stockholders generally. The Company is submitting for approval of the
stockholders a proposal to amend the Company's 1996 Stock Option Plan to
increase by 1,000,000 the number of shares of Common Stock authorized for
issuance thereunder. See "Proposal 4." The Charter Amendment Proposal
will increase the number of authorized shares of Common Stock needed to
effect the proposed amendment of the Company's 1966 Stock Option Plan as
well as the Conversion Proposal.<PAGE>
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In addition, in January 1998 the Company, with the approval of the
Compensation Committee, entered into an agreement with Federal Airways
Corporation, of which Lee Johnson, a Company director, is the owner and
president. The agreement provides that the Company would pay the following
compensation for Mr. Johnson's services: (a) a daily fee of $1,500 (an
aggregate of $99,000 for 66 days devoted to the acquisition effort); (b) a
cash payment of $300,000 payable after closing; (c) an option to purchase
50,000 shares of Common Stock at $5.25 per share (i.e., the closing price
of the Common Stock on December 18, 1997, the date of execution of the
initial letter of intent with BTG, Inc.), fully vested and exercisable for
a term of 10 years from December 18, 1997; and (d) reimbursement of
reasonable expenses incurred (which aggregated $11,877). As of March 1,
1998, Federal Airways had been paid an aggregate of $410,877 under the
foregoing agreement.
Prior to the negotiations between the Company and BTG, Inc., the
Company and M. Dendy Young had begun discussions regarding a new employment
agreement for Mr. Young. An employment agreement between the Company and
Mr. Young was also required by the Asset Purchase Agreement. Prior to the
execution and closing of the Asset Purchase Agreement, the Company entered
into a new employment agreement with Mr. Young. The employment agreement,
dated as of January 1, 1998, provides for the Company's employment of Mr.
Young as its president and chief executive officer at an annual salary of
$300,000 per year (subject to review annually by the Board), plus an annual
bonus of up to $150,000 based on the Company's earnings before interest and
taxes and annualized net income divided by average assets, plus certain
fringe benefits and perquisites. The term of Mr. Young's employment under
the employment agreement is from January 1, 1998 until December 31, 2000.
See "Executive Compensation and Other Information - Employment Agreements
and Termination of Employment and Change of Control Arrangements."
As described above, under the Asset Purchase Agreement, each member of
the Board agreed to vote any Common Stock over which he or she has voting
power in favor of the Conversion Proposal and the Charter Amendment
Proposal. As of the Record Date, the members of the Board in the aggregate
have voting power with respect to 337,732 shares of Common Stock
representing approximately 5% of the outstanding Common Stock entitled to
vote at the Annual Meeting.
COMPARISON OF SERIES C PREFERRED STOCK AND COMMON STOCK
Set forth below is a summary comparison of certain terms of the
outstanding Series C Preferred Stock with those of the Common Stock that
will be received by BTG, Inc. if the Conversion Proposal and the Charter
Amendment are approved. The terms of the Series C Preferred Stock are set
forth in a Certificate of Designations, Preferences and Rights of the
Series C Preferred Stock (the "Series C Certificate of Designations").
This summary is qualified in its entirety by reference to the full text of
the Series C Certificate of Designations, which is annexed hereto at
Appendix A. The Series C Certificate of Designations was filed with the
Delaware Secretary of State on February 12, 1998, in connection with the
execution and closing of the Asset Purchase Agreement.
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The Series C Preferred Stock and the Common Stock into which the
Series C Preferred will be converted are subject to a certain standstill
agreement dated as of February 12, 1998 between the Company and BTG, Inc.
(the "Standstill Agreement"). This summary is qualified in its entirety by
reference to the full text of the Standstill Agreement, which is annexed
hereto as Appendix B. The Standstill Agreement will continue in effect
until February 12, 2004 and thereafter for so long as BTG, Inc. and its
affiliates (collectively and individually, the "BTG Group") beneficially
own (a) in the aggregate 5% or more of the total combined voting power of
Voting Securities (as defined below) or (b) the Series C Preferred Stock;
however, in no event will the Standstill Agreement continue after February
12, 2008.
NUMBER OF SHARES. There are 100,000 shares of the Series C Preferred
Stock authorized, of which 15,375 shares were issued to BTG, Inc. on
February 12, 1998. Of the 10,000,000 shares of Common Stock currently
authorized, 6,756,180 shares are issued and outstanding, 49,904 shares are
held in treasury, an additional 2,349,592 shares of Common stock are
reserved for issuance upon the exercise of outstanding stock options, and
an additional 227,267 shares are reserved for issuance upon the exercise of
options that are subject to future grants.
If the Conversion Proposal and the Charter Amendment Proposal are
approved at the Annual Meeting, the 15,375 shares of Series C Preferred
Stock will be converted automatically into 3,000,000 shares of Common Stock
and the number of authorized shares will be increased to 20,000,000. Of
the 20,000,000 shares of Common Stock that will be authorized, 9,756,180
shares will be issued and outstanding (assuming no other changes to the
issued and outstanding Common Stock) and BTG, Inc. will be the beneficial
owner of 3,000,000 of such shares representing approximately 30.8% of the
then outstanding Common Stock.
RANK. With respect to dividends and distributions upon voluntary or
involuntary liquidation, dissolution and winding-up of the Company, the
Series C Preferred Stock ranks (a) senior to the Common Stock and each
other class of the Company's capital stock or series of preferred stock
that the Company may create which is not Senior Stock or Parity Stock, (b)
equally with any Parity Stock and (c) junior to any Senior Stock. "Parity
Stock" means any class or series of stock the terms of which provide that
it is entitled to participate equally with the Series C Preferred Stock
with respect to any dividend or distribution or upon liquidation,
dissolution or winding-up of the Company's affairs. There is no Parity
Stock outstanding presently. "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
Company's affairs. There is no Senior Stock presently outstanding.
DIVIDENDS. On the Dividend Commencement Date, the record holders of
Series C Preferred Stock will be entitled to receive dividends, when, as
and if declared by the Board, out of funds legally available for payment of
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dividends will (a) accrue and be cumulative from the Dividend Commencement
Date with respect to the 15,375 shares of Series C Preferred Stock issued
to BTG, Inc. and (b) when, as and if declared by the Board, will be payable
annually in arrears on each Dividend Payment Date commencing with the first
Dividend Payment Date after the Dividend Commencement Date with respect to
the 15,375 shares of Series C Preferred Stock. The "Dividend Commencement
Date" means the earlier of (a) January 1, 1999 and (b) the date on which
the Annual Meeting is held if at such meeting Stockholders Approval is not
obtained. "Stockholders Approval" means the approval of the Conversion
Proposal and the Charter Amendment Proposal by the holders of a majority of
the outstanding Common Stock entitled to vote thereon at the Annual Meeting
or, as the case may be, the Second Meeting. "Liquidation Preference" means
$1,000 per share of Series C Preferred Stock. "Dividend Payment Date"
means each anniversary of the Dividend Commencement Date.
In lieu of paying part or all of a dividend in cash or permitting the
unpaid dividend to accrue additional dividends thereon as described below,
the Company, at its option, is entitled to declare and pay any part or all
of such dividend in additional shares of Series C Preferred Stock with a
Liquidation Preference equal to the amount of the dividend payable in
Series C Preferred Stock. The Company has reserved 84,625 authorized but
unissued shares of Series C Preferred Stock for such purpose.
For any Dividend Period in which dividends are not paid in full
(whether in cash or in additional Series C Preferred Stock as described
above) on the Dividend Payment Date next succeeding the end of such
Dividend Period, then on such Dividend Payment Date such accrued and unpaid
dividends will be added (solely for the purpose of calculating dividends
payable on the Series C Preferred Stock outstanding immediately prior to
such Dividend Payment Date) to the Liquidation Preference of the Series C
Preferred Stock at the beginning of the Dividend Period succeeding the
Dividend Period as to which such dividends were not paid and will
thereafter accrue additional dividends at the annual rate of 8% until such
accrued and unpaid dividends have been paid in full. "Dividend Period"
means the 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.
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), all dividends declared by the Board upon Series C
Preferred Stock or Parity Stock, if any, will be declared pro rata with
respect to all Series C Preferred Stock and Parity Stock then outstanding.
While any Series C Preferred Stock is outstanding, the Company will
not (a) declare, pay or set apart for payment any dividend on any Junior
Stock, (b) 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, (c) make any distribution in respect
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foregoing in respect of such Junior Stock, 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) or declared and a sum of
money or a number of additional shares of Series C Preferred Stock
sufficient for such payment has been set apart. "Junior Stock" means all
classes of Common Stock and each other class of the Company's capital stock
or series of preferred stock that the Company may create which is not
Senior Stock or Parity Stock.
The record holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board out of funds legally available for
payment of dividends.
The Company has never paid cash dividends. The Company's present
policy is to retain earnings to finance the growth and development of its
business and, therefore, the Company does not anticipate paying cash
dividends on the Common Stock, or on the Preferred Stock if the Conversion
Proposal and the Charter Amendment Proposal are not approved in the
foreseeable future. Furthermore, certain financial covenants in the
Company's bank credit agreement restrict the Company's ability to pay
dividends.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company's affairs, before any
payment will be made or assets distributed to the holders of any Junior
Stock, the holders of Series C Preferred Stock will be entitled to be paid
out of the Company's assets available for distribution to its stockholders
an amount equal to the Liquidation Preference for each share outstanding
plus all accrued but unpaid dividends thereon to the date of such
liquidation, dissolution or winding-up. If the Company's assets are not
sufficient to pay in full the liquidation payments payable to the holders
of the Series C Preferred Stock and the holders of any outstanding Parity
Stock, then the holders of the Series C Preferred Stock and the holders of
any Parity Stock will share ratably in such distribution of assets in
accordance with the amounts which would be payable on such distributions if
the amount to which such holders are entitled were paid in full. For the
purposes of the foregoing, neither the sale, conveyance, exchange or
transfer of all or substantially all of the Company's assets nor the
consolidation or merger of the Company with or into one or more
corporations will be deemed a voluntary or involuntary liquidation,
dissolution or winding-up of the Company's affairs.
In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Company's affairs, holders of Common Stock will be
entitled to receive, pro rata, payments or assets available for
distribution after the payments or distributions to the holders of any
Series C Preferred Stock, Parity Stock or Senior Stock.
VOTING RIGHTS. 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,
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11
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 or remuneration by any
holder of Series C Preferred Stock or (b) an officer or employee of or
otherwise paid any compensation or remuneration (other than director's
fees) by the Company.
BTG, as the holder of the Series C Preferred Stock, elected Dr. Edward
H. Bersoff, who is BTG's president and chief executive officer, as the
Series C Director. BTG nominated and the Board has approved John M. Toups,
a Company 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, Inc.
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 holders of a
majority of the Series C Preferred Stock will 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 the first Series
C Director began on February 12, 1998 and will expire at the Annual
Meeting. The Series C Director will be elected annually at each annual
meeting of stockholders for a term of office to expire at the first
succeeding annual meeting 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 holders of
a majority of the Series C Preferred Stock. If none of the Series C
Preferred Stock remains outstanding, the Series C Director will be deemed
to have resigned as of such date. If the Series C Preferred Stock is no
longer outstanding as a result of its conversion into Common Stock, the BTG
Group will be entitled to designate two persons for nomination for election
to the Board, as described below, in lieu of the Series C Director and the
Joint Director.
While any Series C Preferred Stock is outstanding, without the
affirmative vote or consent of holders of at least a majority of the
outstanding Series C Preferred Stock, voting or consenting, as the case may
be, as one class, the Company may not (a) issue or reclassify any
authorized stock of the Company 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 rights senior or equal to those
of the Series C Preferred Stock, (b) reclassify the Series C Preferred
Stock, or (c) amend its Certificate of Incorporation or the Series C
Certificate of Designations so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of Series C Preferred
Stock or to increase or decrease the authorized number of shares of Series
C Preferred Stock.
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12
Except as described above or as may be required by Delaware law, the
holders of Series C Preferred Stock will not be entitled to vote on any
matters submitted to holders of the Company's capital stock. In any case
in which the holders of Series C Preferred Stock will be entitled to vote
as a separate class, each holder will be entitled to one vote for each
share of Series C Preferred Stock then held.
The holders of Common Stock generally have the right to vote on all
matters submitted to a vote of stockholders, with each holder of record of
Common Stock entitled to one vote for each share held.
The Standstill Agreement contains certain provisions regarding voting
rights of the BTG Group upon conversion of the Series C Preferred Stock
into Common Stock. After the date the Series C Preferred Stock is
converted into Common Stock and until such time as the BTG Group owns less
than 15% of the Company's issued and outstanding Voting Securities, the BTG
Group will be entitled to designate (a) one person for nomination to the
holders of Common Stock for election to the Board (the "BTG Designee"), and
(b) one additional person for nomination to the holders 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"). The Joint Designee
may not be (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 director's fees) by the Company. The Company has agreed to
nominate and recommend for approval such BTG Designee and such Joint
Designee at each annual meeting of holders of Common Stock for the election
of directors to the Board. The BTG Designee and the Joint Designee will be
nominated for election to the 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. A vacancy of the BTG Designee position on
the Board will be filled by the Board after designation by the BTG Group.
A vacancy of the Joint Designee position on the Board will be filled by the
Board, following nomination by the BTG Group. The BTG Designee will be
deemed to have resigned immediately as of such time as the BTG Group
beneficially owns in the aggregate less than 15% of the issued and
outstanding Voting Securities.
Without the prior consent of the Board, authorized by a majority of
its directors other than any directors who are BTG nominees, neither BTG
nor any member of the BTG Group will have in the aggregate more than two
nominees on the Board. In connection with the election of directors to the
Board, the BTG Group has agreed to vote its Voting Securities in favor of
any Company nominee to the Board (a) who is a member of the Board as of
February 12, 1998 or (b) becomes a member of the Board after February 12,
1998 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.
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13
REDEMPTION. At any time on or after the Dividend Commencement Date,
the Company 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 Annual 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 Stockholders Approval 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 Common Stock is not subject to redemption by the Company.
Under the Standstill Agreement, after the date the Series C Preferred
Stock is converted into Common Stock, the Company will 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
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). "Continuing Directors" means all persons
serving as members of the BTG board of directors as of February 12, 1998,
together with all other persons whose election to such board will
subsequently be effected by, or recommended to, the stockholders of BTG by
at least two-thirds of the Continuing Directors then in office.
If the Company exercises the Call Option, the Company must do so
within 30 days after the occurrence of any of the triggering events
described above and must pay an amount equal to the product of the number
of shares of Common Stock or units of other Voting Securities to be
repurchased and the Market Price of such securities on the settlement date.
In lieu of promptly settling the exercise of the Call Option, the Company
will have the right to direct BTG to sell the Voting Securities covered
thereby in open market transactions and BTG must do so as soon thereafter
as reasonably practicable. The "Market Price" of any Voting Securities as
of any date means the average of the closing price per share of Common
Stock on the Nasdaq National Market for the 10 consecutive trading days
prior to such date.
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14
CONVERSION. As of the Conversion Date, the Series C Preferred Stock
will automatically be reclassified as and converted into Common Stock
without any action of the holder of the Series C Preferred Stock. Each
share of Series C Preferred Stock will be converted into such number of
shares of Common Stock that equals the Liquidation Preference of the Series
C Preferred Stock plus all accrued but unpaid dividends thereon to, but not
including, the Conversion Date divided by the Conversion Price; provided
that if the Conversion Date occurs after the Dividend Commencement Date,
the Company, in lieu of issuing Common Stock in respect of all or any part
of the accrued but unpaid dividends, will be entitled to pay in cash all or
any part of such unpaid dividends (the "Cash Election"). If the Company
exercises the Cash Election, it will do so on a pro rata basis in respect
of the outstanding Series C Preferred Stock. The "Conversion Price" means
initially $5.125 subject to certain anti-dilution adjustments described
below. The "Conversion Date" means the date on which the Charter Amendment
has been filed with the Delaware Secretary of State and has become
effective under the Delaware General Corporation Law. If any Series C
Preferred Stock is called for redemption (as discussed above), such shares
will no longer be subject to conversion into Common Stock.
Certain anti-dilution adjustments will be made to the Conversion Price
from time to time upon the following events, subject to certain exceptions
and limitations: (a) if the Company (i) declares a dividend or makes a
distribution on the outstanding Common stock in capital stock of the
Company, (ii) subdivides or reclassifies the outstanding Common stock into
a greater number of shares (or into other securities or property), or (iii)
combines or reclassifies the outstanding Common Stock into a smaller number
of shares (or into other securities or property); (b) if the Company fixes
a record date for the issuance of rights, options or warrants to all
holders of Common Stock entitling them for a specified period to subscribe
for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share less than the Current
Market Price of Common Stock on such record date; (c) if the Company fixes
a record date for the making of a distribution to all holders of Common
Stock (i) of shares of any class other than Common Stock, (ii) of evidences
of indebtedness of the Company or any subsidiary, (iii) of assets or other
property or (iv) of rights, options or warrants (excluding those rights,
options or warrants resulting in an adjustment pursuant to clause (b)
above); (d) if the Company issues Common Stock for a consideration per
share less than the Current Market Price per share on the date the Company
fixes the offering price of such additional shares; (e) if the Company
issues any securities convertible into or exchangeable for Common Stock
(excluding (i) securities issued in transactions resulting in adjustment
pursuant to clauses (b) and (c) above, (ii) Series C Preferred Stock and
(iii) upon conversion of any of such securities) for a consideration per
share of Common Stock deliverable upon conversion or exchange of such
securities less than the Current Market Price per share in effect
immediately prior to the issuance of such securities; and (f) if the
Company 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. "Current Market Price" per share at any date means the <PAGE>
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15
average of the daily Closing Price for the Common Stock for the 10
consecutive trading days commencing 14 trading days before such date and
"Closing Price" means the last reported sale price regular way. The
formulas for calculating the anti-dilution adjustments are set forth in the
Series A Certificate of Designations, Appendix A hereto.
In the event of a consolidation with or merger of the Company into
another corporation, or in the event of any sale or conveyance of assets to
another corporation of the assets of the Company as an entirety or
substantially as an entirety, then adequate provisions will be made whereby
each holder of Series C Preferred Stock will have the right to receive,
from such successor or purchasing corporation, as the case may be, in lieu
of the Common Stock immediately prior thereto 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 event of any reclassification or change of the Common Stock
issuable upon conversion of Series C Preferred Stock, or in the event of
any consolidation or merger of another corporation into the Company in
which the Company is the continuing corporation and in which there is a
reclassification or change of the Common Stock, adequate provisions will be
made whereby each holder of Series C Preferred Stock will have the right to
receive, in lieu of the Common Stock immediately prior thereto receivable
upon the conversion of Series C Preferred Stock, the kind and amount 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.
In addition to the adjustments required in accordance with the
foregoing, the Company may make such reductions in the Conversion Price as
it considers to be advisable so that any event treated for federal income
tax purposes as a dividend of stock or stock rights will not be taxable to
the recipients.
If any event occurs as to which the foregoing provisions are not
strictly applicable or, if strictly applicable, would not, in the Board's
good faith judgment, 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 will make adjustments in the application of
such provisions, in accordance with such essential intents and principles,
as shall be reasonably necessary, in the Board's good faith opinion, to
protect such conversion rights as described, but in no event will any
adjustment have the effect of increasing the Conversion Price, or otherwise
adversely affect the holders of the Series C Preferred Stock.
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16
The Common Stock is not convertible into any other securities of the
Company.
CERTAIN RESTRICTIONS. Under the Standstill Agreement, BTG, Inc.
agreed that while the Standstill Agreement remains in effect, it will not,
nor will it permit any of its affiliates to, without the Company's prior
consent authorized by a majority of the Board, acquire, by purchase or
otherwise: (a) if the BTG Group beneficially owns any Series C Preferred
Stock, any beneficial ownership of Voting Securities (except by way of
stock dividends or other distributions or offerings made available by the
Company to holders of Voting Securities generally), if after such
acquisition 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 the BTG Group prior to the earlier of
the First Meeting and January 1, 1999; or (b) if the Series C Preferred
Stock has been converted to Common Stock as a result of Stockholders
Approval, any beneficial ownership of Voting Securities (except by way of
stock dividends or other distributions or offerings made available by the
Company to holders of Voting Securities generally), if after such
acquisition 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. "Voting
Securities" means the Company's outstanding securities entitled to vote
generally for the election of directors, including the Common Stock, or
securities convertible into, or entitling the holder thereof to acquire
such voting securities; "Voting Securities" does not include the Series C
Preferred Stock.
BTG, Inc. also agreed that while the Standstill Agreement remains in
effect, it will not, nor will it permit any of its affiliates to, without
the Company's prior consent authorized by a majority of the Board: (a)
deposit any Voting Securities in a voting trust or subject them to any
arrangement or agreement with respect to the voting thereof; (b) solicit
proxies with respect to Voting Securities under any circumstance or become
a participant in a solicitation in opposition to the recommendation of a
majority of the Board with respect to any matter; provided that if
Stockholders Approval has not been obtained by the earlier of the Second
Meeting or January 1, 2000, nothing in the Standstill Agreement will
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 to require the conversion of the Series C Preferred Stock into
Common Stock in accordance with the terms of the Series C Preferred Stock
and to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock to facilitate such conversion;
provided further that nothing in the Standstill Agreement will prohibit the
BTG Group from soliciting proxies or becoming a participant in a
solicitation in opposition to any proposal by the Board which, if adopted,
would adversely affect (i) the rights of the holders of the Series C
Preferred Stock if then beneficially owned by the BTG Group or (ii) the
rights of BTG to designate the BTG Designee and the Joint Designee; (c)
except with respect to the Conversion Proposal, initiate, propose or <PAGE>
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17
otherwise solicit stockholders for the approval of one or more proposals
relating to the Company, or induce or attempt to induce any other person to
initiate any stockholder proposal with respect to the Company; (d) join a
partnership 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 (e) make any proposal to the Board or otherwise with respect
to the acquisition of any beneficial ownership of Voting Securities by the
BTG Group or with respect to a merger or consolidation with, or a sale of a
substantial portion of the Company's assets to, the BTG Group.
In addition, BTG agreed that, while the Standstill Agreement remains
in effect, it will not, nor will it permit any member of the BTG Group to,
without the prior consent of the Company authorized by a majority of the
Board, transfer any Voting Securities, other than: (a) to a wholly owned
subsidiary of BTG, Inc. or by any such person to BTG, Inc.; (b) pursuant to
Rule 144 under the Securities Act of 1933, as amended; (c) pursuant to any
tender offer or exchange offer recommended to the stockholders by the
Board; (d) pursuant to any public offering of Voting Securities (with
certain exceptions); or (e) as a result of any pledge to a financial
institution to secure a loan, or the foreclosure of any lien which may be
placed on any Voting Securities.
PROPOSAL 2 --
APPROVAL OF THE AMENDMENT OF THE COMPANY'S CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK FROM 10,000,000 TO 20,000,000
As discussed in Proposal 1, the Board submits and recommends for
stockholder approval a proposal to increase the number of authorized shares
of Common Stock from 10,000,000 to 20,000,000 to effect the Conversion
Proposal and to ensure the availability of a sufficient number of
additional shares of Common Stock for various corporate purposes. The
additional authorized Common Stock would provide the Company with
flexibility to raise capital through the future sale of Common Stock or
other securities convertible into or exercisable for Common Stock, to make
acquisitions payable through the issuance of Common Stock or other
securities convertible into or exercisable for Common Stock, and, subject
to any requisite stockholder approval, to reserve additional Common Stock
for the exercise of stock options under existing and future stock option
plans, including the proposed amendment of the Company's 1996 Stock Option
Plan. See "Proposal 4." Other than the issuance of Common Stock to BTG to
effect the Conversion Proposal, and, if approved by the stockholders at the
Annual Meeting, the reservation of 1,000,000 additional shares for issuance
under the Company's 1996 Stock Option Plan, the Company does not have any
current plan to issue any of the additional Common Stock to be authorized.
For a discussion of certain effects of the Charter Amendment Proposal
(as well as the Conversion Proposal), see "Proposal 1 - Effects of
Conversion Proposal and Charter Amendment Proposal."
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18
For a discussion of interests of certain of the Company's directors
and officers relating to the Charter Amendment Proposal (as well as the
Conversion Proposal), see "Proposal 1 - Interests of Certain Persons."
The Board has determined that the Charter Amendment is in the best
interests of the Company.
If the Charter Amendment Proposal is approved, but the Conversion
Proposal is not approved, (a) the Series C Preferred Stock will not be
converted into Common Stock (unless and until conversion is approved by the
stockholders at a subsequent meeting); (b) the Series C Preferred Stock
will begin to accrue dividends; and (c) the Board intends to resubmit the
Conversion Proposal for approval of stockholders no later than January 1,
2000, pursuant to the Company's obligations under the Asset Purchase
Agreement.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
CHARTER AMENDMENT PROPOSAL.
THE COMPANY'S FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's audited consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations are included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, filed with the SEC on March 30, 1998. The
portions of such Form 10-K containing such financial statements and
management's discussion and analysis are incorporated herein by reference.
THE DIVISION'S FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
Financial statements for the Division acquired by the Company from
BTG, Inc. and certain pro forma financial information are included in the
Company's Report on Form 8-K/A filed with the SEC on April 2, 1998, which
is incorporated herein by reference.
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19
PROPOSAL 3 -- ELECTION OF DIRECTORS
NOMINEES
Eight directors will be elected at the Annual Meeting by the holders
of the Company's Common Stock as of the Record Date. An additional
director, Dr. Edward H. Bersoff, age 55, has been elected as the "Series C
Director" by BTG, Inc., the holder of 15,375 shares, having a liquidation
preference of $15,375,000, of the Series C Preferred Stock. One of the
nominees, John M. Toups, has been nominated by BTG, Inc., and approved by
the Board, as the "Joint Director." See "Proposal 1 -- Comparison of
Series C Preferred Stock and Common Stock -- Voting Rights."
Unless otherwise instructed, proxy holders will vote the proxies
received by them for the Company's eight nominees named below, all of whom
are currently directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who will be
designated by the present Board to fill the vacancy. It is not expected
that any nominee will be unable or will decline to serve as a director.
The term of office of each person elected as a director will continue until
the next annual meeting of stockholders and such time as his or her
successor is duly elected and qualified, or until his or her earlier
resignation, removal or death.
The names of the nominees, and certain information about them, are set
forth below:
NAME AGE POSITION(S) WITH THE COMPANY
- ----------------------- --- ----------------------------
Tania Amochaev 48 Director
Gerald W. Ebker 59 Director
Lee Johnson 70 Director
Steven Kelman, Ph.D. 49 Director
James J. Leto 54 Director
Lawrence J. Schoenberg 65 Chairman of the Board
John M. Toups 72 Director
M. Dendy Young 50 President and Chief Executive
Officer, and a Director
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES.
There is no family relationship between any director or executive
officer of the Company and any other director or executive officer of the
Company.
Ms. Amochaev has been a director since October 1994. Since February
1997, she has been the Chair of the Executive Committee of QuickResponse
Services, Inc., the leading provider of demand chain management services
for the retail industry, where she served as President from May 1992 until
February 1997, and additionally as Chief Executive Officer from May 1993 <PAGE>
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20
until February 1997. From May 1988 to March 1992, she was Chief Executive
Officer of Natural Language, Inc., a client server database tool software
company. Ms. Amochaev is also a director of QuickResponse Services, Inc.;
Symantec Corporation; and Walker Interactive Systems, Inc.
Mr. Ebker has been a director since April 1994 and served as Chief
Executive Officer from November 1 to December 18, 1995. From March 1963
until his retirement in December 1993, he held a number of executive
management positions with various subsidiaries of IBM Corporation, retiring
as IBM Vice President and Chairman and Chief Executive Officer of IBM
Federal Systems Company, a government systems integrator.
Mr. Johnson has been a director since March 1996. Since March 1984,
he has been the President of Federal Airways Corporation, a provider of
highly modified, special mission high altitude aircraft to civilian and
defense agencies. From February 1986 to August 1994, Mr. Johnson served as
Chairman of the Board of Falcon Microsystems, Inc., a government
microcomputer reseller founded by Mr. Young and acquired by the Company in
August 1994 ("Falcon").
Dr. Kelman has been a director since October 1997. Since September
1997, he has been the Weatherhead Professor of Public Management at Harvard
University's John F. Kennedy School of Government. From November 1993 to
September 1997, Dr. Kelman served as Administrator of the Office of Federal
Procurement Policy at the Office of Management and Budget. From 1986 to
1993, he was Professor of Public Policy at Harvard. Dr. Kelman is also a
director of Federal Sources, Inc.
Mr. Leto has been a director since March 1996. Since June 1996, he
has been the Chairman, President and Chief Executive Officer of Network
Imaging Corporation, a developer and marketer of software used to manage
client/server, object-oriented, and enterprise-wide information. From
January 1992 until February 1996, he was Chairman and Chief Executive
Officer of PRC, Inc. ("PRC"), a provider of scientific and technology-based
systems, products and services to government and commercial clients around
the world. Mr. Leto is also a director of Federal Sources, Inc.
Mr. Schoenberg has been a director since December 1991 and has served
as Chairman of the Board since February 1995. He previously served as a
director of the Company from March 1990 to December 1990, and as Chairman
of the Board from May 1990 to December 1990. Mr. Schoenberg served as
Chief Executive Officer and Chairman of the Board of Directors of AGS
Computers, Inc. from January 1967 until his retirement in December 1990,
and as Chairman of its Executive Committee from January 1991 to December
1991. Mr. Schoenberg is also a director of Sungard Data Services, Inc.;
Merisel, Inc.; and Cellular Technical Services Company, Inc.
Mr. Toups has been a director since October 1997. From January 1978
until his retirement in February 1987, Mr. Toups was President and CEO of
PRC. Mr. Toups is also a director of NVR, Inc.; CACI, Inc.; Halifax
Corporation; TelePad Corporation; and Thermatrix, Inc.
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21
Mr. Young has been President and Chief Executive Officer and a
director since December 1995. From August 1994 until joining the Company,
he was Principal and Consultant of The Exeter Group, a management
consulting firm he founded. From January 1989 until August 1994, Mr. Young
served as President and Chief Executive Officer and a director of Falcon.
Dr. Bersoff has been a director since February 1998. He has served as
the President, Chief Executive Officer and Chairman of the Board of
Directors of BTG, Inc. since that company's founding in 1982. Dr. Bersoff
also serves as a director of Phillips Business Information, Inc.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
During 1997, the Board held a total of five meetings, and each
director of the Company attended at least 75% of the meetings of the Board
held during the period that he or she was a director and at least 75% of
all meetings held by all committees of the Board on which he or she served.
The Board has standing audit, compensation and nominating committees, as
discussed below.
The Audit Committee is currently comprised of Messrs. Ebker, Johnson
and Schoenberg, and met formally once during 1997; however, committee
business was conducted through committee member discussions concerning
audit and other Company financial matters during meetings of the entire
Board as well as telephone conferences among the Committee members, the
Company's financial personnel and the Company's independent accountants.
The Audit Committee selects the Company's independent accountants, reviews
reports from accountants and from the Company's financial officers, reviews
transactions relating to officers and directors and generally performs
functions related to the financial condition and policies of the Company.
The Compensation Committee is currently comprised of Ms. Amochaev and
Mr. Leto, and met formally once during 1997; however, committee business
was conducted through committee member discussions concerning compensation
matters during meetings of the entire Board as well as through telephone
conferences, and formalized using forms of unanimous written consent. See
"Executive Compensation and Other Information -- Compensation Committee
Interlocks and Insider Participation" and "Compensation Committee Report on
Executive Compensation." The Compensation Committee's responsibilities
include administering the Company's stock option plans (including
determining the persons to whom options are granted and the terms of such
options), the Company's Employee Stock Purchase Plan ("ESPP"), and the
Company's 401(k) Plan; advising the Board on employee compensation matters,
including executive bonus plans; and performing such other duties regarding
compensation matters as may be delegated to it by the Board from time to
time.
The Nominating Committee is currently comprised of Messrs. Schoenberg
and Young, and did not meet formally during 1997; however, committee
business was conducted through committee member discussions concerning
nomination matters during meetings of the entire Board as well as through
telephone conferences. The Nominating Committee's responsibilities are to:
<PAGE>
<PAGE>
22
(i) seek, evaluate and recommend to the Board qualified individuals for
election to the Board by the stockholders, or by the Board to fill
vacancies thereon whenever vacancies occur; (ii) advise the Board on
matters pertaining to the size and composition of the Board; and (iii)
consider nominees for the Board whose names are timely submitted by
stockholders in writing to the Chairperson of the Nominating Committee
accompanied by such information regarding the nominee as would be required
under SEC rules if the stockholder were soliciting proxies with regard to
the election of such nominee.
COMPENSATION OF DIRECTORS
All non-employee directors of the Company receive automatic grants of
stock options under the Company's 1996 Stock Option Plan ("1996 Plan") of
15,000 shares upon initial election (30,000 in the case of the Chairperson
of the Board), and upon each subsequent annual re-election, to the Board.
Each such automatic option grant vests over a 12-month period, with the
first vesting occurring at the end of the month in which the date of grant
occurred. Such options are granted at exercise prices equal to the closing
price of the Company's common stock on The Nasdaq Stock Market (sm) on the
date of grant. As of March 1, 1998, options to purchase an aggregate of
253,750 shares had been granted to the Company's eight non-employee
directors under the 1996 Plan, at exercise prices ranging from $4.88 to
5.44 per share. Non-employee directors of the Company are not eligible to
participate in the Company's 1994 Stock Option Plan ("1994 Plan"), 1997
Stock Option Plan ("1997 Plan") or ESPP. Directors of the Company do not
receive any other compensation for their service on the Board of Directors
or any committee thereof, but are reimbursed for their reasonable out-of-
pocket expenses incurred in association with the performance of their
duties.
In January 1998, the Company entered into an agreement with Federal
Airways Corporation, a company of which Mr. Johnson is the owner and
president, whereby it would be compensated by the Company for Mr. Johnson's
services as primary negotiator in the acquisition of the Division as
follows: (1) a daily fee of $1,500 for each full day devoted to the
acquisition effort (an aggregate of $99,000 for 66 days devoted to the
acquisition effort); (2) a cash payment of $300,000 payable after the
closing; (3) an option to purchase 50,000 shares of the Company's Common
Stock at $5.25 per share (i.e., the closing price of the Company's Common
Stock on the date of grant, which coincided with the date of execution of
the initial letter of intent with BTG, Inc. for the acquisition), fully
vested and exercisable upon grant for a term of 10 years; and (4)
reimbursement of reasonable and documented expenses incurred. As of March
1, 1998, Federal Airways had been paid an aggregate of $410,877 under the
foregoing agreement. In addition, the Company and Federal Airways entered
into a consulting agreement dated October 15, 1997, which provides for the
Company to pay a daily fee of $1,500 (not to exceed an aggregate of $50,000
per year) for Mr. Johnson's consulting services on general company business
matters. Under the agreement, which began in January 1997 and will
continue until Mr. Johnson ceases to be a director or either party
terminates the agreement upon 14 days' notice, the Company paid to Federal
Airways $35,250 in fees and $6,778 in expenses in 1997.
<PAGE>
<PAGE>
23
In August 1995, Mr. Schoenberg was awarded compensation for serving as
Chairman of the Board, commencing February 17, 1995 (the date of his
election as Chairman of the Board), in the amount of $150,000 per year,
payable at the rate of $12,500 per month. On May 7, 1996, pursuant to
stockholder approval of the 1996 Plan and in accordance with resolutions
previously adopted by the Board, all cash compensation was terminated for
non-employee directors (including the Chairman), except reimbursement for
reasonable out-of-pocket expenses. Prior to such termination of
compensation, Mr. Schoenberg received $62,500 during 1996 under the August
1995 compensation arrangement.
<PAGE>
<PAGE>
24
COMMON STOCK OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of March 1, 1998
(except as noted otherwise) by: (i) each person who is known to own bene-
ficially more than 5% of the outstanding shares of the Company's common
stock; (ii) each of the Company's directors who owns common stock; (iii)
each of the executive officers named in the Summary Compensation Table on
page 22; and (iv) all current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER (1) OWNED CLASS
- ------------------------------ ------------- -------
<S> <C> <C>
M. Dendy Young (2) 873,730 10.7%
Shufro, Rose & Ehrman, LLC (3)
745 Fifth Avenue
New York, NY 10151-2600 778,880 9.6
Hal Lashlee (4)
P.O. Box 7680
491 Alpine View
Incline Village, NV 89450 715,500 8.8
Franklin Resources, Inc. (3)
777 Mariners Island Blvd.
P.O. Box 777
San Mateo, CA 94403-7777 587,000 7.2
Lawrence J. Schoenberg(5) 272,002 3.3
Gerald W. Ebker(6) 95,000 1.2
Lee Johnson(7) 85,000 1.0
William E. Johnson, Jr.(8) 45,000 *
Tania Amochaev(9) 43,000 *
James J. Leto(10) 35,000 *
Arthur D. Lambert(11) 22,500 *
John S. Campbell(12) 15,000 *
John M. Toups(13) 8,750 *
Steven Kelman, Ph.D.(14) 8,750 *
Charles A. Hasper(15) 4,000 *
Dr. Edward H. Bersoff(16) 3,750 *
All current directors and executive
officers as a group (23 persons)(17) 1,681,669 20.6%
* Less than one percent.
<PAGE>
<PAGE>
25
(1) Such persons have sole voting and investment power with respect to all shares of common stock shown as being beneficially
owned by them, subject to community property laws, where applicable, and the information contained in the footnotes to this
table.
(2) Includes 760,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998, and 830
shares held in the name of Mr. Young's minor children.
(3) Based on a Schedule 13G filing wherein such stockholder reported the beneficial ownership of such shares.
(4) To the Company's knowledge, includes 500,000 and 100,000 shares held by UZONA II and UZONA III, respectively, Nevada
corporations of which Mr. Lashlee is the sole director and owns 100% of the voting stock. To the Company's knowledge, all of
the non-voting interest in UZONA III is held by Lou Ann Barton, the mother of Mr. Lashlee's minor children.
(5) Includes 65,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(6) Includes 88,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(7) Includes 80,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(8) Consists of 45,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(9) Includes 38,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(10) Consists of 35,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(11) Consists of 22,500 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(12) Consists of 15,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(13) Consists of 8,750 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(14) Consists of 8,750 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(15) Consists of 4,000 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998.
(16) Consists of 3,750 shares for which options are exercisable or become exercisable within 60 days after March 1, 1998. (See
also "Proposal 1.")
(17) Includes 1,342,217 shares for which options beneficially held by officers or directors are exercisable or become exercisable
within 60 days after March 1, 1998.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
reports concerning their beneficial ownership of the Company's equity
securities. Pursuant to Item 405 of Regulation S-K, the Company has an
affirmative duty to provide proxy statement disclosure of "insiders" who
do not timely file such reports. To the knowledge of the Company, based
solely on its review of the copies of such forms received by it from its
directors, officers and greater than 10% beneficial owners, no such person
failed to file on a timely basis any report relating to the Company's
common stock beneficially owned by them.
<PAGE>
<PAGE>
26
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about
each of them, are as follows:
NAME AGE TITLE
- ----------------------- --- ----------------------------------------
M. Dendy Young 50 President and Chief Executive Officer
William E. Johnson, Jr. 57 Senior Vice President, Operations
Carolyn L. Redmon 52 Senior Vice President, Sales Operations
Stephen L. Waechter 47 Senior Vice President and Chief Financial
Officer
John S. Campbell 45 Vice President, Inside Sales
A. Timothy Collins 38 Vice President, Vendor Relations
Dennis G. Defensor 45 Vice President, Marketing Communications
Kenneth B. Grimsley 35 Vice President, Sales Operations
Judith B. Kassel 40 Vice President & General Counsel and
Corporate Secretary
Arthur D. Lambert 52 Vice President, Field Sales
Joel A. Lipkin 44 Vice President, Business Development
Mark P. Noftsinger 49 Vice President, Corporate Financial
Planning & Analysis
Mark A. Smith 39 Vice President, Purchasing
Michelle F. Tutt 39 Vice President, Human Resources
J. David Weaver 32 Vice President, Operations
Officers are appointed by and serve at the discretion of the Board of
Directors or, with respect to officers at the Vice President level, the
Chief Executive Officer.
For information concerning Mr. Young, see "Election of Directors --
Nominees."
Mr. Johnson joined the Company in August 1994 as a result of the
Company's acquisition of Falcon. He served as Vice President, Product
Management from October 1994 to June 1995; as Vice President, Purchasing &
Distribution from June 1995 to January 1996; and as Vice President,
Operations from January 1996 until his promotion to Senior Vice President,
Operations in October 1997. From February 1988 until joining the Company,
he served in various inventory management positions, most recently as
Senior Director of Distribution, at Falcon.
Ms. Redmon joined the Company in February 1998 as a result of the
Company's acquisition of the Technology Systems Division of BTG, Inc.,
where she served as Senior Vice President and General Manager of Technical
Systems Operations from August 1997 until February 1998. From August 1995
to August 1997, she served as Vice President of Operations for the Morino
Institute, a non-profit organization dedicated to helping individuals and
institutions harness the power of information and the potential of
interactive communications as tools for overcoming the challenges that face
them. From August 1993 to August 1995, Ms. Redmon served as Director of
Worldwide Distribution for Legent Corporation, a software developer and <PAGE>
<PAGE>
27
reseller. From June 1991 to August 1993, she served as Business Operations
Manager & Controller for Intelligent Electronics/Entre Computers/The Future
Now, a value added reseller and distributor of computer products and
services.
Mr. Waechter joined the Company in December 1997, serving as Vice
President and Chief Financial Officer until his promotion in March 1998 to
Senior Vice President and Chief Financial Officer. From September 1996
until joining the Company, he served as Chief Financial Officer for the
Vincam Group, Inc., a Professional Employers' Organization. From September
1993 to September 1996, he served as Chief Financial Officer for Applied
Bioscience International, Inc., a Contract Research Organization. From
April 1974 to September 1993, he served in various positions for General
Electric Company, most recently as Vice President, Finance for GE
Information Services, a provider of electronic commerce services.
Mr. Campbell joined the Company in December 1995 as Vice President,
Sales and Customer Operations and has served as Vice President, Inside
Sales since February 1998. From January 1995 until joining the Company, he
served as Senior Manager, Government and Education Sales for Compaq
Computer Corporation, a computer manufacturer. From June 1989 to December
1994, Mr. Campbell served as Senior Director, Inside Sales and Customer
Support for Falcon.
Mr. Collins joined the Company in August 1997 and served as Director
of Vendor Relations until his promotion in October 1997 to Vice President,
Vendor Relations. From December 1996 until joining the Company, he served
as National Account Manager, Government Sales for Tripp Manufacturing, a
computer power supply manufacturer. From April 1995 to June 1996, he
served as National Sales Manager for Logical Solutions, Inc., a computer
network cabling manufacturer. From 1992 to 1995, Mr. Collins was a
professional golfer.
Mr. Defensor joined the Company in October 1997 as Vice President,
Marketing Communications. From February 1994 to March 1997, he was
President and Chief Executive Officer of TerraGlyph Interactive Studios,
Inc., a developer and producer of feature film animation-quality
edutainment software products. From March 1993 to February 1994, Mr.
Defensor was President and Chief Executive Officer of ICOM Simulations,
Inc., a software development company. From February 1990 to March 1993, he
was a Senior Vice President of the New Media Division of Viacom
International, a media and entertainment conglomerate.
Mr. Grimsley joined the Company in August 1994 as a result of the
Company's acquisition of Falcon and served in various sales management
positions until his appointment in March 1998 as Vice President, Sales
Operations. From November 1987 until joining the Company, he served in
various sales management positions, most recently as Special Project
Manager, at Falcon.
Ms. Kassel joined the Company in November 1991 and served in various
legal positions until her appointment in February 1998 as Vice President,
<PAGE>
<PAGE>
28
General Counsel. She has served in the additional capacity of Corporate
Secretary since November 1997 and previously served as an Assistant Corpo-
rate Secretary from May 1996 to November 1997.
Mr. Lambert joined the Company in December 1996 as Vice President,
Field Sales. From July 1995 until joining the Company, he served as Vice
President, Sales for Heathkit Educational Systems, a developer and
distributor of vocational education training tools. From April 1992 to
July 1995, Mr. Lambert served as Vice President for Intelligent Signage,
Inc., a distributor of braille and raised-letter signage compliant with the
Americans with Disabilities Act, of which firm Mr. Lambert is also co-
founder and co-owner.
Mr. Lipkin joined the Company in March 1997 as Vice President,
Business Development. From March 1987 to January 1997, he was employed by
Zenith Data Systems, an integrator and reseller of microcomputer products
and services to the Government, where he served in various business
management positions, including serving as Vice President, Systems
Integration from August 1991 to January 1997.
Mr. Noftsinger joined the Company in February 1998 as Vice President,
Corporate Financial Planning and Analysis, as a result of the Company's
acquisition of the Technology Systems Division of BTG, Inc., where he
served as Vice President of Finance from October 1995 to February 1998.
From September 1990 until its October 1995 acquisition by BTG, Mr.
Noftsinger served as Vice President of Finance and Chief Financial Officer
of Concept Automation, Inc., a reseller of microcomputer products and
services to the government.
Mr. Smith joined the Company in August 1994 as a result of the
Company's acquisition of Falcon, and served as Director of Purchasing until
his appointment in December 1997 as Vice President, Purchasing. From July
1993 until joining the Company, he served as Director of Purchasing for
Falcon. From January 1988 to July 1993, Mr. Smith served in various
purchasing management positions for the Company.
Ms. Tutt joined the Company in December 1987 and served in various
human resources management positions until her appointment in February 1998
as Vice President, Human Resources.
Mr. Weaver joined the Company in February 1998 as Vice President,
Operations, as a result of the Company's acquisition of the Technology
Systems Division of BTG, Inc., where he served as Vice President,
Operations from September 1997 until joining the Company. From January
1996 to September 1997, Mr. Weaver served as Manager, Transportation and
Distribution for Monarch Marking Systems, a manufacturer of bar code
printing and scanning equipment. He served as Product Distribution Manager
for Legent Corporation, a software developer and reseller, from May 1994
until its acquisition by Computer Associates International in August 1995,
and continued to serve in the same capacity for Computer Associates until
October 1995. From July 1984 to May 1994, Mr. Weaver served as Operations
Manager for Merchandise Warehouse Company, a provider of commercial ware-
housing and related services.
<PAGE>
<PAGE>
29
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the three years
ended December 31, 1997 concerning compensation paid or accrued by the
Company to or on behalf of: (i) the Chief Executive Officer ("CEO"); and
(ii) the four most highly compensated executive officers other than the CEO
whose compensation during 1997 exceeded $100,000 (collectively, the "Named
Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- -----------------------
OTHER RESTRICTED SECURITIES ALL
NAME AND ANNUAL STOCK UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
($)(1) ($)(2) ($)(3) ($) (#) ($)
- --------------------------- ---- --------- --------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
M. Dendy Young 1997 $ 1 $ 0 $ 0 $ 0 0 $ 323,077(4)
President and 1996 1 0 0 0 0 400,000(4)
Chief Executive Officer 1995 1 0 0 0 700,000(5) 400,000(4)
Arthur D. Lambert 1997 145,000 105,556(6) 0 0 0 0
Vice President, 1996 9,365(7) 0 0 0 90,000 0
Field Sales 1995 0 0 0 0 0 0
Charles A. Hasper 1997 133,846 22,750 0 0 0 0
Vice President 1996 6,623(7) 30,000(8) 0 0 20,000 0
and Controller 1995 0 0 0 0 0 0
John S. Campbell 1997 144,000 12,268 0 0 0 0
Vice President, Sales and 1996 144,000 50,000 0 0 0 0
Customer Operations 1995 5,538(7) 0 0 0 30,000 0
William E. Johnson, Jr. 1997 123,654 25,000 0 0 40,000 0
Senior Vice President, 1996 115,000 8,625 0 0 10,000 0
Operations 1995 109,865 0 0 0 0 0
(1) Includes amounts, if any, deferred by the Named Executive Officer pursuant to the Company's 401(k) plan.
(2) Bonuses under any Executive Bonus Plan are based on corporate and individual performance. See "Compensation Committee Report
on Executive Compensation -- Executive Bonus Plan." No such bonuses were earned in 1995 by officers as a group.
(3) Pursuant to SEC rules, perquisites not exceeding the lesser of $50,000 or 10% of a Named Executive's combined salary and
bonus are not required to be reported.
(4) Consists of payments under the August 16, 1994 Consulting and Non-Competition Agreement entered into between Mr. Young and
the Company in connection with the August 1994 Falcon acquisition.
(5) Represents options granted to Mr. Young in connection with the December 18, 1995 Employment Agreement between him and the
Company (the "Employment Agreement;" see "Employment Agreements and Termination of Employment and Change of Control
Agreements" on page 25).
(6) Includes $15,000 payable under the 1997 Executive Bonus Plan and $90,556 payable in connection with Mr. Lambert's acceptance
of Company employment.
(7) Represents compensation for that portion of the year in which the officer commenced employment with the Company.
(8) Consists of amounts payable in connection with the officer's acceptance of Company employment.
/TABLE
<PAGE>
<PAGE>
30
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options made during the year ended December 31, 1997 to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
- ---------------------------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED(1) IN 1996(2) PRICE(3) DATE 5% 10%
(#) (%) ($/SH) ($) ($)
- ---------------------- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
M. Dendy Young 0 0 0 - - -
Arthur D. Lambert 0 0 0 - - -
Charles A. Hasper 0 0 0 - - -
John S. Campbell 0 0 0 - - -
William E. Johnson, Jr. 20,000 2.6% $5.25 3/25/04 $42,746 $99,615
20,000 2.6% $5.1875 10/22/04 $42,237 $98,429
(1) Such options were granted under the Company's various stock option plans, vest and become exercisable in three equal annual
installments and were granted for a term of seven years, subject to earlier termination under certain circumstances relating
to termination of employment.
(2) During fiscal 1997, employees were granted under the Company's various stock option plans or in accordance with employment
offers, and non-employee directors were granted automatically under the 1996 Plan, options to purchase an aggregate of
755,675 shares of the Company's common stock.
(3) Represents the closing price of the Company's common stock on The Nasdaq Stock Market on the grant date.
(4) Potential values are net of exercise price and before taxes payable in connection with the exercise of such options or the
subsequent sale of shares acquired upon the exercise of such options. These values are based on certain assumed rates of
appreciation (i.e., 5% and 10% compounded annually over the term of such options) based on SEC Rules. The actual values, if
any, will depend upon, among other factors, the future performance of the Company's common stock, overall market conditions
and the Named Executive Officer's continued employment with the Company. Therefore, the potential values reflected in this
table may not necessarily be achieved.
</TABLE>
<PAGE>
<PAGE>
31
AGGREGATED OPTION EXERCISES IN 1997 AND OPTION VALUES AT DECEMBER 31, 1997
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the year
ended, and unexercised options held as of, December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
12/31/96 12/31/96
SHARES ------------- -------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($)(1) (#) ($)(2)
- ---------------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
M. Dendy Young 0 0 640,000 $1,125,000
160,000 $187,500
Arthur D. Lambert 0 0 13,500 0
76,500 0
Charles A. Hasper (3) 0 0 3,000 0
17,000 0
John S. Campbell 0 0 12,000 $27,500
18,000 $40,500
William E. Johnson, Jr. 0 0 34,333 $7,083
45,667 $14,167
(1) Represents the excess of the market value of the shares acquired upon exercise of such options over the exercise price of
such options.
(2) Represents the excess of the market value of the shares subject to such options over the exercise price of such options.
(3) Mr. Hasper left the Company effective March 31, 1998, at which time 4,000 of his options were fully vested and exercisable,
and the remaining 17,000 unvested options were canceled. See "Employment Agreements and Termination of Employment and Change
of Control Arrangements" on page 25.
</TABLE>
<PAGE>
<PAGE>
32
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of two non-employee
directors: Tania Amochaev and James J. Leto. No member of the
Compensation Committee is a current or former officer or employee of the
Company. Although Mr. Young is not a member of the Compensation Committee,
he is expected to attend Committee meetings at the request of the Committee
to provide information to, and respond to questions from, the Committee.
Mr. Young does not exercise any of the rights or have any of the
responsibilities of a Committee member. He is not entitled to vote on any
matters before the Compensation Committee and does not participate in any
Committee decisions regarding compensation, including his own. See
"Compensation Committee Report on Executive Compensation."
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND
CHANGE OF CONTROL ARRANGEMENTS
Pursuant to an employment agreement dated January 1, 1998 (the "1998
Employment Agreement"), Mr. Young serves as the President and Chief
Executive Officer of the Company for a term ending December 31, 2000, and
he will be nominated each year to serve as a member of its Board. Mr.
Young is paid a salary of $300,000 per year, reviewed annually by the Board
of Directors, plus a $150,000 annual bonus payable quarterly within 30 days
after the end of each fiscal quarter. Eligibility for the bonus payment
shall be determined as follows: 50% upon attainment of earnings before
interest and taxes ("EBIT") (adjusted for Board-approved one-time charges
(e.g. acquisition costs)) to be determined annually by the Board (provided,
however, that for 1998 the EBIT target shall be 1%); and 50% upon
attainment of a return on assets to be determined annually by the Board.
Return on assets shall be defined as annualized net income divided by
average assets calculated on a 12-month rolling average. Bonus payments
shall be paid in ratio to the percentage of the goal achieved contingent
upon achievement of at least 80% of the target. Mr. Young is also entitled
to such other benefits and perquisites as provided to other senior officers
pursuant to policies established from time to time by the Board.
The 1998 Employment Agreement may be terminated by the Company for
Cause (as defined in such agreement) upon 10 business days' notice to Mr.
Young; and other than for Cause upon 60 days' notice to Mr. Young and by
paying to him a lump sum equal to 12 months' salary plus accrued bonus to
date. Mr. Young may terminate, without cause, the 1998 Employment
Agreement at any time upon 60 days' notice and, in such event, he will be
entitled to all compensation and other benefits that have accrued as of the
termination date. In addition, Mr. Young may terminate the 1998 Employment
Agreement upon five days' notice to the Company in the event of a Change of
Control (as defined in such agreement) and the assignment of duties to him
materially inconsistent with his position and status with the Company, in
which event the Company will be obligated to pay to him a lump sum equal to
12 months' salary plus all compensation and other benefits that have
accrued as of the termination date.
<PAGE>
<PAGE>
33
Pursuant to an agreement dated December 18, 1995 (the "1995 Employment
Agreement"), Mr. Young served as the President and Chief Executive Officer
of the Company, as well as a member of its Board of Directors, for a term
ending January 1, 1998. Mr. Young was paid annual cash compensation of
$1.00 per year, payable annually in advance, and was entitled to such other
benefits and perquisites, including any executive bonus plan, as provided
to other senior officers pursuant to policies established from time to time
by the Board. In addition, as a material inducement to Mr. Young to enter
into the 1995 Employment Agreement, the Company granted to him a non-
statutory stock option to purchase an aggregate of 700,000 shares of the
Company's common stock at $3.75 per share (which price represents the
closing price on the date of grant of the Company's common stock on The
Nasdaq Stock Market), vesting as to 350,000, 250,000 and 100,000 shares on
December 18, 1995, 1996 and 1997, respectively.
Mr. Young is also entitled to the remaining payments under the
Consulting and Non-Competition Agreement (entered into between Mr. Young
and the Company in connection with the August 1994 Falcon acquisition), the
aggregate of which equaled $219,231 as of March 31, 1998.
Under the Company's severance plan as amended to date (the "Severance
Plan"), officers of the Company at the Vice President level and above (not
including Mr. Young) who have completed nine full consecutive calendar
months of employment ("Eligible Officers") are entitled to receive certain
severance benefits for one year following termination of employment, if
such termination is non-temporary, involuntary and without cause. An
Eligible Officer is entitled to such severance benefits regardless of
length of employment with the Company if such termination is a result of
the Company's divestment of an operating unit and the Eligible Officer is
not offered employment with the acquiring company on substantially the same
terms as his or her employment with the Company. In addition, if there is
a "change of control" of the Company, an Eligible Officer will receive
benefits under the Severance Plan regardless of length of employment with
the Company if such officer terminates his or her employment with the
Company either for any reason within one year following the change in
control or for "good reason" (which includes the assignment to the Eligible
Officer of significant duties inconsistent with his or her prior position
or a reduction in his or her compensation or benefits) within two years
following such change in control. A "change in control" of the Company is
defined in the Severance Plan to mean: (i) an acquisition of 50% or more
of the Company's outstanding voting securities; (ii) during any 12-month
period, individuals who were directors at the beginning of such period
cease to constitute at least a majority of the Board of Directors, unless
the election of each new director is approved by a majority of directors
then in office who were directors at the beginning of such period; (iii)
certain mergers of the Company or a sale of all or substantially all of its
assets; or (iv) a liquidation of the Company. Each Eligible Officer is
entitled to one year of severance pay based on his or her highest annual
compensation (base salary plus car allowance) prior to termination. In
addition, an Eligible Officer may elect to accept accelerated vesting of
his or her then outstanding but unvested stock options partially or wholly
in lieu of accrued severance pay. In order to receive severance benefits
<PAGE>
<PAGE>
34
under the Severance Plan, each Eligible Officer is required to execute an
employment separation agreement with the Company which provides, among
other things, for confidentiality, a general release in favor of the
Company, and a covenant not to compete with the Company for a period of 12
months after any termination of Company employment.
On March 10, 1997, the Company's Board of Directors unanimously voted
to terminate the Severance Plan. However, such termination will not be
effective with respect to current Eligible Officers, including Messrs.
Campbell and Johnson (whose benefits under the Severance Plan, in
accordance with the terms thereof, may not be adversely affected without
their consent and, in any case, not affecting Mr. Young, as noted above),
but only to officers who had not qualified as Eligible Officers prior to
March 10, 1997.
Based on current compensation levels, the amount that would be payable
under the Severance Plan to Messrs. Campbell and Johnson if their
employment were terminated in March 1998, if they were eligible for and
elected severance benefits solely under the Severance Plan and if they did
not elect accelerated vesting, would be $150,000 and $129,654,
respectively, payable pro rata over 26 bi-weekly periods. Messrs. Lambert
and Young are not eligible for benefits under the Severance Plan.
Mr. Hasper left the Company effective March 31, 1998 and, in
accordance with the benefits payable to him under the Severance Plan,
receives severance benefits equaling $114,000.
<PAGE>
<PAGE>
35
THE FOLLOWING REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION
COMMITTEE SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING
UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES EXCHANGE ACT OF
1934, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS
INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER
SUCH ACTS.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
POLICY AND OBJECTIVES
The Company's compensation program for executive officers is designed
to attract, motivate and retain qualified executive officers and is
generally administered by the Compensation Committee. The Company's
program is based on compensation policies and plans which seek to enhance
the profitability of the Company, and thus stockholder value, by aligning
closely the financial interests of the Company's executive officers with
those of its stockholders. Accordingly, the Committee, which is composed
entirely of non-employee directors, structures such policies and plans to
pay competitive levels of compensation for competitive levels of per-
formance, and to provide for superior compensation opportunities for
superior levels of performance.
The Company actively collects and analyzes compensation information
from ten competitive computer resellers (the "Competitive Group"; all of
which are publicly traded companies, and six of which are listed in the
Company's Peer Index used in the Performance Graph appearing elsewhere in
this Proxy Statement). This information, and other market and competitive
information collected by the Company's Human Resources department, is used
as the basis for comparing the compensation of the Company's executive
officers to amounts paid to executive officers with comparable
qualifications, experience and responsibilities at other companies engaged
in the same or similar business as the Company.
COMPONENTS
The Company's executive compensation program includes three
components, each of which is intended to serve the overall compensation
approach described above: base salary, an executive bonus and stock
options.
BASE SALARY
The Committee believes that the Company pays base salaries to its
executive officers that are set conservatively, and below the median,
compared with executive officers employed at competing companies. The
Committee, among other things, reviews and approves the annual salaries of
the Company's President and CEO, and Executive Vice President(s). The CEO
and the Chairperson of the Committee have been delegated by the Board the
<PAGE>
<PAGE>
36
collective authority to set the annual base salaries of the remaining, less
senior executive officer positions. Additionally, all full-time executive
officers are eligible to participate in the Company's broad-based employee
benefit plans.
EXECUTIVE BONUS PLAN
The Committee believes that a significant portion of each executive
officer's total compensation should be "at risk" in the form of incentive
compensation. Accordingly, under an annual Executive Bonus Plan developed
and implemented under the Committee's supervision, the Company pays cash
bonuses to all its eligible executive officers according to a formula that
varies, according to position, on two factors: (1) certain Company
financial goals (net income and gross margin); and (2) certain individual
goals. Individual bonuses are calculated as a percentage of base salary
and range from 25% to 40% in the case of officers generally, other than the
CEO. In 1997, bonuses were earned by executive officers based on
application of the Executive Bonus Plan's formula. The CEO additionally
employs the occasional use of "spot" bonuses in recognition of
extraordinary performance.
STOCK OPTIONS
Options to purchase the Company's common stock are a key component of
the Company's executive compensation program. The Committee views the
grant of stock options as a valuable incentive that serves to align the
interests of executive officers with the Company's goal of enhancing
stockholder value. Options will only have value to an executive officer if
the stock price increases over the exercise price. The Committee reviews
and acts upon recommendations by the Company's CEO with regard to the grant
of stock options to executive officers (other than to himself). In
determining the size and other terms of an option grant to an executive
officer, the Committee considers a number of factors, including such
officer's position, responsibilities and previous stock option grants (if
any). Options typically vest in equal installments over three to five
years and, therefore, encourage an officer to remain in the employ of the
Company.
During 1997, option grants were made to five executive officers in
connection with each person's acceptance of an officer-level position with
the Company, and to four current executive officers as performance
incentives.
CHIEF EXECUTIVE OFFICER COMPENSATION
In evaluating the CEO's compensation, the Committee reviewed the
compensation for similar positions at each of the companies in the
Competitive Group. In addition, the Committee selected for review 48 of
the companies (based on primary business focus, size and location)
participating in the Radford Associates 1997 Executive Compensation Report
for the position of Corporate CEO/President. The Committee studied the
base salary, annual bonuses, stock options and grants, and other long-term
<PAGE>
<PAGE>
37
compensation of the chief executive officers in each of the companies, and
recommended Mr. Young's salary to the Board by targeting the 50th
percentile of base and target bonus based upon the Committee's research.
Mr. Young's current compensation plan is intended to provide significant
incentives to him to increase the Company's value (as reflected in its
stock price) to the benefit of all Company stockholders, while the focus of
his annual bonus is on achieving short-term financial goals.
Mr. Young's compensation, as set forth in the 1998 Employment
Agreement and the 1995 Employment Agreement, respectively (See "Employment
Agreements and Termination of Employment and Change of Control Arrange-
ments" on page 25), was unanimously approved by the Board. Mr. Young has
been the Company's President and CEO, as well as a member of its Board,
since December 18, 1995.
OTHER MATTERS
Mr. Young from time to time consulted with, and made recommendations
to, the Committee with respect to the compensation of the Company's
executive officers other than himself. Other than as delegated by the
Board (as set forth above), Mr. Young did not participate in decisions
relating to executive officer compensation, including his own, and did not
participate on matters relating to the administration of the Company's
stock option plans.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), a publicly-held corporation such as the Company will not be
allowed a federal income tax deduction for compensation paid to the chief
executive officer or one of the four most highly compensated officers
(other than the chief executive officer) to the extent that compensation
(including stock-based compensation) paid to each such officer exceeds $1
million in any fiscal year unless such compensation was based on
performance goals or paid under a written contract that was in effect on
February 17, 1993. Final regulations to implement the new limitation were
published in December 1995. The 1996 Stock Option Plan is designed so that
amounts realized on the exercise of options granted thereunder may qualify
as "performance-based compensation" that is not subject to the deduction
limitation of Section 162(m). The Committee intends to evaluate other
elements of compensation in light of Section 162(m), but may enter into
arrangements that do not satisfy exceptions to Section 162(m), as the
Committee determines to be appropriate. In particular, based upon the
Company's current compensation plans and policies and the final regulations
under Section 162(m), it is possible that the compensation to be paid to
Mr. Young (primarily due to the stock option component of his compensation
arrangement) for 1998 may exceed the $1 million limitation per officer.
COMPENSATION COMMITTEE
Tania Amochaev
James J. Leto (Chairperson)
<PAGE>
<PAGE>
38
THE FOLLOWING PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the
cumulative total return on the Company's common stock with the cumulative
total return of the Nasdaq Composite Index and a Peer Index of companies
with the same four-digit standard industrial classification (SIC) code as
the Company (SIC Code 5045 -- Computers and Peripheral Equipment and
Software) (1) for the period commencing December 31, 1992 and ending
December 31, 1997.(2) The stock price performance shown on the graph below
is not necessarily indicative of future price performance.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Index 100.00 119.95 125.94 163.35 202.99 248.30
Peer Index 100.00 160.84 104.03 135.25 182.33 160.16
GTSI 100.00 178.18 156.36 63.64 81.82 83.64
(1) The 50 companies listed in SIC Code 5045 are: Actrade Intl. Ltd; Allstar Systems, Inc.; Alphanet Solutions, Inc.; Applied
Cellular Tech.; Atec Group, Inc.; Aurora Electronics, Inc.; Bristol Tech. Sys.; Capital Associates, Inc.; CDW Computer
Centers, Inc.; Celerity Systems, Inc.; CHS Electronics, Inc.; CompuCom Systems, Inc.; Computer Integration Corp.; Computer
Marketplace, Inc.; Continental Info. Sys.; Dataflex Corporation; Egghead, Inc.; En Pointe Technologies; Enstar, Inc.; Global
Intellicom, Inc; Government Technology Services, Inc.; Hirel Holdings, Inc.; IFS Intl., Inc.; Ikon Office Solutions; Infosafe
Sys. Inc.; Ingram Micro, Inc.; Intelligent Electronics, Inc.; Liuski International, Inc.; Mechanical Dynamics, Inc.; Merisel,
Inc.; Miami Computer Supply Corp.; Michael Foods, Inc.; MicroAge, Inc.; Micros-to-Mainframes, Inc.; OCG Technology, Inc.;
Omni U.S.A., Inc.; Orcad, Inc.; PC Services Source, Inc.; PCC Group, Inc.; Peerless Systems Corp.; Programmers Paradise,
Inc.; Safeguard Scientific, Inc.; Sand Technology Systems International; Scansource, Inc.; SED Intl. Holdings, Inc.; Software
Spectrum, Inc.; Syscomm Intl. Corp.; Tech Data Corporation; V-One Corp.; Venturian Corp. and XOX Corp.
Since last year's proxy statement, BRC Holdings, Inc.; Cheyenne Software, Inc.; Datatrend Services, Inc.; North Star
Universal, Inc.; Peak Technologies Group; Southern Electronics Corporation; Transnet Corporation; and Wiz Technology were
deleted from SIC Code 5045 and Allstar Systems, Inc.; Celerity Systems, Inc.; Enstar, Inc.; IFS Intl., Inc.; Ikon Office
Solutions; Michael Foods, Inc.; SED Intl. Holdings, Inc.; Syscomm Intl. Corp.; Tekgraf, Inc.; and XOX Corp. were added to SIC
Code 5045.
(2) Assumes: (i) $100 invested on December 31, 1992 in GTSI common stock and in the stocks of the companies comprising the
Nasdaq Composite Index and the Peer Index; and (ii) immediate reinvestment of all dividends.
</TABLE>
<PAGE>
<PAGE>
39
PROPOSAL 4 --
APPROVAL OF AMENDMENT TO
1996 STOCK OPTION PLAN
In 1996, the Board adopted and the stockholders approved the Company's
1996 Stock Option Plan (the "1996 Plan") under which 600,000 shares of
Common Stock were initially reserved for issuance pursuant to the exercise
of stock options granted thereunder. As of March 1, 1998, options to
purchase 437,250 shares of Common Stock had been granted under the 1996
Plan. In March 1998, the Board amended the 1996 Plan to increase by
1,000,000 shares the number of shares of Common Stock authorized for
issuance thereunder, subject to stockholder approval at the Annual Meeting
and contingent upon stockholder approval at the Annual Meeting of the
Charter Amendment Proposal, which will increase the number of authorized
shares of Common Stock (see "Proposal 2"). If the amendment to the 1996
Plan is approved, a total of 1,600,000 shares will be authorized for
issuance under the 1996 Plan. To the extent that options have been or will
be granted to purchase any of such additional 1,000,000 shares prior to
obtaining stockholder approval of the amendment authorizing such increase,
such options are or will be expressly conditioned upon obtaining such
approval.
AT THE ANNUAL MEETING, THE STOCKHOLDERS OF THE COMPANY WILL BE
REQUESTED TO CONSIDER AND APPROVE AN AMENDMENT TO THE 1996 PLAN INCREASING
BY 1,000,000 SHARES THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR
ISSUANCE THEREUNDER. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE COMMON
STOCK PRESENT IN PERSON OR BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL
MEETING WILL BE REQUIRED TO APPROVE THE AMENDMENT TO THE 1996 PLAN. THE
BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE AMENDMENT TO THE 1996 PLAN.
Section 162(m) of the Code generally limits the allowable deduction
for compensation paid to an officer of a publicly-held corporation who is
the Chief Executive Officer or one of the four most highly compensated
officers (other than the Chief Executive Officer) to $1 million for each
taxable year beginning on or after January 1, 1994.
Certain types of compensation are exempted from the deduction limit
imposed by Section 162(m), including payments contingent on the attainment
of one or more performance goals if the performance goals are established
by a compensation committee of the board of directors that is comprised
solely of two or more outside directors and the material terms of the
compensation and performance goals are disclosed to and approved by the
stockholders of the corporation before payment. In the case of a stock
option plan, a payment will satisfy the requirement that compensation be
paid on the basis of a preestablished performance goal if the stock option
grant is made by the compensation committee, the plan includes a per-
employee limitation on the number of shares for which options may be
granted during a specified period, the exercise price of the option is no
less than the fair market value of the stock on the date of grant, and the
plan is approved by the stockholders of the corporation.
<PAGE>
<PAGE>
40
The 1996 Plan was designed to allow options granted thereunder to
qualify for the exemption from the $1 million limit on tax deductible
payments under Section 162(m). Accordingly, upon approval of the 1996 Plan
by the stockholders, the Company's entitlement to tax deductions in
connection with stock option payments to the Chief Executive Officer and
the four most highly compensated officers of the Company under the 1996
Plan is not expected to be limited by Section 162(m).
A summary of the principal provisions of the 1996 Plan, as amended by
the Board in March 1998, subject to stockholder approval, is set forth
below and is qualified in its entirety by reference to the 1996 Plan, as
amended.
PURPOSES
The purposes of the 1996 Plan are to promote the interests of the
Company and its stockholders by: (i) helping to attract and retain the
services of non-employee directors and selected key employees of the
Company who are in a position to make a material contribution to the
successful operation of the Company's business; (ii) motivating such
persons, by means of performance-related incentives, to achieve the
Company's business goals; and (iii) enabling such persons to participate in
the long-term growth and financial success of the Company by providing them
with an opportunity to purchase stock of the Company.
ADMINISTRATION
The 1996 Plan is presently administered by the Compensation Committee
of the Board (the "Committee"). The interpretation and construction of any
provision of the 1996 Plan is within the sole discretion of the Committee,
whose determination is final and binding. However, the Committee does not
have the authority to adjust or amend the exercise price of any options
previously awarded to any optionee, whether through amendment, can-
cellation, replacement grant or other means.
ELIGIBILITY
The 1996 Plan provides that non-statutory stock options may be granted
to employees (including officers, and directors who are also employees) and
non-employee directors of the Company; incentive stock options may be
granted only to employees (including officers, and directors who are also
employees) of the Company. The Committee selects the optionees (other than
non-employee directors) and determines the type of option (i.e., incentive
or non-statutory) and the number of shares to be subject to each option.
In making such determination, the Committee takes into account the duties
and responsibilities of the employee, the value of the employee's services,
his or her present and potential contribution to the success of the
Company, and other relevant factors. All non-employee directors of the
Company are granted automatically a non-statutory stock option to purchase
up to 15,000 shares, and a non-employee director elected to serve as
Chairperson of the Board is granted automatically a non-statutory stock
option to purchase up to an additional 15,000 shares, of the Company's <PAGE>
<PAGE>
41
Common Stock: (1) as of the date such person is initially elected to serve
as a non-employee director and/or as Chairperson, respectively, and (2) as
of the date such person is re-elected as a non-employee director each year
at an annual stockholders' meeting or is re-elected to serve as Chairperson
of the Board. If the initial election of a non-employee director or
Chairperson occurs prior to an annual stockholders' meeting, the non-
employee director shall receive a pro rata option grant (or, in the case of
Chairperson, an additional pro rata option grant) in connection with his or
her election. As of March 1, 1998, approximately 519 persons were eligible
to receive options and 437,250 options had been granted under the 1996
Plan.
TERMS OF OPTIONS
Options granted under the 1996 Plan are either non-statutory stock
options or, except in the case of non-employee directors, incentive stock
options (as defined in Section 422 of the Code). Each option will be
evidenced by a written stock option agreement between the Company and the
person to whom such option is granted and is subject to the following
additional terms and conditions:
(a) EXERCISE OF OPTIONS:
(i) EMPLOYEES (INCLUDING OFFICERS, AND DIRECTORS WHO ARE ALSO
EMPLOYEES): The optionee must earn the right to exercise
the option by continuing to serve as an employee of the
Company and by meeting such other conditions as may be
determined by the Committee, including any performance
criteria with respect to the Company and/or the optionee as
may be determined by the Committee. Any option granted to
an employee shall be exercisable at such times and under
such conditions as may be determined by the Committee; it is
anticipated (based upon the Company's experience with the
1996 Plan) that options typically will be exercisable
ratably in cumulative annual installments over a four-year
period.
(ii) NON-EMPLOYEE DIRECTORS: All non-employee directors of the
Company are granted automatically a non-statutory stock
option to purchase up to 15,000 shares, and a non-employee
director elected to serve as Chairperson of the Board is
granted automatically a non-statutory stock option to
purchase up to an additional 15,000 shares, of Common Stock:
(1) as of the date such person is initially elected to serve
as a non-employee director and/or as Chairperson,
respectively, and (2) as of the date such person is re-
elected as a non-employee director each year at an annual
stockholders' meeting or is re-elected to serve as
Chairperson of the Board. Any such options shall vest and
become exercisable, cumulatively, in 12 equal monthly
installments commencing on the last business day of the
month of grant; provided that if an optionee ceases to serve
<PAGE>
<PAGE>
42
as a non-employee director during any month, the option
shall cease to vest and become exercisable with respect to
any subsequent month(s). If the initial election of a non-
employee director or Chairperson occurs prior to an annual
stockholders' meeting, the non-employee director shall
receive a pro rata option grant (or, in the case of
Chairperson, an additional pro rata option grant) in
connection with his or her election, and the related options
shall vest and become exercisable, cumulatively, in equal
monthly installments. The Committee does not have the power
to determine eligibility for grants of non-statutory stock
options or the number of shares for which non-statutory
stock options may be granted or the timing or exercise price
of non-statutory stock options granted to any non-employee
director.
If an optionee ceases to serve as a non-employee director
for any reason, he or she may, but only within six months
following the date he or she ceases to serve on the Board of
Directors, exercise his or her option to the extent that he
or she was entitled to exercise it at the date of such
termination. To the extent that he or she does not exercise
such option (which he or she was entitled to exercise)
within the time specified in the Plan, the option shall
terminate.
The following table sets forth certain information (to the
extent determinable as of the date of this Proxy Statement)
with respect to the options that will be automatically
granted to non-employee directors as a group under the 1996
Plan:
NEW PLAN BENEFITS (1)
Exercise Number
Price of shares
-------- ----------
Non-Employee Director
Group (8 persons) (2) 135,000 (3)
(1) As of March 1, 1998, 437,250 options have been granted
under the Plan. The following persons and groups have
been granted options to purchase the following number
of shares of Common Stock under the 1996 Plan as of
March 1, 1998: M. Dendy Young, 0; Arthur D. Lambert,
0; Charles A. Hasper, 0; John S. Campbell, 0; William
E. Johnson, Jr., 20,000; all current executive officers
as a group, 130,000; Tania Amochaev, 30,000; Gerald W.
Ebker, 30,000; Lee Johnson, 80,000; Steven Kelman,
10,000; James J. Leto, 30,000; Lawrence J. Schoenberg,
60,000; John M. Toups, 10,000; Edward H. Bersoff,
3,750; all current directors who are not executive <PAGE>
<PAGE>
43
officers as a group, 253,750; and all current employees
who are not executive officers as a group, 38,000.
Options which will be granted in the future under the
Plan are not determinable other than for the Non-
Employee Director Group.
(2) The exercise price will be equal to the reported
closing price of the Common Stock on The Nasdaq Stock
Market on the date of grant.
(3) Based on the current number of eight non-employee
directors and assumes that all such directors will be
re-elected at the Annual Meeting. Includes the grant
of options to purchase 15,000 shares to each of seven
non-employee directors and 30,000 shares to the
Chairperson of the Board.
(iii) An option is exercised by giving written notice of exercise
to the Company that specifies the number of shares of Common
Stock as to which the option is being exercised, and
tendering payment to the Company of the purchase price. The
form of payment for shares to be issued upon the exercise of
an option may, in the discretion of the Committee, consist
entirely or in any combination of cash, check, a commitment
to pay by a broker or shares held by the optionee or
issuable upon exercise of the option, or such other
consideration and method of payment permitted under any laws
to which the Company is subject; provided, however, that
non-employee directors may only use cash, check or broker's
commitment to pay, or some combination thereof, as payment
for the exercise of an option.
(b) EXERCISE PRICE: The exercise price per share for the shares to
be issued pursuant to the exercise of an option shall be such
price as is determined by the Committee; provided, however, that:
(i) with respect to both non-statutory stock options and
incentive stock options such price shall in no event be less than
100% of the fair market value per share on the date of grant,
except that the Committee may specifically provide that the
exercise price of an option may be higher or lower in the case of
an option granted to employees of a company acquired by the
Company in assumption and substitution of options held by such
employees at the time such company is acquired; and (ii) the
Committee does not have the authority to adjust or amend the
exercise price of any options previously awarded to any optionee,
whether through amendment, cancellation, replacement grant or
other means. In the case of an incentive stock option granted to
an employee who, at the time the incentive stock option is
granted, owns or is deemed to own (by reason of the attribution
rules applicable under Section 424(d) of the Code) stock
possessing more than 10% of the combined voting power of all
classes of stock of the Company, the exercise price per share <PAGE>
<PAGE>
44
shall be no less than 110% of the fair market value per share on
the date of grant. The Common Stock fair market value per share
on the date of an option grant will be equal to the closing price
of the Common Stock on the date of the option grant. On March 1,
1998, the closing price of the Common Stock on The Nasdaq Stock
Market was $5.125 per share.
(c) LIMITS ON STOCK OPTION GRANTS: The maximum number of shares
which may be subject to options awarded under the 1996 Plan
during any calendar year to any one optionee shall not exceed
100,000 shares. To the extent that the aggregate fair market
value of the shares with respect to which incentive stock options
are exercisable for the first time by an optionee during any
calendar year under all incentive stock option plans of the
Company exceeds $100,000, the options in excess of such limit
shall be treated as non-statutory stock options.
(d) TERMINATION OF EMPLOYMENT: If the optionee's employment with the
Company is terminated for any reason other than death or total
and permanent disability, the option may be exercised within one
month or within three months in the case of an incentive stock
option (or in certain cases six months), or within six months in
the case of a non-statutory stock option, in each case as is
determined by the Committee, after such termination as to all or
part of the shares as to which the optionee was entitled to
exercise at the time of termination.
(e) DEATH OR DISABILITY: If an optionee should die or become
permanently and totally disabled while employed by the Company,
the options granted to him or her may be exercised at any time
within six months (or such period of time not exceeding one year
as is determined by the Committee) after such death or
disability, but only to the extent the optionee was entitled to
exercise the options at the date of his or her termination of
employment due to such death or disability.
(f) TERM AND EXPIRATION OF OPTIONS: Options may not have a term
greater than 10 years from the grant date. No option may be
exercised after its expiration.
(g) NONTRANSFERABILITY OF OPTIONS: Options granted under the Plan may
not be sold, pledged, assigned, hypothecated, gifted, transferred
or disposed of in any manner, either voluntarily or involuntarily
by operation of law, other than by will or by the laws of descent
or distribution or, if permitted of options granted under Rule
16b-3, transfers between spouses incident to a divorce.
(h) Other Provisions: The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1996
Plan as may be determined by the Committee.
<PAGE>
<PAGE>
45
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Subject to any required action by the Company's stockholders, in the
event that a change, such as a stock split or stock dividend, is made in
the Company's capitalization which affects the stock for which options are
exercisable under the 1996 Plan, appropriate adjustment will be made in the
exercise price of and the number of shares covered by outstanding options,
and in the number of shares available for issuance under the 1996 Plan. In
the event of a dissolution or liquidation of the Company, a sale of all or
substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation, as a result
of which the Company is not the surviving and controlling corporation, the
Board will make provision for the assumption of all outstanding options by
the successor corporation or the Board will declare that any option will
terminate as of a date fixed by the Board which is at least 30 days after
notice thereof is given to optionees and permit each optionee to exercise
his or her option as to all or a portion of the shares covered by such
option, including shares as to which the option would not otherwise be
exercisable.
TAX INFORMATION
The federal income tax consequences of options are complex and subject
to change. The following discussion is only a brief summary of the general
federal income tax rules currently applicable to options and does not cover
all specific transactions which may arise. A taxpayer's particular
situation may be such that the general federal income tax rules described
herein may not apply. This summary does not cover the state, local or
foreign tax consequences of the grant or exercise of options under the 1996
Plan or the disposition of shares acquired upon exercise of such options or
federal estate tax or state estate, inheritance or death taxes.
INCENTIVE STOCK OPTIONS
If an option granted under the 1996 Plan is treated as an incentive
stock option, the optionee will not recognize any income for regular income
tax purposes upon either the grant or the exercise of the option and the
Company will not be allowed a deduction for federal tax purposes. Upon a
sale of the shares, the tax treatment to the optionee and the Company will
depend primarily upon whether the optionee has met certain holding period
requirements at the time he sells the shares. In addition, as discussed
below, the exercise of an incentive stock option may subject the optionee
to alternative minimum tax liability in the year of exercise.
If an optionee exercises an incentive stock option and does not
dispose of the shares received within two years of the date of the grant of
such option or within one year after transfer of the shares to him,
whichever ends later, any gain realized upon disposition will be character-
ized as long-term capital gain, and any loss will be treated as long-term
capital loss. In either such case, the Company will not be entitled to a
federal income tax deduction.
<PAGE>
<PAGE>
46
If the optionee disposes of the shares either within two years after
the date the option is granted or within one year after the transfer of the
shares to him, such disposition will be treated as a disqualifying
disposition and an amount equal to the lesser of (1) the fair market value
of the shares on the date of exercise minus the purchase price or (2) the
amount realized on the disposition minus the purchase price, will be taxed
as ordinary income in the taxable year in which the disposition occurs.
Any such ordinary income will increase the optionee's tax basis for
purposes of determining gain or loss on the sale or exchange of such
shares. The excess, if any, of the amount realized over the fair market
value of the shares at the time of the exercise of the option will be
treated as short-term or long-term capital gain, as the case may be, and
any loss realized upon the disposition will be treated as a capital loss.
An optionee will be generally considered to have disposed of shares if he
sells, exchanges, makes a gift of or transfers legal title to such shares
(except by pledge in certain non-taxable exchanges, a transfer in
insolvency proceedings or upon death). If the amount realized from a sale
or exchange of the shares is less than the purchase price, the optionee
generally will not recognize income.
The exercise of an incentive stock option may subject an optionee to
alternative minimum tax liability in the year of exercise because the
excess of the fair market value of the shares at the time an incentive
stock option is exercised over the purchase price is an adjustment in
determining an optionee's alternative minimum taxable income for such year.
Consequently, an optionee may be obligated to pay alternative minimum tax
in the year he exercises an incentive stock option. An optionee who makes
a disqualifying disposition of stock acquired upon exercise of an incentive
stock option must still treat such excess as an adjustment in determining
alternative minimum taxable income. In the case of a disqualifying
disposition which occurs after the year of exercise, an individual would be
required to recognize alternative minimum taxable income in the year of
exercise and ordinary income in the year of such disqualifying disposition
in an amount determined under the rules described above. In addition, an
optionee's alternative minimum tax liability is affected by the avail-
ability of special credit, a basis adjustment and other complex rules.
In general, there will be no federal income tax consequences to the
Company upon the grant, exercise or termination of an incentive stock
option. However, in the event an optionee sells or disposes of stock
received upon the exercise of an incentive stock option prior to satisfying
the two-year and one-year holding periods described above, the Company will
be entitled to a deduction for federal income tax purposes in an amount
equal to the ordinary income, if any, recognized by the optionee upon
disposition of the shares.
NON-STATUTORY STOCK OPTIONS
Non-statutory stock options granted under the 1996 Plan do not qualify
as "incentive stock options" and, accordingly, do not qualify for any
special tax benefits to the optionee. An optionee will not recognize any
taxable income at the time he is granted a non-statutory option. However,
<PAGE>
<PAGE>
47
upon its exercise, the optionee will recognize ordinary income for federal
income tax purposes measured by the excess, if any, of the then fair market
value of the shares over the option price. In the case of an optionee who
is subject to Section 16 of the Securities Exchange Act, the optionee will
recognize ordinary income on the later of the date that the option is
exercised and the date that is six months after the option was granted.
The income realized by an optionee who is a current or former employee will
be subject to income tax withholding by the Company.
Upon a sale of any shares acquired pursuant to the exercise of a non-
statutory stock option, the difference between the sale price and the
optionee's tax basis in the shares will be treated as short-term or long-
term capital gain or loss, as the case may be. The optionee's tax basis
for determination of gain or loss upon any subsequent disposition of shares
acquired upon the exercise of a non-statutory stock option typically will
be the amount paid for such shares plus any ordinary income recognized as a
result of the exercise of such option.
In general, there will be no federal tax consequences to the Company
upon the grant or termination of a non-statutory stock option or a sale or
disposition of the shares acquired upon the exercise of a non-statutory
stock option. However, upon the exercise of a non-statutory stock option,
the Company will be entitled to a deduction to the extent and in the year
that ordinary income from the exercise of the option is recognized by the
optionee, provided the Company has satisfied its withholding obligations
under the Code.
AMENDMENT AND TERMINATION OF THE PLAN
The Committee may amend or terminate the 1996 Plan from time to time
in such respects as the Committee may deem advisable and shall make any
amendments which may be required so that options intended to be incentive
stock options shall continue to be incentive stock options for the purpose
of Section 422 of the Code; provided, however, that without approval of a
majority of the Common Stock, no such revision or amendment shall be made
that affects the ability of options thereafter granted to satisfy Rule 16b-
3. Except as otherwise provided in the 1996 Plan, any amendment or
termination of the Plan shall not affect options already granted and the
1996 Plan shall not adversely affect the terms of any option granted prior
to the date the Plan was approved by stockholders, unless mutually agreed
by the Company and an optionee. The 1996 Plan will continue in effect for
a term of ten years unless sooner terminated by the Committee.
INDEPENDENT ACCOUNTANTS
The Board has appointed Arthur Andersen LLP, independent accountants,
to audit the Company's financial statements for the year ending December
31, 1998. A representative of Arthur Andersen is expected to be present at
the Annual Meeting, will have an opportunity to make a statement if he or
she so desires, and is expected to be available to respond to appropriate
questions.
<PAGE>
<PAGE>
48
During the first calendar quarter of 1996, proposals were requested
from qualified firms of certified public accountants to perform audit
services beginning in 1996 for the Company. The Company's former
independent accountant - Coopers & Lybrand LLP - submitted a letter in
response to the Company's request for proposals, stating an interest in
continuing to serve as the Company's independent accountant, but declining
to participate in the Company's proposal process, as defined in the request
for proposals. On June 6, 1996, the Audit Committee of the Board of
Directors met to interview the finalist firms selected by management as a
result of the above-mentioned process. On June 17, 1996, such Audit
Committee approved the engagement of Arthur Andersen LLP as the independent
accountants for the Company.
During the two fiscal years ended December 31, 1995 and 1994 and the
subsequent interim period preceding the engagement of Arthur Andersen LLP,
(i) there were no disagreements with Coopers & Lybrand LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements if not resolved to its
satisfaction would have caused it to make reference in connection with its
report to the subject matter of the disagreement; and (ii) Coopers &
Lybrand LLP has not advised the Company of any reportable events as defined
in paragraph (A) through (D) of Regulation S-K Item 304 (a)(1)(v).
The accountants' report of Coopers & Lybrand LLP on the consolidated
financial statements of Government Technology Services, Inc. and Subsidiary
as of and for the years ended December 31, 1995 and 1994 did not contain
any adverse opinion or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope, or accounting principles.
A copy of the Company's 1997 Annual Report to Stockholders is being
delivered to each stockholder of record as of the Record Date. THE
COMPANY'S ANNUAL REPORT ON FORM 10-K, AS FILED WITH THE SEC, IS ALSO
AVAILABLE FREE OF CHARGE TO ALL STOCKHOLDERS OF RECORD AS OF THE RECORD
DATE BY WRITING TO THE COMPANY AT 4100 LAFAYETTE CENTER DRIVE, CHANTILLY,
VIRGINIA 20151-1200, ATTENTION: INVESTOR RELATIONS.
OTHER MATTERS
The Company currently knows of no matters to be submitted at the
Annual Meeting other than those described herein. If any other matters
properly come before the Annual Meeting, the proxies will vote the shares
they represent as they deem advisable.
<PAGE>
<PAGE>
49
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference the portions of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
filed with the SEC on March 30, 1998, containing the Company's audited
financial statements and management's discussion and analysis of financial
conditions and results of operations, and the Company's Report on Form
8-K/A, filed with the SEC on April 2, 1998.
By Order of the Board of Directors
Judith B. Kassel
Corporate Secretary
Chantilly, Virginia
April 13, 1998
<PAGE>
<PAGE>
<TABLE>
<S> <C>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GOVERNMENT TECHNOLOGY SERVICES, INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Government Technology Services, Inc., a Delaware corporation (the "Company"), hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated April 13,1998, and Annual
Report on Form 10-K for the year ended December 31, 1997, and hereby appoints M. Dendy Young and Judith B. Kassel, and each of
them, proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Annual Meeting of Stockholders of the Company to be held at 9:00 a.m. on May 12, 1998, at the
Company's headquarters located at 4100 Lafayette Center Drive in Chantilly, Virginia, and at any adjournment(s) thereof, and to
vote all shares of Common Stock to which the undersigned would be entitled, if then and there personally present, on the matters
set forth below:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1. CONVERSION OF PREFERRED STOCK: [ ] FOR [ ] AGAINST [ ] ABSTAIN
To vote on the conversion of the Company's Series C Preferred Stock into Common Stock, as described in the Proxy
Statement.
2. INCREASE IN AUTHORIZED COMMON STOCK: [ ] FOR [ ] AGAINST [ ] ABSTAIN
To vote on an increase in the number of authorized shares of Common Stock from 10,000,000 to 20,000,000, as described in
the Proxy Statement.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
3. ELECTION OF DIRECTORS: [ ] FOR ALL nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below). to vote for ALL nominees listed below.
(Instruction: To Withhold the authority to vote for any individual nominee, mark the box next to the nominee's name
below.) Name of Nominee:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
[ ] Tania Amochaev [ ] Gerald W. Ebker [ ] Lee Johnson [ ] Steven Kelman, Ph.D.
[ ] James J. Leto [ ] Lawrence J. Schoenberg [ ] John M. Toups [ ] M. Dendy Young
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
4. AMENDMENT TO 1996 STOCK OPTION PLAN: [ ] FOR [ ] AGAINST [ ] ABSTAIN
To vote on an amendment to the Company's 1996 Stock Option Plan to increase by 1,000,000 the number of shares of Common
Stock authorized for issuance thereunder, as described in the Proxy Statement.
5. OTHER BUSINESS:
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting
or any adjournment(s) thereof.
Any one of such attorneys-in-fact or substitutes as shall be present and shall act at said meeting or any adjournment(s)
thereof shall have and may exercise all powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4,
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
</TABLE>
<TABLE>
<S> <C>
Dated: , 1998
------------------------------------
--------------------------------------------------
(Signature)
--------------------------------------------------
(Signature)
(This Proxy should be marked, dated and signed by
each stockholder exactly as his or her name
appears hereon and returned promptly in the
enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held
by joint tenants or as community property, both
parties should sign.)
</TABLE>
<PAGE>
<PAGE>
1
APPENDIX A
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).
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 <PAGE>
<PAGE>
2
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
after the applicable Dividend Payment Date, such unpaid dividends shall <PAGE>
<PAGE>
3
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 dividends
<PAGE>
<PAGE>
4
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.
(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 <PAGE>
<PAGE>
5
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 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<PAGE>
<PAGE>
6
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 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.
<PAGE>
<PAGE>
7
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
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
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8
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 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 <PAGE>
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9
"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 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.
<PAGE>
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10
(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)).
(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 <PAGE>
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11
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.
(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 <PAGE>
<PAGE>
12
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.
(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.
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13
(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 Preferred Stock, the Corporation may
pay, in lieu thereof, in cash the appropriate amount based on the
Conversion Price.
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14
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 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).
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15
(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 shall prohibit or otherwise restrict the Company from issuing
Series C Preferred Stock pursuant to Section 3(c).
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16
(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 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 <PAGE>
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17
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).
"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.
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"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.
"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.
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"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.
"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.
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"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.
"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.
_________________________
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APPENDIX B
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.
"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
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2
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).
"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,
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3
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 the holder
thereof to acquire, such voting securities. "Voting Securities" shall not
include the Preferred Stock.
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4
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 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,
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5
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);
c. pursuant to any tender or exchange offer that shall have been
recommended to the stockholders of GTSI by the GTSI Board;
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6
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 aforemen-
tioned 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.
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7
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 open market sales, GTSI shall be obligated to either
(A) purchase the remaining Voting Securities at the Market Price for such
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8
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.
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
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9
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.
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
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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,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
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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 invalidated.
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.
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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:
Name: Stephen L. Waechter
Title: Chief Financial Officer
BTG, INC.
By:
Name: Edward H. Bersoff
Title: President and
Chief Executive Officer
