<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
______________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NO. 0-19394
GOVERNMENT TECHNOLOGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1248422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3901 STONECROFT BOULEVARD
CHANTILLY, VIRGINIA 20151-0808
(Address and zip code of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 502-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.005 PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
<PAGE>
<PAGE>
2
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing price of the Common Stock on
March 1, 1999, as reported on The Nasdaq Stock Market, was $39,780,977.
The number of shares outstanding of the registrant's Common Stock on
March 1, 1999, was 9,199,490.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be
delivered to stockholders in connection with their Annual Meeting of
Stockholders to be held on May 18, 1999 are incorporated by reference into
Part III of this Form 10-K.
<PAGE>
<PAGE>
3
PART I
ITEM 1. BUSINESS.
THE COMPANY
Government Technology Services, Inc. ("GTSI(r)" or the "Company") is a
leading dedicated reseller of microcomputer and Unix workstation hardware,
software and networking products to the Federal government market. (Unless
the context indicates otherwise, all references herein to the capitalized
term "Government" shall refer to the U.S. Federal Government, and all
references herein to the non-capitalized term "government" shall refer
generally to any federal, state or municipal government.) The Company was
incorporated in Nevada in 1983 and reincorporated in Delaware in 1986. On
August 16, 1994, the Company purchased Falcon Microsystems, Inc.
("Falcon"), which was a leading reseller of Apple Computer, Inc. ("Apple")
products to the Government for the ten years prior to its acquisition. The
acquisition was part of the Company's corporate strategy to expand and
build upon its presence in the Federal, state and local government markets.
(Unless the context indicates otherwise, all references below to "GTSI" or
the "Company" for periods after August 16, 1994, shall refer to Government
Technology Services, Inc. and Falcon.)
On February 12, 1998, the Company entered into and closed on an Asset
Purchase Agreement with BTG, Inc. and two of its subsidiaries
(collectively, "BTG") under which the Company acquired substantially all of
the assets of the BTG division that resells computer hardware, software and
integrated systems to the Government (the "BTG 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 liabilities under
specified contracts of BTG as well as 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 a new series of preferred stock designated as Series C 8%
Cumulative Redeemable Preferred Stock ("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, was held under an escrow agreement to secure BTG's
indemnification obligations under the Asset Purchase Agreement. Under the
Asset Purchase Agreement, BTG was obligated to repay to the Company up to
$4.5 million to the extent that there was a shortfall in the amounts that
the Company received from dispositions of certain inventory acquired.
<PAGE>
<PAGE>
4
Subsequent to the closing, BTG delivered to the Company certain other
inventory ("Surplus Inventory"). By letter dated May 15, 1998, the Company
and BTG agreed that BTG would invoice GTSI an aggregate of $3,912,419 for
Surplus Inventory. In addition, BTG agreed to pay to the Company $1
million on June 30, 1998, which constituted full and complete payment for
any inventory shortfall as described in the Asset Purchase Agreement, as
well as $250,000 for costs associated with processing the Surplus
Inventory.
Pursuant to the Asset Purchase Agreement, the Company agreed to
convene a meeting of stockholders no later than January 1, 1999 to approve
a proposal to convert the Series C Preferred Stock into 3,000,000 shares of
Common Stock (the "Conversion Proposal"), and a proposal 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 (the "Charter
Amendment Proposal"). At the Company's annual meeting of stockholders held
on May 12, 1998, the Company's stockholders approved the Conversion
Proposal and the Charter Amendment Proposal. The Series C Preferred Stock
was converted automatically into 3,000,000 shares of Common Stock valued at
$5.125 per share and which, pursuant to the exemption provided under
Section 4(2) of the Securities Act of 1933, as amended ("Securities Act"),
were not registered under the Securities Act.
On February 10, 1999, the Company entered into subsequent agreements
with BTG. The agreements relate to the reacquisition of stock by GTSI from
BTG, the terms of certain contracts and the relationship of the parties
going forward. Pursuant to the agreements, GTSI reacquired 600,000 shares
of its stock from BTG. Of the 600,000 shares, 200,000 were tendered to
GTSI at no cost and 400,000 were purchased by GTSI for $5.00 per share,
using a three-year, 8% interest bearing note from BTG with the principal
repaid in three annual installments of $500,000, $500,000 and $1,000,000,
respectively. As part of the agreements, GTSI has an exclusive five-year
option to purchase the remaining 1.3 million shares of GTSI stock held by
BTG for $5.25 per share. Under the February 12, 1998 Asset Purchase
Agreement, BTG is precluded from selling any of its holdings, with certain
limited exceptions, to a third party for six years without GTSI's prior
consent. Under the February 10, 1999 agreement, GTSI must consent to a
sale by BTG of their stock to any third party. If GTSI consents to such a
sale, BTG is obligated to pay GTSI $0.50 per share on any shares sold by
BTG.
As a result of the agreement, BTG transferred to GTSI all of the cash
portion of the February 12, 1998 escrow, totaling $827,219, and BTG's
ownership interest in GTSI was reduced to 13.3%. Consequently, BTG
forfeited its right to representation on the GTSI Board and Dr. Edward H.
Bersoff, Chief Executive Officer of BTG, resigned from the GTSI Board. The
agreements also provide that BTG will novate certain contracts that GTSI
<PAGE>
<PAGE>
5
had been performing in the capacity of a subcontractor, and halts all
royalty payments by GTSI to BTG after December 31, 1998. For a discussion
of major contracts acquired with the BTG Division, see "Formal Bids" on
page 10.
GTSI offers its customers a convenient and cost-effective centralized
source for microcomputer and workstation solutions through its broad
selection of popular products and services at competitive prices. The
Company specializes in understanding both the various information
technology needs and the procurement processes of Government customers.
GTSI sells to most departments and agencies of the Government, state
governments and systems integrators and prime contractors selling to the
government market. In 1998, GTSI's sales directly to Government agencies,
to prime contractors for resale to Government agencies and to state and
local government agencies accounted for 91%, 7% and 2% of sales,
respectively.
The Company commenced operations in 1983 and initially focused on
reselling microcomputer software to Government agencies. In 1985, the
Company expanded its product line to include peripherals and began selling
its full line of products to the state government market. In 1986, the
Company began selling microcomputers and networking products and began
performing network integration services, including configuring, installing
and maintaining microcomputers in local area networks ("LANs"). Since
1987, GTSI has been pursuing formal Government bids in addition to General
Services Administration ("GSA") Schedule contracts. In January 1992, GTSI
began reselling Unix workstations and related software and peripherals.
GTSI currently offers access to approximately 150,000 information
technology products from approximately 2,100 manufacturers, including
Hewlett-Packard Company ("Hewlett-Packard"), Compaq Computer Corporation
("Compaq"), Panasonic (a division of Matsushita Electric Corporation of
America), Microsoft Corporation ("Microsoft"), CISCO Systems Incorporated
("CISCO"), Sun Microsystems, Inc. ("Sun"), Apple, Everex Systems, Inc.
("Everex") and Toshiba America Information Systems, Inc.("Toshiba"). The
Company provides its vendors with a low-cost marketing and distribution
channel to the many end users comprising the government market, while
virtually insulating these vendors from most of the complex government
procurement rules and regulations.
GTSI fulfills customer orders from its state-of-the-art 200,000-square
foot distribution center located in Chantilly, Virginia. In addition to
the normal distribution functions, activities at the center include
stocking of popular items for fast delivery, customizing equipment through
the integration of various hardware and software components, and
specialized services such as providing source acceptance inspections and
documentation. The distribution center has the capability of supporting
<PAGE>
<PAGE>
6
approximately $1.5 billion in shipments per year. This includes the
capacity to integrate hardware at an estimated rate of 1,600 to 1,800 units
per day including functional and diagnostic testing of all integrated
components. In 1998, the Company's distribution and integration
operations achieved ISO 9002 certification. The Company also subleases a
20,000 square foot distribution center in Chattanooga, Tennessee. In
addition to being able to ship to any of the 48 contiguous states
overnight, the center's location in the Washington, D.C. metropolitan area
allows for expedited deliveries to anywhere in the world.
"GTSI" is a registered service mark of Government Technology Services,
Inc. All other trademarks and service marks are proprietary to their
respective owners.
BUSINESS STRATEGY
GTSI is committed to, and focused on, the government customer. The
Company's business strategy is to continue to broaden its product offering,
to remain a low-cost provider and to bring new technologies to government
customers by concentrating on the following elements:
FOCUS ON THE GOVERNMENT MARKET. Because of its historical focus on
the Government market, GTSI has developed the expertise and established the
vendor and customer relationships necessary to be a leader in this market.
As a result, GTSI's marketing and sales force is effective at reaching and
servicing the Government market, which consists of procurement and
contracting officers, information resource managers, systems integrators,
value-added resellers ("VARs"), prime contractors and a wide array of end
users. In addition, by focusing on the Government market, the Company has
avoided the significant costs of commercial retail outlets and the
potentially higher credit risk associated with selling solely to commercial
entities.
PURSUE GOVERNMENT CONTRACTS. GTSI pursues Government contracts
ranging in size from as small as a few hundred dollars to as large as
potentially hundreds of millions of dollars in sales. The Company holds a
wide range of Government contracts, including multi-million dollar, multi-
year contracts with the Department of Defense ("DoD") and certain civilian
agencies, as well as several multiple award schedules and Blanket
Purchasing Agreements ("BPA's") with a variety of DoD and civilian agencies
(generally, "contract vehicles"). GTSI also serves as a subcontractor to
companies holding Government contracts. The Company intends to continue to
identify and pursue those contract vehicles that best leverage GTSI's broad
product selection, distribution capabilities and vendor relationships. At
various times GTSI has been awarded, in addition to the GSA Schedule
contracts, the U.S. Air Force Desktop IV Microsystems Contract ("Desktop IV
<PAGE>
<PAGE>
7
Contract"), the National Aeronautics and Space Administration's ("NASA")
Scientific & Engineering Workstation Procurement ("SEWP I Contract"), the
NASA SEWP II Contract, the U.S. Army Portable-1 Contract ("Portable-1
Contract"), the U.S. Army Portable-2 Contract ("Portable-2 Contract"), the
National Institute of Health's ("NIH") Electronic Computer Store ("ECS")
Contract ("NIH Contract") and the U.S. Treasury Department Acquisition-1
Contract ("TDA-1 Contract"), and the U.S. Army Standard Management
Information Systems Contract ("STAMIS Contract"), as well as other
Government contracts of amounts typically under $100,000. The Company also
has been awarded subcontracts to supply products under the U.S. Air Force
Integration for Command, Control, Communications, Computers and
Intelligence Contract ("IC4I") and the U.S. Air Force Desktop V
Microsystems Contract ("Desktop V Contract").
FOCUS ON OFFICE AUTOMATION PRODUCTS. GTSI focused initially on the
rapidly growing market for microcomputer applications software and expanded
successively into the complementary office automation market segments of
peripherals, microcomputers and networking products, including LANs. The
Company continued this product strategy by expanding its product line in
early 1992 to include hardware, software and services for RISC-based Unix
workstations manufactured by Sun and in 1993 to include the full line of
products manufactured by Apple. In 1996, GTSI began focusing on internet
and intranet products and services and entered into an agreement with HP to
add their Unix-Based server products. In 1998, GTSI began offering a full
range of seat management services to Government agencies. These services
include project management, help desk support, local area network
management support, basic hardware support, continuous training support,
asset management, information technology planning as well as technical
assessment and evaluation. In future years, the Company intends to add
other complementary office automation products and expanded systems
integration services.
FOCUS ON CUSTOMER SERVICE. In the Company's process orientation and
interaction with its many customers, Company employees focus on attempting
to provide high quality customer service(s) associated with the order,
delivery, installation and repair of microcomputer and workstation
products. By following a "one person - one transaction - one time"
approach to customer service, the Company's employees strive to ensure
customer satisfaction and thereby increase the possibilities for future
business.
PROVIDE A CENTRALIZED SOURCE FOR PROCURING OFFICE AUTOMATION PRODUCTS
AND SERVICES. In addition to offering a full line of microcomputer
hardware, software and peripheral products as well as the leading brand of
workstations, GTSI offers its customers pre- and post-sale technical
support and assistance in the selection, configuration, installation and
<PAGE>
<PAGE>
8
maintenance of the products and systems that GTSI sells. Furthermore, by
offering a wide range of microcomputer and workstation products through a
variety of procurement mechanisms, GTSI offers its customers the
convenience, flexibility and cost savings of purchasing from a centralized
source. GTSI believes that its convenient "one-stop shop" for
microcomputer and workstation products is an important factor in its
success in the government market.
MAINTAIN COMPETITIVE PRICING AND IMPROVE OPERATING EFFICIENCIES. The
government market is price-sensitive. GTSI therefore focuses both on
offering competitive pricing to its customers and on constantly improving
operating efficiencies.
ESTABLISH AND MAINTAIN STRONG VENDOR RELATIONSHIPS. In order to
provide a centralized source of products for its customers, GTSI maintains
strong relationships with leading hardware and software vendors. GTSI
offers its vendors a wide range of marketing and sales services, which
provide them with access to the millions of end users comprising the
government market. In addition, the Company virtually insulates its
vendors from most of the procurement regulatory complexities, costs,
extensive paperwork and complicated billing requirements associated with
the government market.
THE GOVERNMENT PROCUREMENT PROCESS
The Company's 1998 revenues were derived primarily from sales directly
to departments and agencies of the Government and to prime contractors
reselling to the Government market. The Company's sales fall into four
categories: GSA Schedule contracts, which include BPA's; indefinite-
delivery/indefinite-quantity ("IDIQ") contracts, which include government-
wide acquisition contracts; subcontracts; and Open Market.
GSA SCHEDULE CONTRACTS
In 1996, GTSI held four GSA Schedule contracts: Schedule A, Schedule
B/C, Schedule 58 Parts VI and VII, and Schedule E. Schedule A included
general purpose commercial automatic data processing equipment and software
including workstations and connected peripherals equipment. Schedule B/C
included general-purpose automatic data processing equipment (end-user
computers, normally microcomputers and related software) for office use
environment. Schedule 59 Part VI and VII was for telecommunications
products, and Schedule E was for electronic commerce and services. On
November 26, 1997 GSA combined the four schedules under the terms of the
B/C Schedule Contract and the B/C Schedule Contract became the Information
Technology ("IT") Schedule. Products offered under the IT Schedule
Contract include workstations, desktops, laptops, notebooks, servers, laser
<PAGE>
<PAGE>
9
printer, color printers, scanners, monitors, modems, hard drives, memory,
networking products, facsimile products, internet and intranet products,
video teleconferencing, maintenance, training and services. GTSI's IT
schedule is set to expire on March 31, 1999; however, GSA has issued a
proposed extension and GTSI expects the contract to be extended to March
31, 2002. In August 1998, GTSI was awarded GSA Schedule 36. Schedule 36
is for the supply of Hewlett-Packard printer toner cartridges. Schedule 36
is set to expire on September 30, 2003.
The GSA, which is the central procurement agency of the Executive
Branch of the Government, negotiates schedule contracts. Although
Government agencies are not required to purchase products under GSA
Schedule contracts, these contracts provide all Government agencies,
certain international organizations and authorized prime contractors with
an efficient and cost-effective means for buying commercial products.
Government agencies and other authorized purchasers (collectively, "GSA
Schedule Purchasers") may purchase goods under GSA Schedule contracts at
predetermined ceiling prices, terms and conditions. GSA Schedule
Purchasers may place unlimited orders for products under GSA Schedule
contracts. However, agencies are instructed to seek lower prices for
orders exceeding a "maximum order" threshold. This threshold is $25,000
per order for classroom training, $50,000 per order for shrink-wrap
software and $500,000 per order for other software and hardware.
GSA Schedule contracts are awarded on the basis of a number of
factors, the most important of which are compliance with applicable
Government regulations and the prices of the products to be sold. Any
number of competing vendors may be awarded a GSA Schedule contract for a
given product although manufacturers may enter into exclusive
relationships. GSA Schedule contracts require that each bidder must either
be the manufacturer of the product covered by the contract or furnish
evidence of capability to provide a manufacturer's product for the period
of the GSA Schedule contract. Products may be added to a GSA Schedule
contract during its term under certain circumstances with the consent of
both the contractor and Government. GSA Schedule contracts include a GSA
administrative fee calculated on the product price. This fee is collected
by the Company and is remitted quarterly to the GSA.
GTSI's GSA Schedule contracts require the Government to pay for
product shipped under the contracts within 30 days of acceptance by the
Government. The GSA Schedule contracts also permit payment by Government-
issued credit cards. When payment is made by credit card, the Company
usually receives payment in less than 30 days. The Government may require
GTSI to accept returns only of incorrectly shipped product. GTSI's GSA
Schedule contracts require GTSI to pass on to customers the vendor's
warranty and to provide for on-site or depot maintenance at a pre-paid flat
fee. GTSI's GSA Schedule contracts also contain price reduction clauses
<PAGE>
<PAGE>
10
requiring, among other things, that GTSI pass on to Government customers
certain reduced prices GTSI may receive from its vendors during a
contract's term but prohibiting GTSI to pass on vendor price increases for
a period of one year. To mitigate the potential adverse impact of any such
price increase, the Company requires virtually all vendors acting as
suppliers to GTSI under its GSA Schedule contracts to provide GTSI with
supply and price protection. The Schedule includes an economic price
adjustment clause that permits the Company to adjust contract prices upward
if certain conditions have been satisfied after a period of one year.
FORMAL BIDS
A significant portion of Government purchases of computer products and
services are made under contracts or purchase orders awarded through formal
competitive bids and negotiated procurements. Since 1987, in addition to
its GSA Schedule and open market business, GTSI has pursued formal
Government bids. Since substantially all of these bids are awarded on the
basis of "best value" to the Government (which, depending on the bid, can
be a combination of price, technical expertise, past performance on other
Government contracts and other factors), GTSI has sought to use its vendor
contacts, purchasing power, distribution strength and procurement expertise
to successfully compete for the business. These major procurements can
exceed millions of dollars in total revenues, span many years, and provide
a purchasing vehicle for many agencies. The vast majority of the contracts
pursued by GTSI have been fixed-price (i.e., at the time of initial award,
the end-user selling prices are set for the duration of the contract at a
specified level or at specified levels varying over time) and IDIQ (i.e.,
the contract provides no pre-set delivery schedules or minimum purchase
levels). In some cases, various agencies levy a fee on those on purchases
made by departments outside of the agency, which awarded the contract.
These fees are collected by the Company, and as under the GSA contract,
remitted to the respective agency on a contract specified payment schedule.
GTSI's bids group is responsible for evaluating bid opportunities,
identifying key products or services needed to respond to bids, negotiating
favorable agreements with suppliers and subcontractors, preparing written
responses to the solicitation document, meeting all mandatory technical
requirements and, in general, successfully managing the proposal effort.
GTSI's competitors for these contracts typically include major systems
integrators, computer manufacturers and a variety of other systems
integrators, VARs and commercial resellers.
NIH ECS I CONTRACT. In September 1995, GTSI and 16 other contractors
were jointly awarded the Electronic Computer Store I ("ECS I") Contract to
provide commercial off-the-shelf personal computer equipment (including
laptops, peripherals, software and operating systems) and related warranty
<PAGE>
<PAGE>
11
service to the National Institutes of Health and other agencies of the U.S.
Department of Health and Human Services. The contract is a non-mandatory,
fixed price, IDIQ contract with an original expiration date of September
30, 1996. The Government exercised one option to extend the contract to
September 30, 1997. The Government's maximum evaluated dollar value for
the ECS I Contract over its two-year maximum life is approximately $96.8
million. Sales under the ECS Contract in 1998, 1997 and 1996 were
approximately $1.1 million, $52 million and $33.6 million, respectively.
TDA-1 CONTRACT. In March 1996, GTSI was awarded the TDA-1 Contract.
The TDA-1 Contract is a fixed-price, IDIQ contract which calls for GTSI to
provide desktop and laptop computers, as well as software and peripherals,
to the U.S. Treasury Department. The contract is non-mandatory with an
original expiration date of March 3, 1997, with one option to extend for a
one-year period. The Government exercised its option to extend the
contract to September 4, 1998. Shipments under the TDA-1 Contract began
in August 1996. Sales under the TDA-1 Contract in 1998, 1997 and 1996 were
approximately $27.9 million, $17.6 million and $2.1 million, respectively.
SEWP II CONTRACT. In November 1996, the Company was awarded two SEWP
II Contracts out of 20 awarded by NASA under the SEWP program. The
contracts were available for orders in January 1997. Thereafter, NASA
consolidated the contracts so that there are now 16 contracts, of which
GTSI holds one. The SEWP II Contract is a non-mandatory, fixed price, IDIQ
contract for specified Unix-based equipment, printers, application software
and related peripherals to the entire Government and all NASA prime
contractors. Products may be added to the contract at fixed discounts from
the manufacturer's catalogue, list, GSA or other published pricing base by
mutual agreement with the Government. Product discounts must be maintained
throughout the applicable contract period provided that the computed price
to the Government cannot exceed GSA Schedule pricing. The original
contract expiration date was November 15, 1997. The contract includes
three one-year extension options. The Government exercised two one-year
options to extend the contract to November 14, 1999. Sales under the SEWP
II contract in 1998 and 1997 were approximately $65.0 million and $20.7
million, respectively.
PORTABLE-2 CONTRACT. In December 1996, GTSI was awarded the
Portable-2 Contract, a follow-on to the Portable-1 Contract. The
Portable-2 Contract is a fixed-price, IDIQ contract which calls for GTSI to
provide world-wide sales of notebook computers, application software,
monitors, printers, notebook peripherals and maintenance to the Army, the
Defense Logistics Agency and other Government agencies, excluding the Navy
and the Air Force. The contract is a two-year, dual award contract that is
scheduled to expire on May 2, 1999. Two competitors protested the award of
the contract. In April 1997, the award to GTSI was affirmed. In May
<PAGE>
<PAGE>
12
1997, GTSI began shipments under this contract. The Government's maximum
evaluated dollar value for the contract over its two-year maximum life is
approximately $237 million. Sales under the Portable-2 contract in 1998
and 1997 were approximately $22.8 million and $19.9 million, respectively.
NIH ECS II CONTRACT. In September 1997, GTSI and 45 other contractors
were jointly awarded the Electronic Computer Store II ("ECS II") contract
to provide commercial off-the-shelf personal computer equipment (including
laptops, peripherals, software and operating systems) and related warranty
service to the National Institutes of Health and other agencies of the
Government. In 1998, GTSI began offering a broad range of seat management
services such as project management, help desk support, local area network
management support, basic hardware support, continuous training support,
asset management, information technology planning and technical assessment
and evaluation. The vehicle is a non-mandatory, fixed price, IDIQ contract
with a 5-year term. The Government's maximum evaluated dollar value for
the ECS II for the 5-year term of the contract is $1.8 billion. Sales
under the ECS II contract in 1998 and 1997 were approximately $40.0 million
and $5.9 million, respectively.
STAMIS CONTRACT. In October 1997, GTSI was awarded the U.S. Army's
Standard Management Information System ("STAMIS") Computer Contract II.
The IDIQ contract is a one-year contract with four one-year options to
renew for the purchase of products, and three additional one-year options
for the purchase of service. The Government has exercised its first one-
year option to extend the contract to October 7, 1999. The Government's
maximum evaluated dollar value for the STAMIS Contract for the entire term
of the contract is $469 million. Sales under the STAMIS contract in 1998
and 1997 were approximately $35.6 million and $0.6 million, respectively.
PC-3 CONTRACT. In February 1999, GTSI and one other contractor were
awarded a contract by the Department of Defense to provide personal
computer equipment, operating systems, configuration support, warranty
support, system upgrades, training and leasing. The Government's maximum
evaluated dollar value for the combined dual award contracts is $300
million. The contract is a non-mandatory IDIQ contract that is open to all
Government agencies, and also includes Foreign Military Sales. The
contract has a two-year base period and one one-year option. By letter
dated March 13, 1999, the Government issued notice to GTSI to proceed under
the contract.
BTG DIVISION CONTRACTS
As a result of the acquisition of the BTG Division, GTSI performed
several additional contracts in 1998. GTSI had the right to novate certain
BTG Division contracts, including the BTG Division GSA Schedule, the BTG
<PAGE>
<PAGE>
13
Division ECS-II contract and an Environmental Protection Agency local area
network contract, as well as particular BTG Division BPA's. GTSI had the
right to perform certain other contracts as a subcontractor to BTG and to
pay BTG a royalty of 1% to 2% of sales under such contracts. These royalty
contracts included contracts with the Department of Defense ("PC-2"),
Department of State ("DOSS-II"), Tennessee Valley Authority ("TVA PC" and
"TVA UNIX") and Department of the Treasury ("TDA-2"), which are described
below.
DOSS-II CONTRACT. In April 1997, the Department of State awarded a
single award contract to the BTG Division to provide database solutions,
networking solutions and professional services. The contract is a non-
mandatory, fixed price IDIQ contract with one base year and six option
years. The primary customers are the Department of State, the U.S. Agency
for International Development and the U.S. Peace Corps. The Government's
maximum evaluated dollar value for the DOSS contract over its seven-year
life is approximately $129 million. The Government has exercised its first
option year and extended the contract to April 13, 1999. In 1998, GTSI
assumed performance of the DOSS-II contract from the BTG Division, and paid
BTG a 1% royalty fee for products shipped. Sales under the contract in
1998 were approximately $35.7 million.
PC-2 CONTRACT. In January 1997, the Department of Defense awarded a
dual award contract to the BTG Division to provide commercial off-the-shelf
personal computers, software, accessories, and related warranty service to
the Army, the Navy and the Air Force. The contract is a non-mandatory,
fixed-price IDIQ contract with one base year and one option year. The
Government has exercised its option to extend the contract to January 22,
1999 and also has issued an extension to the PC-2 contract extending
contract performance to May 12, 1999. In 1998, GTSI assumed performance
of the PC-2 contract from the BTG Division and paid BTG a 1% royalty for
products shipped. Sales under the contract in 1998 were approximately
$45.4 million.
TVA-PC CONTRACT. In September 1995, the Tennessee Valley Authority
awarded a multiple award contract to BTG to provide desktop products,
including desktop microprocessor hardware, related software, peripherals,
and accessories. The TVA-PC contract is a fixed-price IDIQ contract with
one base year and four option year. The Government has exercised its
fourth option year to extend the contract to September 30, 1999. In 1998,
GTSI assumed performance of the TVA-PC contract from the BTG Division and
paid BTG a 1% royalty for products shipped. Sales under the contract in
1998 were approximately $10.2 million.
<PAGE>
<PAGE>
14
TVA-UNIX CONTRACT. In August 1997, the Tennessee Valley Authority
awarded a multiple award contract to BTG to provide UNIX based Sun
Microsystems' servers. The TVA-UNIX contract is an IDIQ contract with an
indefinite term; thirty days notice is required to terminate the contract.
In 1998, GTSI assumed performance of the TVA-UNIX contract from BTG
Division and paid BTG a 1% royalty for products shipped. Sales under the
contract in 1998 were approximately $0.7 million.
TDA-II CONTRACT. In July 1995, the Department of Treasury awarded a
multiple award contract to BTG to provide microcomputers, notebook
computers, file servers, laser printers, impact printers, CD-ROMs and other
peripherals. The contract is an IDIQ contract with one base year and one
option period. The Government extended the contract to March 18, 1998 by
exercising the option period. In 1998, GTSI assumed performance of the
TDA-II contract from the BTG Division and paid BTG a 2% royalty for
products shipped. Sales under the contract in 1998 were approximately
$11.9 million.
SUBCONTRACTS
In 1998, the Company's business included subcontracts for product
supply to companies holding Government integrator prime contracts.
IC4I CONTRACT. In June 1996, the Company was awarded a subcontract by
Systems Research Applications Corporation ("SRA") to provide hardware and
software for use by the Government in connection with SRA's IC4I Contract.
The IC4I Contract is non-mandatory, fixed-price IDIQ contract which expired
in June 1998 and includes three one-year extension options. GTSI and SRA
are currently performing under the contract and are negotiating the terms
of the option years. Shipments under the IC4I Contract began in October
1996. Sales under the subcontract in 1998, 1997 and 1996 were
approximately $2.4 million, $6.2 million and $0.3 million, respectively.
DESKTOP V CONTRACT. In November 1996, the Company was awarded a
subcontract with Hughes Data Systems to provide monitors and notebooks for
use by the Air Force in connection with the Desktop V Contract. The
subcontract expires in May 2002. Shipments under the subcontract began in
July 1996, and sales under the subcontract in 1998, 1997 and 1996 were
approximately $106,000, $1.2 million and $3.9 million, respectively.
BLANKET PURCHASE AGREEMENTS
Historically, the Company has held hundreds of BPA's with federal
agencies. A BPA is a simplified but non-mandatory, fixed price, IDIQ
contract for the Government to purchase products, usually by establishing
charge accounts with qualified sources. Agencies typically enter into
<PAGE>
<PAGE>
15
BPA's for similar products with several companies. BPA's generally include
a list of products at established prices, individual purchase limits for
authorized purchasers, and other pre-negotiated terms and conditions.
Purchases under BPA's are often paid for with a Government-issued credit
card.
In 1996, the GSA authorized agencies to enter into BPA's with Schedule
holders. The GSA-authorized BPA's incorporate many terms and conditions of
the GSA Schedule contracts, and incorporate many products offered on GSA
Schedule contracts, often at lower prices than available on the GSA
Schedules. The Company normally enters into separate agreements with
vendors in order to offer reduced BPA prices to the Government. The BPA
sales vehicle allows the Company to focus specific vendor relationships on
specific sets of customers. In response to the GSA's authorization, the
Company has increased its emphasis on BPA's.
The Company's major BPA's include: the Naval Information Systems
Management Center BPA for notebook computers and associated equipment, with
estimated aggregate sales among the BPA awardees of $98 million; and the
Naval Information Systems Management Center BPA for desktop and associated
equipment, with estimated sales among the BPA awardees of 7,500 computers
per year; the Air Force Standard Systems Group BPA for printers and
associated products.
OPEN MARKET
Many microcomputer and workstation products may also be resold by GTSI
through open market procurements. These procurements are separate and
apart from GSA Schedules or formal competitive bids, and include simplified
acquisition procedures, requests for quotes, invitations for bids and
requests for proposals. The Company is on most Government bid lists
relevant to its product offerings and responds with proposals to hundreds
of such bid solicitations each year. When awarding contracts, the
Company's customers often evaluate, in addition to price, which is
typically the most important factor, a number of other factors, such as the
vendor's experience, performance record, service, support and financial
strength. Unless purchasing electronically, Government agencies procuring
products not on a Schedule or other contract vehicle must typically
publicize their procurements with a value in excess of $25,000 to allow
competitors to submit price quotes. The Company also sells to Government
prime contractors, including systems integrators, typically through open
market procurements. As a result of recent legislative changes, the
Government is encouraged to make purchases under $2,500 by credit card and
often without competition. In 1996, GTSI initiated a catalog offering for
sales of microcomputer products. Many of these products offered for sale
are for less than $2,500 and are available via credit card purchases. GTSI
<PAGE>
<PAGE>
16
discontinued its catalog at the end of 1998, and replaced it with an
expanded website.
STATE AND LOCAL CONTRACTS
Most purchases in the state government market are made through
individual competitive procurements, although many state governments issue
invitations for bid for statewide computer term contracts. State and local
procurements typically require formal responses and the posting of "bid
bonds" or "performance bonds" to ensure complete and proper service by a
prospective bidder. Each state maintains a separate code of procurement
regulations that must be understood and complied with in order to
successfully market and sell to that state. GTSI currently maintains
several state and local microcomputer contracts, submits oral and written
bids to state and local governments each month and is on a number of state
and local government bid lists.
GOVERNMENT MARKET CONSIDERATIONS
A substantial portion of the Company's contracts are fixed-price and
IDIQ. The uncertainties related to future contract performance costs,
product life cycles, quantities to be shipped and dates of delivery, among
other factors, make it difficult to predict the future sales and profits,
if any, that may result from such contracts.
Under applicable Government regulations GTSI qualified as a "small
business" under many of the contracts it held during 1998 by virtue of it
being a non-manufacturing entity with a rolling average over the prior 12
months of 500 or fewer employees at the time of contract award. As a small
business, GTSI enjoyed a number of significant benefits, including being
able to: compete for designated small business set-aside contracts; bid
pursuant to preferential small purchase procedures for open market
purchases under $100,000 directed to non-manufacturer small businesses;
qualify as a small business subcontractor to prime contractors on contracts
over $500,000 in which the prime contractor must submit to the Government a
small business subcontracting plan; offer Government agencies the advantage
of having their purchases from GTSI count toward fulfilling their internal
small purchase goals; and avoid having to establish small business
subcontracting plans in order to compete for certain large Government
contracts.
As a result of the acquisition of the BTG Division in February 1998,
GTSI no longer qualifies as a small business for future contract awards.
Although most government contracts entered into before the BTG Division
acquisition will not be affected by this change, the Company cannot predict
the effect, if any, of this change on its operations. GTSI has a number of
possible actions available to it to seek to mitigate an adverse impact to
<PAGE>
<PAGE>
17
GTSI of the future loss of its small business status, including the
following: increasing sales through the large number of Government
contracts which are not subject to small purchase procedures; aggressively
implementing GTSI's low-cost, one-stop shop strategy to economically
encourage customers to continue to place orders with GTSI; expanding its
sales to prime contractors qualifying as small or minority-owned
businesses; and increasing its sales to state and other markets not subject
to Government small business regulations. Currently, GTSI cannot precisely
quantify the extent of the impact, if any, on its future results from a
loss of its small business status.
Noncompliance with Government procurement regulations or contract
provisions could result in termination of Government contracts, substantial
monetary fines or damages, suspension or debarment from doing business with
the Government and even civil or criminal liability. During the term of
any suspension or debarment by any Government agency, the contractor could
be prohibited from competing for or being awarded any contract by any
Government agency. In addition, virtually all of the Company's Government
contracts are terminable at any time at the convenience of the Government
or upon default. Upon termination of a Government contract for default,
the Government may also seek to recover from the defaulting contractor the
increased costs of procuring the specified goods and services from a
different contractor. The effect of any of these possible Government
actions or the adoption of new or modified procurement regulations or
practices could adversely affect the Company.
The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its operations as a result
of Government buying and funding patterns. Although these patterns have
historically led to sales being concentrated in the Company's third and
fourth quarters, the seasonality and the unpredictability of the factors
affecting such seasonality make GTSI's quarterly and yearly financial
results difficult to predict and subject to significant fluctuation.
The industry in which the Company conducts its business, as well as
the geographic location of the Company's headquarters near the nation's
capitol and the concomitant density of high technology companies
headquartered nearby, results in a limited pool of qualified employees.
Although the Company's believes that its compensation and benefits are
competitive, such competition and geography may from time to impact the
Company's ability to attract and retain a competent and productive
workforce.
<PAGE>
<PAGE>
18
PRODUCTS
The Company currently offers access to approximately 150,000
information technology products from approximately 2,100 hardware and
software vendors. The Company continuously monitors sales of existing and
newly introduced products to ensure that it carries state-of-the-art
technology products.
HARDWARE. The Company currently resells microcomputers from major
brand name manufacturers, including Hewlett-Packard, Compaq, Panasonic,
Everex, Sun and Apple; and peripherals from major brand name manufacturers,
including Hewlett-Packard, Tektronix, Sony, Iomega, Panasonic and Kodak.
The Company began selling RISC-based Unix workstations manufactured by Sun
in 1992. In 1993, the Company began selling the full line of products
manufactured by Apple. Peripherals carried by the Company include disk
drives, CD-ROM drives, printers, video display monitors, plug-in circuit
boards, modems and related products. GTSI's LAN hardware products are
supplemented by the Company's LAN services, which include assisting
customers in selecting, configuring, installing and maintaining LANs.
SOFTWARE. The Company carries microcomputer software from virtually
every leading MS-DOS and Windows microcomputer software vendor, as well as
Sun workstation and Apple software from a number of leading software
publishers. The Company sells packaged application software or licenses
therefor, including word processing, database management, spreadsheet and
graphics programs, for use on IBM, IBM-compatible microcomputers, Apple and
Apple-compatible microcomputers, and on Sun and Hewlett-Packard Unix
workstations. The Company's microcomputer software vendors include
Microsoft, Symantec IBM/Lotus, Informix, Corel, and Visio. GTSI also sells
networking software, including Novell products.
MARKETING AND SALES
The Company's marketing and sales personnel design and direct the
Company's sales efforts and its market research, telemarketing and direct
mail campaigns; Company-sponsored catalogues and seminars; advertising in
specialty publications; and participation in major trade shows. GTSI
provides training to its marketing and sales force on various government
procurement processes and technical features of the products and services
it offers. All sales personnel have been trained on, and have online
access to, GTSI's computerized system for maintaining price, product
availability, bid, ordering and order-status information.
From inception, GTSI recognized that the size and diversity of the
government market made it imperative to identify and understand the needs
of customers. Through years of intensive effort, GTSI has compiled and
<PAGE>
<PAGE>
19
continuously updates one of the most comprehensive databases of federal,
state and local government microcomputer users and their buying patterns.
This proprietary, on-line computerized database currently contains over
235,000 entries, including an extensive list of agency procurement and
contracting officers, information resource managers, end users, systems
integrators, VARs and prime contractors. GTSI uses this database, among
other things, for targeting telemarketing and direct mail campaigns. The
Company conducts direct mail campaigns consisting of brochures, fliers,
questionnaires, reply cards and other promotional items.
In addition to being an active participant in major federal and state
government trade shows, GTSI sponsors and produces its own federal and
state government seminars and agency-specific shows. GTSI designs these
seminars and shows to provide training and information about microcomputers
and workstations and related services that are of significant interest to
government users. GTSI also produces its own "Expos" in which GTSI and
specific agencies work together to showcase products to key end users and
decision makers. These seminars, shows and expositions are supplemented by
technical support hot lines, customer bulletin boards and an evaluation
library of microcomputer and workstation product profiles, technical
literature and demonstration hardware and software. The Company also
offers simplified software upgrade policies designed specifically for the
Government.
The Company publicly introduced its web site, GTSI Online (sm)
(http:\\www.gtsi.com), on the world wide web in early 1995. In 1997 and
1998, the website provided access to certain product, contract and Company
information. In the first quarter of 1999, the Company introduced its
third generation website which consists of two sections. First, there is
the electronic shopping section of the website that includes a smart
shopping cart feature allowing the buyer to save and manage multiple
shopping carts, a smart check-out feature which stores products from
multiple contracts into a single shopping cart that are automatically split
(with appropriate surcharges) upon check-out, and a smart quote feature
which allows buyers to save, manage and e-mail multiple price quotes.
Second, the site includes an information portal section that is designed to
meet the information needs of the Government customer.
VENDOR RELATIONSHIPS
In order to offer its customers a centralized source for their
microcomputer and workstation needs, the Company establishes and maintains
relationships with key vendors and offers them a number of profitable
opportunities to expand their sales to the government market, including:
<PAGE>
<PAGE>
20
o Access to the government market through a significant number of
diverse contract vehicles.
o Substantial relief from the cost of compliance with procurement
regulations involved in selling directly to the government
market.
o Lower operating costs related to reduction or elimination of
selling and marketing programs, and elimination of non-commercial
billing and collection costs related to the government market.
o Participation in value-added services, including numerous
government-specific marketing programs and end-user technical
support.
The terms of the Company's agreements with its vendors vary widely,
but typically permit the Company to purchase product for resale to at least
the government market. Virtually none of the Company's vendor agreements
requires the Company to purchase any specified quantities of product. The
Company typically requires vendors acting as suppliers to GTSI under its
term Government contracts to provide GTSI with supply and price protection
for the duration of such contracts. Other than supply agreements under
term Government contracts, the Company's vendor agreements are typically
terminable by the vendor on short notice, at will or immediately upon
default by GTSI. These vendor agreements also generally permit GTSI to
return previous product purchases at no charge within certain time limits,
for a restocking fee up to 10% and/or in exchange for other products of
such vendor. The Company also purchases some products from independent
distributors.
Vendors provide the Company with various forms of marketing and sales
assistance, including but not limited to sales incentives and market
development funds. Vendors provide sell-through and other sales incentives
in connection with certain product promotions. Additionally, key vendors
participate with the Company in cooperative advertising and sales events
and typically provide funding which offsets the costs of such efforts. A
reduction in or discontinuance of any of these incentives or significant
delays in receiving reimbursements could materially adversely affect the
Company. The Company must continue to obtain products at competitive
prices from leading vendors in order to provide a centralized source of
price-competitive products for its customers and to be awarded government
contracts. Although almost all of GTSI's vendors currently do not have all
of their own computer products on a GSA Schedule contract, one or more may
elect to apply for its own GSA Schedule contract and may do so at lower
end-user selling prices than those GTSI currently offers or could
profitably offer. Although GTSI believes its relationships with its key
vendors to be good, a decision by one or more to sell directly to the
<PAGE>
<PAGE>
21
Government (especially if at significantly lower prices than GTSI), to sell
their products to GTSI's competitors on more favorable terms than to GTSI,
to allow additional resellers to represent their products on a GSA Schedule
contract, to restrict or terminate GTSI's rights to sell their products or
restrict their products from being carried on a GSA Schedule contract,
could materially adversely affect the Company.
CUSTOMERS
The Company's customers are primarily federal, state and local
government agencies and prime contractors to the Government, including
systems integrators. In 1998, the Company sold products or services to
thousands of different customers, including to most agencies and major
departments of the Government, to many state governments and to hundreds of
prime contractors. Although no single customer accounted for greater than
5% of the Company's 1998 sales, aggregate 1998 sales to the Government's
Departments of the Army, Navy and Air Force were 20.4%, 14.5% and 16.7%,
respectively, of GTSI's 1998 sales.
The Company's sales are highly dependent on the Government's demand
for microcomputer and workstation products. Although the Company does not
believe that the loss of any single customer would have a materially
adverse effect on it, a material decline in its overall sales to the
Government as a whole or to certain key agencies thereof could have such an
effect. Reductions in DoD or other Government outlays could occur and may
adversely affect the Company. Furthermore, legislation is periodically
introduced in Congress that, if enacted, may change the Government's
current procurement processes. GTSI cannot predict whether any such
legislative or regulatory proposals will be adopted or, if adopted, the
impact upon its operating results. Changes in the structure, composition
and/or buying patterns of the Government could affect the Company's future
operating results.
BACKLOG
At February 28, 1999, and December 31, 1998, the Company's total
backlog of orders was approximately $53.4 million and $59.7 million,
respectively, as compared with approximately $59.9 million and $38.4
million at February 28, 1998, and December 31, 1997, respectively. Total
backlog consists of written purchase orders received and accepted by GTSI
but not yet shipped. Backlog fluctuates significantly from quarter to
quarter because of the seasonality of Government ordering patterns and the
periodic inventory shortages resulting from constrained products.
<PAGE>
<PAGE>
22
SERVICE AND WARRANTY
GTSI provides post-sale field service for certain products that it
sells primarily through subcontractors and to a limited extent through the
Company's in-house technical staff. The Company typically warrants
products sold to the Government and certain other customers for the same
term as the manufacturer's warranty period although many IDIQ contracts
include provisions for warranties that extend beyond those offered by the
manufacturer. The Company also sells extended warranties on many of the
government contracts. Product repaired while under the manufacturer's
warranty is at the manufacturer's expense; product repaired after
expiration of the manufacturer's and GTSI's warranty, if longer, is at the
customer's expense. GTSI outsources to third parties a significant portion
of its extended warranty obligations.
COMPETITION
The government microcomputer and workstation market is intensely
competitive and subject to rapid change. GTSI competes with certain
leading microcomputer and/or workstation hardware manufacturers, which sell
to the government market directly and/or through representatives other than
the Company, and with a number of systems integrators, government and
commercial resellers and commercial computer retail chains, distributors
and VARs (including companies qualifying as minority-owned, disadvantaged
or small businesses under applicable Government regulations) seeking to
enter or expand their presence in the government market. In 1998, certain
manufacturers selling directly to the Government have gained market share
in the GSA schedule market. A number of GTSI's existing and potential
competitors have greater financial, sales, marketing and technological
resources than the Company.
The Company believes that the principal competitive factors in the
government microcomputer market are price, expertise in the applicable
government procurement processes, breadth of product line, customer and
vendor relationships, financial strength, the technical and other skills of
marketing and sales personnel, distribution capability, available inventory
and customer service and support. The Company believes that the principal
competitive factors in the government workstation market are essentially
the same, except that technical expertise and customer service and support
are often more important and breadth of product line and available
inventory are often less important. The Company believes that it competes
favorably on each of these factors, although to a lesser degree with
respect to technical expertise. GTSI also believes that it has a
competitive advantage over certain of its competitors because of its
procurement expertise and avoidance of costly overhead related to selling
into multiple market segments and maintaining numerous retail outlets. In
addition, the Company's ability to offer a centralized source for purchases
<PAGE>
<PAGE>
23
of a wide variety of leading computer products from numerous manufacturers
often provides a competitive advantage over manufacturers who sell only
their own line of products directly to the government.
EMPLOYEES
At March 5, 1999, the Company had 505 employees, including 260 in
sales, marketing and contract management; 134 in operations; and 111 in
executive, finance, information technology, human resources and legal.
None of the Company's employees is represented by a labor union, and the
Company has experienced no labor-related work stoppages.
ITEM 2. PROPERTIES.
The Company's executive offices are located in an approximately
100,500-square foot facility in Chantilly, Virginia under a lease expiring
in November 2009, with one five-year option. GTSI's warehousing and
distribution operations are also located in Chantilly, Virginia in a
separate 200,000-square foot facility under a lease expiring in December
2006. The Company also has a branch sales office occupying 139 square
meters in Mannheim, Germany. The Company also subleases a 20,000 square
foot distribution center in Chattanooga, Tennessee under a sublease which
expires on March 31, 2001.
ITEM 3. LEGAL PROCEEDINGS.
The Company is occasionally a defendant in litigation incidental to
its business. The Company believes that none of such litigation currently
pending against it, individually or in the aggregate, will have a material
adverse effect on the Company's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
<PAGE>
<PAGE>
24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
STOCK DATA. The Company's common stock trades on The Nasdaq Stock
Market (sm) under the symbol "GTSI." As of December 31, 1998, there were
178 record holders of the Company's common stock. As of March 22, 1999,
there were 179 record holders and approximately 1,500 beneficial holders of
the Company's common stock. The following table sets forth, for the
periods indicated, the high and low closing prices for the Company's common
stock.
1998 1997
------------------- -------------------
Quarter High Low High Low
------- -------- --------- -------- ---------
First $ 5 7/8 $ 4 3/4 $ 5 7/8 $ 4 1/2
Second $ 5 7/16 $ 4 3/8 $ 5 7/16 $ 4 3/4
Third $ 5 3/16 $ 3 3/4 $ 5 7/8 $ 4 13/16
Fourth $ 5 1/2 $ 2 1/2 $ 5 7/8 $ 4 1/2
The Company has never paid cash dividends. It is the present policy
of the Company to retain earnings to finance the growth and development of
its business, and therefore the Company does not anticipate paying cash
dividends on its common stock in the foreseeable future. Furthermore,
certain financial covenants in the Company's bank credit agreement restrict
the Company's ability to pay cash dividends.
ADDITIONAL INVESTOR RELATIONS INFORMATION. All of the Company's
current required filings with the Securities and Exchange Commission, as
well as press releases and other investor relations information, may be
found at http://www.gtsi.com on the internet's world wide web. For those
without internet access, such information may be obtained without charge by
request to the Company addressed to: Investor Relations, Government
Technology Services, Inc., 3901 Stonecroft Boulevard, Chantilly, Virginia
20151-0808.
TRANSFER AGENT. The Company's transfer agent is First Union National
Bank, Shareholder Services Group, 1525 West W.T. Harris Blvd., 3C3,
Charlotte, NC 28288-1153; telephone 1-800-829-8432.
ANNUAL MEETING. The Annual Meeting of Stockholders is scheduled to be
held at 9:00 a.m. on Tuesday, May 18, 1999, at the Company's headquarters
located at 3901 Stonecroft Boulevard in Chantilly, Virginia.
<PAGE>
<PAGE>
25
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the three years ended December 31,
1998, 1997 and 1996 are derived from, and are qualified in their entirety
by reference to, the Company's audited Financial Statements and Notes
thereto included elsewhere in this Form 10-K. The December 31, 1998, 1997
and 1996 Financial Statements of the Company have been audited by Arthur
Andersen LLP, independent accountants, as indicated in their report, which
is also included elsewhere in this Form 10-K. The selected financial data
for all other periods are derived from audited financial statements of the
Company which are not included in this Form 10-K.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996(1) 1995(2) 1994(3)
INCOME STATEMENT DATA: -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . $ 605,884 $486,377 $491,642 $526,962 $617,220
Cost of sales . . . . . . . . . . . . . . . . 554,247 450,454 458,510 488,348 569,827
-------- -------- -------- -------- --------
Gross margin. . . . . . . . . . . . . . . . . 51,637 35,923 33,132 38,614 47,393
-------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative. . . . 44,660 36,939 38,008 39,645 38,701
Depreciation and amortization. . . . . . . 3,661 3,540 13,456 3,090 2,358
Restructuring charges. . . . . . . . . . . - - - 2,953 -
-------- -------- -------- -------- --------
Total operating expenses. . . . . . . . . . . 48,321 40,479 51,464 45,688 41,059
-------- -------- -------- -------- --------
Income (loss) from operations . . . . . . . . 3,316 (4,556) (18,332) (7,074) 6,334
Interest expense, net . . . . . . . . . . . . 977 548 1,537 4,538 2,172
-------- -------- -------- -------- --------
Income (loss) before taxes. . . . . . . . . . 2,339 (5,104) (19,869) (11,612) 4,162
-------- -------- -------- -------- --------
Income tax (benefit) provision. . . . . . . . - - (2,031) (4,435) 1,576
Net income (loss) . . . . . . . . . . . . . . $ 2,339 $ (5,104) $(17,838) $ (7,177) $ 2,586
======== ======== ======== ======== ========
Earnings (loss) per share (basic) . . . . . . $ 0.27 $ (0.76) $ (2.67) $ (1.09) $ 0.37
======== ======== ======== ======== ========
Earnings (loss) per share (diluted) . . . . . $ 0.26 $ (0.76) $ (2.67) $ (1.09) $ 0.37
======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding
(basic). . . . . . . . . . . . . . . . . . 8,700 6,733 6,690 6,604 6,898
======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding
(diluted). . . . . . . . . . . . . . . . . 8,909 6,733 6,690 6,604 6,898
======== ======== ======== ======== ========
(1) The year ended December 31, 1996 includes a pretax charge of $9.1 million ($8.2 million after tax, or $1.22 per share)
related to the impairment of intangible assets acquired as part of the acquisition of Falcon in 1994.
(2) The year ended December 31, 1995 includes a pretax charge of $7.9 million ($4.9 million after tax, or $0.74 per share)
associated with the valuation of inventory and receivables, software licenses, headcount reductions and the consolidation of
certain office and warehouse facilities.
(3) The year ended December 31, 1994 includes a pretax charge of $9.9 million ($6.1 million after tax, or $0.89 per share)
related to certain contracts and general merchandise inventories.
<CAPTION>
(In thousands) DECEMBER 31,
1998 1997 1996 1995 1994
BALANCE SHEET DATA: -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . . . . $ 42,206 $ 30,860 $ 34,599 $ 45,597 $ 49,355
Total assets. . . . . . . . . . . . . . . . . 161,090 137,464 141,001 197,318 209,573
Notes payable to banks. . . . . . . . . . . . 14,889 21,569 15,828 56,496 70,120
Total liabilities . . . . . . . . . . . . . . 105,766 97,590 96,153 134,841 140,413
Stockholders' equity. . . . . . . . . . . . . 55,324 39,874 44,848 62,477 69,160
</TABLE>
<PAGE>
<PAGE>
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the Financial
Statements and Notes. Historical results and percentage relationships
among any amounts in the Financial Statements are not necessarily
indicative of trends in operating results for any future period.
Overview
GTSI is one of the largest dedicated resellers of microcomputer and
Unix workstation hardware, software and networking products to the
Government. The Company currently offers access to over 150,000
information technology products from more than 2,100 manufacturers. GTSI
also performs network integration services, including configuring,
installing and maintaining microcomputers in local area networks. The
Company sells to virtually all departments and agencies of the Government,
many state governments and several hundred systems integrators and prime
contractors that sell to the government market. GTSI offers its customers
a convenient and cost-effective centralized source for microcomputer and
workstation products through its competitive pricing, broad product
selection and procurement expertise. The Company provides its vendors with
a low-cost marketing and distribution channel to the millions of end users
comprising the government market, while virtually insulating these vendors
from most of the complex government procurement rules and regulations.
Changes in sales throughout the Company's history have been
attributable to increased or decreased unit sales, to expansion of the
Company's product offerings (e.g., peripherals, microcomputers and
networking and workstation products, from 1985 through 1992); to the
addition of new vendors (e.g., IBM, Sun, Panasonic, Apple and Nexar, from
1988 through 1996, and Cisco in 1998); and to the addition or expiration of
sales contract vehicles (e.g., the addition of the SEWP II Contract, the
NIH ECS-II Contract, the TDA-1 Contract and STAMIS Contract, and the
expiration of the Companion Contract in 1995 and Desktop IV systems
ordering in 1996). The Company's financial results have fluctuated
seasonally, and may continue to do so in the future, because of the
Government's buying patterns which have historically favorably impacted the
last two calendar quarters and adversely affected the first two calendar
quarters.
The Company's primary strategy is to focus on its core GSA Schedule
and IDIQ business and to compete aggressively on bids in order to win as
many contract vehicles as possible under the various purchasing programs
available to it in the government market. With these contract vehicles in
place, it is then possible for the Company to use its significant product
base and marketing knowledge to sell products which both meet customers'
requirements and provide an attractive financial return to the Company.
<PAGE>
<PAGE>
27
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the
percentages that selected items within the income statement bear to sales,
and the annual percentage changes in the dollar amounts of such items.
<TABLE>
<CAPTION>
Percentage Change
Percentage of Sales Years Ended
------------------------------ December 31,
Years Ended December 31, ------------------
------------------------------ 1997 1996
1998 1997 1996(1) to 1998 to 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 24.6% (1.1)%
Cost of sales . . . . . . . . . . . . . . . . 91.5 92.6 93.3 23.0 (1.8)
-------- -------- --------
Gross margin. . . . . . . . . . . . . . . . . 8.5 7.4 6.7 43.7 8.4
-------- -------- --------
Operating expenses:
Selling, general and administrative. . . . 7.3 7.6 7.7 20.9 (2.8)
Depreciation and amortization. . . . . . . 0.6 0.7 2.7 3.4 (73.7)
Restructuring charges. . . . . . . . . . . - - - - -
-------- -------- --------
Total operating expenses. . . . . . . . . . . 7.9 8.3 10.4 19.4 (21.3)
-------- -------- --------
Income (loss) from operations . . . . . . . . 0.6 (0.9) (3.7) (172.8) (75.1)
Interest expense, net . . . . . . . . . . . . 0.2 0.1 0.3 78.3 (64.3)
-------- -------- --------
Income (loss) before taxes. . . . . . . . . . 0.4 (1.0) (4.0) (145.8) (74.3)
Income tax (benefit) provision. . . . . . . . - - (0.4) - (100.0)
-------- -------- --------
Net income (loss) . . . . . . . . . . . . . . 0.4% (1.0)% (3.6)% (145.8) (71.4)
======== ======== ========
(1) The quarter ended December 31, 1996 includes a pretax charge of $9.1 million ($8.2 million after tax, or $1.22 per share)
related to the impairment of intangible assets acquired as part of the acquisition of Falcon in 1994.
</TABLE>
<PAGE>
The following tables set forth, for the periods indicated, the
approximate sales by product, by contract vehicle and by vendor, along with
related percentages of total sales.
<TABLE>
<CAPTION>
PRODUCT CATEGORY
(Dollars in millions) Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Hardware. . . . . . . . . . . . . . . . . . . $ 474.7 78.3% $ 430.1 88.5% $ 429.7 87.4%
Software. . . . . . . . . . . . . . . . . . . 94.6 15.6 55.1 11.3 50.2 10.2
Services. . . . . . . . . . . . . . . . . . . 36.6 6.1 1.2 0.2 11.7 2.4
-------- -------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 605.9 100.0% $ 486.4 100.0% $ 491.6 100.0%
======== ======== ======== ======== ======== ========
<CAPTION>
CONTRACT VEHICLES
(Dollars in millions) Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
GSA Schedules . . . . . . . . . . . . . . . . $ 199.8 33.0% $ 208.8 42.9% $ 236.6 48.1%
IDIQ Contracts. . . . . . . . . . . . . . . . 319.3 52.7 148.6 30.6 117.8 24.0
Open Market . . . . . . . . . . . . . . . . . 68.6 11.3 107.3 22.1 120.1 24.4
Other Contracts . . . . . . . . . . . . . . . 18.2 3.0 21.7 4.4 17.1 3.5
-------- -------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 605.9 100.0% $ 486.4 100.0% $ 491.6 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
28
<TABLE>
<CAPTION>
VENDOR CATEGORY
(Dollars in millions) Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Hewlett-Packard . . . . . . . . . . . . . . . $ 138.1 22.8% $ 105.6 21.7% $ 95.6 19.4%
Microsoft . . . . . . . . . . . . . . . . . . 68.3 11.3 46.8 9.6 31.6 6.4
Compaq. . . . . . . . . . . . . . . . . . . . 62.9 10.4 54.2 11.1 50.5 10.3
Panasonic . . . . . . . . . . . . . . . . . . 53.4 8.8 53.8 11.1 31.9 6.5
Cisco . . . . . . . . . . . . . . . . . . . . 30.0 5.0 3.9 0.8 0.3 0.1
Everex. . . . . . . . . . . . . . . . . . . . 27.2 4.5 14.6 3.0 7.2 1.5
SUN . . . . . . . . . . . . . . . . . . . . . 20.3 3.4 21.4 4.4 28.4 5.8
Toshiba . . . . . . . . . . . . . . . . . . . 14.1 2.3 14.4 3.0 14.3 2.9
Tektronix . . . . . . . . . . . . . . . . . . 7.4 1.2 8.6 1.8 11.1 2.3
Other . . . . . . . . . . . . . . . . . . . . 184.2 30.3 163.1 33.5 220.7 44.8
-------- -------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 605.9 100.0% $ 486.4 100.0% $ 491.6 100.0%
======== ======== ======== ======== ======== ========
</TABLE>
1998 COMPARED WITH 1997
SALES. Sales consist of revenues from product shipments and services
rendered net of allowances for customer returns and credits. During 1998,
net sales increased $119.5 million, or 24.6% over 1997. The primary reason
for the increase was higher sales under the Company's indefinite-delivery/
indefinite-quantity ("IDIQ") contracts of approximately $170.7 million, or
115%. The increase in IDIQ contracts was partially offset by decreased GSA
schedule sales and Open Market sales of approximately $9.0 million, or 4.3%
and $38.7 million, or 36.1%, respectively. Management believes that the
decline in Open Market sales is primarily attributable to recent changes in
the procurement regulations that allow the Government to purchase products
by other means (e.g. GSA schedule contracts, Government-wide Agency
Contract ("GWAC"), Blanket Purchase Agreements ("BPA's")) in a quicker and
easier manner than was the case before such changes. In addition, the
decrease in sales under GSA schedule contracts can be attributed primarily
to decreased sales relating to GSA Schedule B/C contract of $33.3 million
offset by an increase in BPA sales of $28.1 million from the same period
last year. In 1996, GSA schedule contracts expressly authorized agencies
to procure from schedule holders under BPA's which incorporate many terms
and conditions of the GSA schedule contracts. Additionally, BPA's offer
many of the same products as GSA schedules, often at lower prices than
available on GSA schedules. In response to GSA's authorization, the
Company has increased its emphasis on BPA's.
Sales under IDIQ contracts increased primarily as result of increased
sales under contracts with the State Department, the Army's PC-2 and the
Tennessee Valley Authority, totaling $91.4 million. The Company performs,
as a subcontractor, under these contracts as a result of the acquisition of
the BTG Division. In addition, the Company's contract with the U.S. Army's
Standard Army Management Information Systems ("STAMIS") Computer Contract
II, which was awarded in November 1997, produced sales of $35.6 million
during 1998.
Total booked backlog at December 31, 1998 was approximately $59.7
million compared to $38.4 million at December 31, 1997. Total booked
backlog was $53.4 million at February 28, 1999, up $6.5 million or 13.9%
compared to February 28, 1998. Booked backlog represents orders received
but product has yet to ship.
<PAGE>
<PAGE>
29
GROSS MARGIN. In 1998, gross margin increased in absolute dollars
$15.7 million, or 43.7%, and increased as a percentage of sales from 7.4%
to 8.5%, when compared to 1997. The increase in gross margin was impacted
by an inventory adjustment of approximately $2.2 million resulting from a
June 1998 physical inventory valuation. Gross margin for 1998 was 8.2%,
including the impact of the inventory adjustment. In addition, gross
margins were favorably impacted by change in the Company's mix of contract
vehicles. Gross margins for 1998, were also impacted by the realization of
greater contract price protection credits offset by increased warranty
maintenance expense. The change in gross margin percentage can be impacted
by a variety of factors and is not necessarily indicative of gross margin
percentages to be earned in the future periods.
OPERATING EXPENSES. Total operating expenses for 1998 increased $7.8
million, or 19.4% compared to 1997. This increase was due primarily to
increased personnel cost as a result of the BTG Division acquisition, as
well as increases in the overall volume of the business. In addition, the
Company incurred approximately $1.0 million of operating costs associated
with the acquisition of the BTG Division. Total operating expenses, as a
percentage of total sales decreased from 8.3% to 7.9%, reflecting the
Company's growth in sales requiring less additional infrastructure expenses
as existing facilities and personnel are utilized more effectively.
INTEREST EXPENSE. Net interest expense is the amount of interest
expense on borrowings offset by interest income and prompt payment
discounts. The net interest expense increased approximately $429,000, or
78.3% for the year ended December 31, 1998 compared to the same period in
1997. This increase was due primarily to increased average borrowings as a
result of increased sales volumes, as well as additional borrowings
required for the BTG Division acquisition. In addition, during 1998 the
Company utilized more prompt payment discounts as compared to the same
period in 1997.
INCOME TAXES. No provision for income tax has been recognized with
respect to the Company's income from operations for 1998 due to the
reversal of the deferred tax valuation allowance that fully offset the
Company's current tax expenses for 1998.
1997 COMPARED WITH 1996
SALES. During 1997, net sales decreased $5.2 million or 1.1% and were
negatively impacted by $1.2 million in higher Industrial Funding Fees
associated with the GSA and NIH contracts. These fees are collected by the
Company and remitted to the respective agency on a payment schedule
determined by the respective agency. Decreased sales under GSA Schedule
and under Open Market Contracts of $27.8 million and $12.8 million,
<PAGE>
<PAGE>
30
respectively, were offset by increased sales under GTSI's various IDIQ
Contracts. It is management's belief that the decline in Open Market sales
is primarily attributable to recent changes in the procurement regulations
that allow the Government to purchase products by other means (e.g., GSA
Schedule contracts) in a quicker and easier manner than was the case before
such changes. IDIQ contract sales rose during 1997 primarily as a result of
higher revenue on the Company's NIH, TDA-1 and SEWP contracts. Revenue
from these contracts rose $19 million, $15 million and $16 million,
respectively, from 1996. However, higher sales from the NIH, TDA-1 and
SEWP vehicles were offset by weaker sales activity on the GSA Schedule B/C
contract.
Sales of Hewlett-Packard, Compaq, Panasonic, Microsoft and Nexar
products increased $60.0 million from the prior year and accounted for 58%
of GTSI's total sales activity by Vendor. This increase was offset by
lower sales of IBM Label products which decreased by $34.5 million from the
prior year.
Total Backlog at December 31, 1997, was approximately $38.4 million,
down 20.1% from approximately $48.1 million at December 31, 1996. Backlog
was $76.3 million at March 19, 1998 compared to $38.8 million in the prior
period. The increase is primarily related to orders that were recorded as
part of the BTG Division acquisition, which closed on February 12, 1998.
Backlog represents orders received but for which product has yet to ship.
GROSS MARGIN. Gross margin increased in 1997 by approximately $2.8
million or 8.4%, and increased as a percentage of sales from 6.7% to 7.4%.
In the fourth quarter of 1996, the Company recorded $2.2 million in
adjustments that were deemed necessary to provide for contractual
obligations, and to reduce certain trade credits to the amounts ultimately
expected to be realized. Other product cost factors that contributed to
the improvement in the gross margin percentage during 1997 were the
recognition of greater price protection credits.
OPERATING EXPENSES. Operating expenses in 1997 decreased
approximately $11.0 million, or 21.4%, and improved as a percentage of
sales from 10.4% to 8.3%. The change is primarily attributable to a $9.1
million decrease in amortization expense associated with the accelerated
write-down of intangible assets which was recognized during the fourth
quarter of 1996.
INTEREST EXPENSE. Total interest charges between 1997 and 1996 were
relatively flat, although bank administrative and credit card fees were
higher in 1997 by approximately $0.4 million from the prior period. These
<PAGE>
<PAGE>
31
costs were offset by lower interest expenses due to reduced bank borrowings
during certain times throughout 1997.
INCOME TAXES. In 1996, a tax benefit of $2.0 million was recorded as
a result of the Company's operating loss for that period, that was realized
by carrying back the loss to prior years in which the Company recognized
taxable income.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," was adopted by the Company during the first quarter of 1996.
During the fourth quarter of 1996, the Company recorded a charge of
approximately $9.1 million related to the impairment of intangible assets
acquired as part of the acquisition of Falcon in 1994.
SFAS 123, "Accounting for Stock-Based Compensation," was adopted by
the Company during 1996. This statement requires disclosure of the fair
value of all stock-based compensation using one of several option-pricing
models.
SFAS 128, "Earnings Per Share," and SFAS 129, "Disclosure of
Information about Capital Structure," were adopted by the Company in the
fourth quarter of 1997, with no material effect on the Company's
consolidated financial statement presentation.
SFAS 130, "Reporting Comprehensive Income," was adopted by the Company
in 1998 and in accordance therewith, the Company's Comprehensive Income
equals reported Net Income (Loss).
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," was adopted by the Company in the fourth quarter of 1998.
EFFECT OF INFLATION
The Company believes that inflation has not had a material effect on
its operations. However, in the event inflation increases in the future it
could temporarily adversely affect the profitability of GTSI's sales under
its Government fixed-price contracts, which generally preclude the Company
from passing on inflation-related or other increases in product costs to
Government customers during the term of a pre-existing contract. The
Company mitigates this risk in part by often obtaining agreements from
certain of its suppliers prohibiting them from increasing their prices to
GTSI during fixed-price, term contracts.
<PAGE>
<PAGE>
32
SEASONAL FLUCTUATIONS AND OTHER FACTORS
The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its operations as a result
of Government buying and funding patterns, which also impact the buying
patterns of GTSI's prime contractor customers. These buying and funding
patterns historically have had a significant positive effect on GTSI's
bookings in the third quarter ending September 30 each year (the
Government's fiscal year end), and consequently on sales and net income in
the third and fourth quarters of each year. Quarterly financial results
are also affected by the timing of the award of and shipments of products
under government contracts, price competition in the microcomputer and
workstation industries, the addition of personnel or other expenses in
anticipation of sales growth, product line changes and expansions, and the
timing and costs of changes in customer and product mix. In addition,
customer order deferrals in anticipation of new product releases by leading
microcomputer and workstation hardware and software manufacturers, delays
in vendor shipments of new or existing products, a shift in sales mix to
more complex requirements contracts with more complex service costs, and
vendor delays in the processing of incentives and credits due GTSI, have
occurred (all of which are also likely to occur in the future) and have
adversely affected the Company's operating performance in particular
periods. The seasonality and the unpredictability of the factors affecting
such seasonality make GTSI's quarterly and yearly financial results
difficult to predict and subject to significant fluctuation. The Company's
stock price could be adversely affected if any such financial results fail
to meet the financial community's expectations.
Additionally, legislation is periodically introduced in Congress that
may change the Government's procurement practices. GTSI cannot predict
whether any legislative or any regulatory proposals will be adopted or, if
adopted, the impact upon its operating results. Changes in the structure,
composition and/or buying patterns of the Government, either alone or in
combination with competitive conditions or other factors, could adversely
affect future results.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company's operating activities provided $10.5 million
of cash flow compared to the use of $3.0 million for 1997. The increase
from year to year relates to the Company's increase in Accounts Payable.
Accounts Payable increased as a result of increased inventory purchases as
a result of 1998 sales volume. Investing activities used cash of
approximately $12.7 million during 1998. The primary reason was the cash
payment in February 1998 of $7.8 million relating to the acquisition of the
BTG Division. During 1998, the Company's financing activities provided
cash of approximately $1.3 million. The net payments against the Company's
<PAGE>
<PAGE>
33
bank notes included $7.8 million used to finance the cash portion of the
BTG Division acquisition. At December 31, 1998, the Company had
approximately $24.4 million available for borrowing under its facility.
On May 2, 1996, the Company executed a three-year credit facility with
a bank (the "Principal Lender") for $40.0 million and a one-year credit
facility with the Other Lenders for an additional $55.0 million
(collectively, the "Credit Facility"). Additionally, on June 27, 1996, the
Company executed a separate $10.0 million facility with the Principal
Lender for inventory financing of vendor products (the "Wholesale Financing
Facility"). Interest under the inventory financing facility is accrued at
a rate equal to prime plus 3.00% (11.25% at December 31, 1996). On August
23, 1996, the Company and its banks executed Amendment No. 1 to the Credit
Facility, which modified certain quarterly financial covenants.
On July 28, 1997, the Company and its banks executed the Second
Amended and Restated Business Credit and Security Agreement (the "Credit
Agreement"). The agreement modified some of the terms and conditions
contained in the Credit Facility and effectively eliminated the Company's
default condition with certain 1996 year-end financial covenants. The total
amount available under the Credit Facility was reduced from a total of $95
million to $60 million, with an additional $30 million reduction during the
period February 1 through July 31 of each year. Further, the Wholesale
Financing Facility was increased from $10 million to $20 million, with a
$10 million reduction during the period March 1 through July 31 of each
year. Other modifications included the revision of the Credit Facility's
term to one year with a one-year automatic renewal, the addition of an
unused line fee, an increase in the interest rate accrued against
outstanding borrowings, and the modification of all financial covenants.
At December 31, 1997, the Company was not in compliance with the
annual covenant covering Net Income and the fourth quarter covenant related
to Tangible Net Worth. On February 3, 1998, the Company obtained waivers
from the agent for all covenant violations at December 31, 1997. Amounts
due to the lenders as of December 31, 1997 are classified as current
liabilities and the available portion of the Credit Facility at December
31, 1997 was approximately $18.7 million.
On February 11, 1998, the Credit Agreement was revised to, among other
things, limit the total amount available under the facility to $60 million
for an additional two months. The total available under the facility was
reduced to $30 million only during the period April 1, 1998 to July 31,
1998. As for the Wholesale Financing Facility, the amount available under
the agreement remained at $20 million and was to be used solely for
inventory purchases. The amount available was reduced to $10 million only
<PAGE>
<PAGE>
34
during the period April 1, 1998 to July 31, 1998. All other material terms
of both facilities remained the same.
On July 2, 1998, the Company and its banks executed separate
amendments adjusting, among other things, the seasonality of the total
amount available under the Credit Facility and the Wholesale Financing
Facility, respectively, in any calendar year. The limit of the Credit
Facility will increase to $75 million during the period October 1 through
January 31. During the periods February 1 through April 30 and July 1
through September 30, the total amount available under the Credit Facility
will be limited to $50 million. During the period May 1 through June 30,
the total amount available under the Credit Facility will be limited to $30
million. In addition, the interest rate under the Credit Facility was
amended to a rate of LIBOR plus 2.45%, payable quarterly; reducing to LIBOR
plus 2.25% if, commencing with the fiscal quarter ending September 30,
1998, the Company achieves certain quarterly financial covenants. At
September 30, 1998, the Company was in compliance with all quarterly
financial covenants set forth in the Credit Agreement. As a result, on
October 28, 1998, when the Company delivered its certified financial
statements to the Principal Lender, the interest rate was reduced to LIBOR
plus 2.25%. Prior to this event, the interest rate under the Credit
Agreement was LIBOR plus 2.45%. The Company's interest rate at December
31, 1998 was 7.83%. On August 14, 1998, the limit of the Wholesale
Financing Facility was increased via temporary overline limit of up to
$10,000,000 through January 31, 1999. The limit of the Wholesale Financing
Facility will remain at $20 million during the period June 1 through
January 31, and decrease to $10 million during the period February 1
through May 31, of any calendar year. All other material terms of both
facilities remained the same. At December 31, 1998, the Company was in
compliance with all financial covenants set forth in the credit facility.
Amounts due to the Lenders as of December 31, 1998 are classified as
current liabilities and the available portion of the Credit Facility at
December 31, 1998 was approximately $24.4 million.
Borrowing is limited to 80% of eligible accounts receivable. The
Credit Facility is secured by substantially all of the operating assets of
the Company. Current obligations are first funded and then all cash
receipts are automatically applied to reduce outstanding borrowings. The
Credit Facility also contains certain covenants that include restrictions
on the payment of dividends and the repurchase of the Company's Common
Stock, as well as provisions specifying compliance with certain quarterly
and annual financial statistical ratios.
<PAGE>
<PAGE>
35
YEAR 2000
IMPACT OF YEAR 2000. The Company is aware of the issues associated
with the programming code in existing computer systems as the millennium
("Year 2000") approaches. The Year 2000 problem is complex as certain
computer operations will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether computers systems will
properly recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail. Assessments of the
potential effects of the Year 2000 issue vary markedly among different
companies, governments, consultants and economists, and it is not possible
to predict what the actual impact may be. Given this uncertainty, the
Company recognizes the need to remain vigilant and is continuing its
analysis, assessment and planning for the various Year 2000 issues, across
the entire business.
STATE OF READINESS. The Company's primary focus has been on its own
internal information technology systems, including all types of systems in
use by the Company in its operations, marketing, finance and human
resources departments, and to deal with the most critical systems first.
The Company has formed an Action Team representing every functional area of
the Company, with the Chairman and CEO as the Executive Sponsor, and the
senior executive management staff as the Steering Committee, of the Team.
The Year 2000 Plan is comprehensive and auditable, and involves generally
the following phases: inventory, risk classification, assessment,
remediation, and testing. The scope of the plan is broad and addresses
critical suppliers, internal systems and processes, and customers.
With respect to its internal information technology systems, the
Company has conducted an inventory of a substantial majority of its central
systems for Year 2000 compliance. The most significant risk faced by the
Company is the Just-In-Time ("JIT") application, the Company's key
enterprise operations system. The Company completed JIT Year 2000
conversion and testing in early 1999. The Company has begun implementing
remediation plans for other material information technology systems. In
addition, the Company currently is reviewing its other non-critical
internal information technology systems. With respect to the Company's
non-information technology systems, the Company moved its headquarters to a
new location during the end of 1998. All systems in the new facility are
Year 2000 compliant.
The Company has begun to assess the potential for Year 2000 problems
with the information systems of its customers and vendors. The Company has
sent questionnaires to the primary product vendors with which the Company
has a material relationship. The Company is in the process of assessing
<PAGE>
<PAGE>
36
the responses received to date from the vendors and plans to follow-up with
vendors that have not responded. The Company does not have sufficient
information to provide an estimated timetable for completion of renovation
and testing that such parties with which the Company has a material
relationship may undertake. The Company is unable to estimate the costs
that it may incur to remedy the Year 2000 issues relating to such parties.
The Company's primary customer is the Federal Government. Various
departments in the Federal Government have achieved different degrees of
readiness regarding Year 2000 compliance.
COSTS TO ADDRESS YEAR 2000 ISSUES. The Company presently estimates
that the cost associated with becoming Year 2000 compliant is approximately
$2 million, approximately $50,000 of that has been incurred since December
31, 1998. Any external and internal costs specifically associated with
modifying internal-use software for the Year 2000 will be charged to
expense as incurred in accordance with the Emerging Issues Task Force
("EITF") of the Financial Accounting Standards Board Issue No. 96-14,
"Accounting for the Costs Associated with Modifying Computer Software for
the Year 2000." The costs associated with the replacement of computerized
systems, hardware or equipment will be capitalized and are included in the
above estimate. These costs do not include any costs associated with the
implementation of contingency plans.
The Company's Year 2000 program is an ongoing process and the estimate
of costs and completion dates for various components of the program above
are subject to change. The present cost estimates of the Company's Year
2000 identification, assessment, remediation and testing efforts and the
dates on which the Company believes it will complete such efforts are based
on management's best estimates, which were derived using numerous
assumptions regarding future events, including among other factors the
continued availability of certain resources. There can be no assurance
that these estimates will prove to be accurate, and actual results could
differ materially from those currently anticipated. Specific factors that
could cause such material differences include, but are not limited to, the
availability and cost of personnel trained in Year 2000 issues, the ability
to identify, assess, remediate, and test all relevant computer codes,
third-party remediation plans, and similar uncertainties.
RISKS TO THE COMPANY. The Government includes certain Year 2000
warranty clauses in its contracts, which the Company executes. The Company
strives to pass the Government contract clauses on to its product vendors,
however, in some instances vendors refuse to accept such clauses. There
can be no assurance that the Company will not be materially adversely
effected if the Government were to enforce these clauses and the Company
did not have corresponding protection from such vendors. In addition, it
<PAGE>
<PAGE>
37
is unknown how Government and other customer spending patterns may be
impacted by Year 2000 issues. As customers focus on preparing their
business for the Year 2000, information technology budgets may be spent on
remediation efforts, potentially delaying the purchase and implementation
of new systems, thereby creating less demand for the Company's products and
services. The Year 2000 presents a number of other risks and uncertainties
that could affect the Company, including utilities failures and competition
for personnel skilled in the resolution of Year 2000 issues.
The failure to correct a material Year 2000 problem could result in
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due to
the general uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material adverse impact on
the Company's results of operations, liquidity or financial condition.
CONTINGENCY PLAN. The Company has not yet established a contingency
plan to address the most reasonably likely worst case scenario and such
scenario has not yet been identified. The Company currently plans to
complete such analysis and contingency planning by December 31, 1999.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
The renegotiation of the financial covenants contained in the Credit
Facility, and the statements which are not historical facts contained in
this Management's Discussion and Analysis of Financial Condition, Results
of Operations and Notes to Consolidated Financial Statements, are forward-
looking statements that involve certain risks and uncertainties. Actual
results may differ materially based on numerous factors, including but not
limited to competition in the government markets, spending patterns of the
Company's customers, general economic and political conditions, success of
negotiations with the Company's Lenders, changes in government procurement
regulations, impact of the Year 2000 issue on the Company's business, and
other risks described in this Annual Report on Form 10-K and in the
Company's other Securities and Exchange Commission filings.
<PAGE>
<PAGE>
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements and Schedule of Government
Technology Services, Inc. and Subsidiary are filed as part of this Form
10-K. Supplemental quarterly financial information is included in Note 9
of Notes to Consolidated Financial Statements.
Index to Financial Statements and Schedule Page
FINANCIAL STATEMENTS:
Reports of Independent Public Accountants. . . . . . . . . . . . . .39
Consolidated Balance Sheets as of December 31,
1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . .40
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . .41
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . .42
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996. . . . . .43
Notes to Consolidated Financial Statements . . . . . . . . . . . . .44
SCHEDULE:
Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . .63
Schedules not listed above have been omitted because they are not
applicable or the information required to be set forth therein is included
in the financial statements or notes thereto.
<PAGE>
<PAGE>
39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Government Technology Services, Inc.
We have audited the accompanying consolidated balance sheets of
Government Technology Services, Inc. and subsidiary as of December 31, 1998
and 1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years ended
December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Government
Technology Services, Inc. and subsidiary as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the
three years ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
index of financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 17, 1999
<PAGE>
<PAGE>
40
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands, except share data) 1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . $ 39 $ 856
Accounts receivable, net. . . . . . . . . . . . . . . . 106,334 90,905
Merchandise inventories . . . . . . . . . . . . . . . . 36,544 33,000
Net deferred taxes and other. . . . . . . . . . . . . . 3,099 3,423
-------- --------
Total current assets . . . . . . . . . . . . . . . . 146,016 128,184
Property and equipment, net . . . . . . . . . . . . . . . 11,381 8,217
Intangible assets, net. . . . . . . . . . . . . . . . . . 114 534
Net deferred taxes and other. . . . . . . . . . . . . . . 3,579 529
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . $161,090 $137,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks. . . . . . . . . . . . . . . . . $ 14,889 $ 21,569
Accounts payable. . . . . . . . . . . . . . . . . . . . 75,806 67,720
Accrued liabilities . . . . . . . . . . . . . . . . . . 13,115 8,035
-------- --------
Total current liabilities. . . . . . . . . . . . . . 103,810 97,324
Other liabilities . . . . . . . . . . . . . . . . . . . . 1,956 266
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . 105,766 97,590
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred Stock - $0.25 par value, 680,850 shares
authorized; none issued or outstanding . . . . . . . - -
Common Stock - $0.005 par value, 20,000,000 shares
authorized, 9,806,084 issued and 9,799,490
outstanding at December 31, 1998; and 10,000,000
shares authorized, 6,806,084 shares issued and
6,756,180 outstanding at December 31, 1997 . . . . . 49 34
Capital in excess of par value. . . . . . . . . . . . . 45,712 33,086
Retained earnings . . . . . . . . . . . . . . . . . . . 9,634 7,295
Treasury stock, 6,594 shares at December 31, 1998
and 49,904 shares at December 31, 1997, at cost. . . (71) (541)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . 55,324 39,874
-------- --------
Total liabilities and stockholders' equity . . . . . $161,090 $137,464
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>
41
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------
(In thousands, except per share amounts) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . $605,884 $486,377 $491,642
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 554,247 450,454 458,510
-------- -------- --------
Gross margin. . . . . . . . . . . . . . . . . . . . . . . 51,637 35,923 33,132
Operating expenses. . . . . . . . . . . . . . . . . . . . 48,321 40,479 51,464
-------- -------- --------
Income (loss) from operations . . . . . . . . . . . . . . 3,316 (4,556) (18,332)
Interest expense, net of interest income of
$508, $325 and $265, respectively . . . . . . . . . . 977 548 1,537
-------- -------- --------
Income (loss) before taxes. . . . . . . . . . . . . . . . 2,339 (5,104) (19,869)
Income tax benefit. . . . . . . . . . . . . . . . . . . . - - (2,031)
-------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 2,339 $ (5,104) $(17,838)
======== ======== ========
Basic net income (loss) per share . . . . . . . . . . . . $ 0.27 $ (0.76) $ (2.67)
======== ======== ========
Diluted net income (loss) per share . . . . . . . . . . . $ 0.26 $ (0.76) $ (2.67)
======== ======== ========
Basic weighted average shares outstanding . . . . . . . . 8,700 6,733 6,690
======== ======== ========
Diluted weighted average shares outstanding . . . . . . . 8,909 6,733 6,690
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>
42
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------
(In thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) . . . . . . . . . . . . . . . . . . . . $ 2,339 $ (5,104) $(17,838)
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . 3,661 3,539 12,618
(Gain) loss on disposal of property and equipment . . . (340) 839
Stock compensation. . . . . . . . . . . . . . . . . . . - (13)
(Decrease) increase in cash due to changes in
assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . (15,429) (789) 13,049
Merchandise inventories. . . . . . . . . . . . . . . 9,408 (1,156) 32,671
Deferred income taxes and intangible assets. . . . . (2,306) 2,466 3,158
Accounts payable . . . . . . . . . . . . . . . . . . 8,086 (987) 4,647
Accrued liabilities. . . . . . . . . . . . . . . . . 3,333 (2,206) (1,685)
Other liabilities. . . . . . . . . . . . . . . . . . 634 (1,111) (465)
Other. . . . . . . . . . . . . . . . . . . . . . . . 805 2,641 (1,788)
-------- -------- --------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . . 10,531 (3,047) 45,193
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of property and equipment. . . . . . . . . . . . . (4,827) (2,377) (4,770)
Payments related to purchase of BTG Division. . . . . . (7,826) - -
Proceeds from sales of property and equipment. . . . . - 361 53
-------- -------- --------
Net cash used in investing activities. . . . . . . (12,653) (2,016) (4,717)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) bank notes, net . . . . . . 1,146 5,741 (40,668)
Proceeds from exercises of stock options and warrants . 159 130 222
-------- -------- --------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . 1,305 5,871 (40,446)
-------- -------- --------
Net (decrease) increase in cash . . . . . . . . . . . . . (817) 808 30
Cash at beginning of year . . . . . . . . . . . . . . . . 856 48 18
-------- -------- --------
Cash at end of year . . . . . . . . . . . . . . . . . . . $ 39 $ 856 $ 48
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 2,114 $ 2,744 $ 4,756
Income taxes . . . . . . . . . . . . . . . . . . . . $ 2,553 $ 7 $ 20
Supplemental disclosure of non-cash activities:
During 1998, Company issued 15,375 shares of preferred stock in exchange for $12.952 million of inventory and other assets in
connection with the acquisition of the BTG Division. The shares of preferred stock were subsequently converted during 1998 to 3.0
million shares of common stock.
In December 1998, the company capitalized as leasehold improvements and deferred rent the amount of $2 million, which
represents the build-out allowance relative to the leasing of its new corporate headquarters (see Note 7).
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>
43
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended December 31, 1998, 1997 and 1996
----------------------------------------------------------------------------------
Preferred Stock Common Stock Capital Total
------------------ ------------------ in Stock-
Shares Shares Excess Retained Treasury holders'
(In thousands) Issued Amount Issued Amount of Par Earnings Stock Equity
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995. . . . . . . . . . - $ - 6,806 $ 34 $ 33,611 $ 30,237 $ (1,405)$ 62,477
Stock awards and options exercised. . . . . . - - - - (316) - 525 209
Net loss. . . . . . . . . . . . . . . . . . . - - - - - (17,838) - (17,838)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1996. . . . . . . . . . - $ - 6,806 $ 34 $ 33,295 $ 12,399 $ (880) $ 44,848
Stock awards and options exercised. . . . . . - - - - (209) - 339 130
Net loss. . . . . . . . . . . . . . . . . . . - - - - - (5,104) - (5,104)
-------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1997. . . . . . . . . . - $ - 6,806 $ 34 $ 33,086 $ 7,295 $ (541) $ 39,874
Stock awards and options exercised. . . . . . - - - - (326) - 470 144
Acquisition of BTG Division -
issuance of Preferred Stock. . . . . . . 15,375 15,375 - - - - - -
Acquisition of BTG Division -
conversion of Preferred Stock
into Common Stock. . . . . . . . . . . . (15,375) (15,375) 3,000 15 12,952 - - 12,967
Net income. . . . . . . . . . . . . . . . . . - - - - - 2,339 - 2,339
-------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1998. . . . . . . . . . - $ - 9,806 $ 49 $ 45,712 $ 9,634 $ (71) $ 55,324
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
<PAGE>
44
GOVERNMENT TECHNOLOGY SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Government Technology Services, Inc. ("GTSI") operates in a single
business segment and resells microcomputer and workstation hardware,
software and peripherals to agencies of federal, state and local
governments. Business activities also include sales to systems
integrators, prime contractors and other companies reselling information
technology to various government agencies. In August 1994, GTSI acquired
all of the outstanding shares of common stock of Falcon Microsystems, Inc.
("Falcon"). GTSI and Falcon are hereinafter referred to as the "Company."
ACQUISITION OF BTG DIVISION
On February 12, 1998, the Company entered into and closed on an Asset
Purchase Agreement with BTG, Inc. and two of its subsidiaries
(collectively, "BTG") under which the Company acquired substantially all of
the assets of the BTG division that resells computer hardware, software and
integrated systems to the Government (the "BTG 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 liabilities under
specified contracts of BTG as well as 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 a new series of preferred stock designated as Series C 8%
Cumulative Redeemable Preferred Stock ("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, was held under an escrow agreement to secure BTG's
indemnification obligations under the Asset Purchase Agreement. Under the
Asset Purchase Agreement, BTG was obligated to repay to the Company up to
$4.5 million to the extent that there was a shortfall in the amounts that
the Company received from dispositions of certain inventory acquired.
The acquisition of the BTG Division was accounted for using the
purchase method of accounting. The purchase price was allocated to
tangible assets based on fair market value. The financial statements
include the results of operation of the BTG Division since the acquisition
date.
<PAGE>
<PAGE>
45
The following table sets forth the unaudited pro forma results of
operations of the Company and the BTG Division for the years ended December
31, 1998 and 1997, assuming the acquisition occurred on January 1, 1997.
Net income for 1998 excludes approximately $1 million of nonrecurring cost
and $270,000 of interest expense directly attributable to the acquisition.
(In thousands, except per share data) (unaudited)
1998 1997
-------- --------
Revenues . . . . . . . . . . . . . . . $647,021 $913,923
Net income (loss). . . . . . . . . . . $ 1,970 $ (6,763)
Basic income (loss) per share. . . . . $ 0.23 $ (0.78)
Diluted income (loss) per share . . . $ 0.22 $ (0.78)
The pro forma results are not indicative of the results of operations
had the acquisition taken place on January 1, 1997.
Subsequent to the closing, BTG delivered to the Company certain other
inventory ("Surplus Inventory"). By letter dated May 15, 1998, the Company
and BTG agreed that BTG would invoice GTSI an aggregate of $3,912,419 for
Surplus Inventory. In addition, BTG agreed to pay to the Company $1
million on June 30, 1998, which constituted full and complete payment for
any inventory shortfall as described in the Asset Purchase Agreement, as
well as $250,000 for costs associated with processing the Surplus
Inventory.
Pursuant to the Asset Purchase Agreement, the Company agreed to
convene a meeting of stockholders no later than January 1, 1999 to approve
a proposal to convert the Series C Preferred Stock into 3,000,000 shares of
Common Stock (the "Conversion Proposal"), and a proposal 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 (the "Charter
Amendment Proposal"). At the Company's annual meeting of stockholders held
on May 12, 1998, the Company's stockholders approved the Conversion
Proposal and the Charter Amendment Proposal. The Series C Preferred Stock
was converted automatically into 3,000,000 shares of Common Stock valued at
$5.125 per share and which, pursuant to the exemption provided under
Section 4(2) of the Securities Act of 1933, as amended ("Securities Act"),
were not registered under the Securities Act.
On February 10, 1999, the Company entered into subsequent agreements
with BTG. The agreements relate to the reacquisition of stock by GTSI from
BTG, the terms of certain contracts and the relationship of the parties
<PAGE>
<PAGE>
46
going forward. Pursuant to the agreements, GTSI reacquired 600,000 shares
of its stock from BTG. Of the 600,000 shares, 200,000 were tendered to
GTSI at no cost and 400,000 were purchased by GTSI for $5.00 per share,
using a three-year, 8% interest bearing note from BTG with the principal
repaid in three annual installments of $500,000, $500,000 and $1,000,000,
respectively. As part of the agreements, GTSI has an exclusive five-year
option to purchase the remaining 1.3 million shares of GTSI stock held by
BTG for $5.25 per share. Under the February 12, 1998 Asset Purchase
Agreement, BTG is precluded from selling any of its holdings, with certain
limited exceptions, to a third party for six years without GTSI's prior
consent. Under the February 10, 1999 agreement, GTSI must consent to a
sale by BTG of their stock to any third party. If GTSI consents to such a
sale, BTG is obligated to pay GTSI $0.50 per share on any shares sold by
BTG.
As a result of the agreement, BTG transferred to GTSI all of the cash
portion of the February 12, 1998 escrow, totaling $827,219, and BTG's
ownership interest in GTSI was reduced to 13.3%. Consequently, BTG
forfeited its right to representation on the GTSI Board and Dr. Edward H.
Bersoff, Chief Executive Officer of BTG, resigned from the GTSI Board. The
agreements also provide that BTG will novate certain contracts that GTSI
had been performing in the capacity of a subcontractor, and halts all
royalty payments by GTSI to BTG after December 31, 1998. For a discussion
of major contracts acquired with the BTG Division, see "Formal Bids" on
page 10.
1. ACCOUNTING POLICIES
Significant accounting policies of the Company are summarized below:
BASIS OF CONSOLIDATION. The consolidated financial statements include
the accounts of GTSI and its wholly-owned subsidiary, Falcon. All
significant inter-company accounts and transactions are eliminated in
consolidation.
ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates and the Company periodically re-
evaluates the recorded values of all assets and liabilities.
<PAGE>
<PAGE>
47
REVENUE RECOGNITION. The Company recognizes revenue upon shipment of
products and/or acceptance of services rendered.
FINANCIAL INSTRUMENTS. At December 31, 1998, 1997 and 1996, the
recorded values of financial instruments such as accounts receivable and
payable and notes payable to banks approximated their fair values, based on
the short-term maturities of these instruments.
ACCOUNTS RECEIVABLE. Accounts receivable principally represents
amounts collectible from the Federal Government and prime contractors to
the Federal Government. Other accounts receivable result from items billed
to suppliers under various agreements involving the sale of their products.
The Company performs ongoing credit evaluations of its non-governmental
customers but generally does not require collateral to support any
outstanding obligation owed to GTSI. Allowances for potential uncollectible
amounts are estimated and deducted from total accounts receivable.
INVENTORIES. Inventories are valued at the lower of cost or market.
Cost is determined using a weighted average method.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost
less accumulated depreciation. Depreciation and amortization are
calculated using the straight-line method over estimated useful lives
ranging from three to ten years. Leasehold improvements are amortized
using the straight-line method over the terms of the leases or their
estimated useful lives, whichever is shorter.
INTANGIBLE ASSETS. Intangible assets are recorded at cost and
amortized using the straight-line method over the estimated useful lives.
IMPAIRMENT OF LONG-LIVED ASSETS. To determine recoverability of its
long-lived assets, the Company evaluates the probability that future
undiscounted net cash flows, without interest charges, will be less than
the carrying amount of the assets. It is reasonably possible that future
undiscounted net cash flows, without interest charges, will be less than
the carrying amount of the assets. Impairment is measured at fair value.
During the fourth quarter of 1996, the Company recorded a charge of
approximately $9.1 million related to the impairment of intangible assets
acquired as part of the acquisition of Falcon in 1994.
INCOME TAXES. Deferred income taxes are recognized based on the
estimated future tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Valuation allowances are established
when necessary to reduce deferred tax assets to amounts expected to be
<PAGE>
<PAGE>
48
realized. Income tax expense represents the current tax provision for the
period and the change during the period in deferred tax assets and
liabilities.
EARNINGS PER SHARE. Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per
Share," which requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all periods presented. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted earnings per share is computed similarly to fully
diluted earnings per share pursuant to Accounting Principles Bulletin No.
15. Options to purchase approximately 284,000 and 368,000 weighted average
shares of Common Stock at December 31, 1997 and 1996, respectively, were
not included in the computation of earnings per share due to their anti-
dilutive effect.
MARKETING DEVELOPMENT AND COOPERATIVE ADVERTISING FUNDS. Certain
vendors provide the Company with sales incentive programs. Generally, the
funds received under these programs are determined based on the Company's
purchases and/or sales of the vendor's product. The funds are earned upon
performance of specific promotional programs or upon completion of
predetermined objectives dictated by the vendor. Once earned, the funds
reduce associated expenses of promotional programs.
CHECK OVERDRAFTS. Included in accounts payable at December 31, 1998,
1997 and 1996, are approximately $7.4 million, $2.0 million and $20.6
million, respectively, which represent checks that have been issued but
have yet to clear the bank.
RECLASSIFICATIONS. Certain amounts from prior years have been
reclassified to conform to the current year financial statement
presentation.
<PAGE>
<PAGE>
49
2. ACCOUNTS RECEIVABLE
The composition of accounts receivable as of December 31, 1998 and
1997 is as follows (in thousands):
1998 1997
-------- --------
Trade accounts receivable. . . . . . . $ 93,750 $ 79,879
Vendor and other receivables . . . . . 18,564 15,119
-------- --------
112,314 94,998
Less allowance for uncollectible
accounts . . . . . . . . . . . . . . (5,980) (4,093)
-------- --------
Accounts receivable, net . . . . . . . $106,334 $ 90,905
======== ========
3. PROPERTY AND EQUIPMENT
The composition of property and equipment as of December 31, 1998 and
1997 is as follows (in thousands):
1998 1997
-------- --------
Office furniture and equipment . . . . $ 9,519 $ 8,665
Computer software. . . . . . . . . . . 6,300 6,108
Leasehold improvements . . . . . . . . 4,578 2,509
-------- --------
20,397 17,282
Less accumulated depreciation and
amortization . . . . . . . . . . . . (9,016) (9,065)
-------- --------
Property and equipment, net. . . . . . $ 11,381 $ 8,217
======== ========
Depreciation and amortization expense was $3,661, $3,539 and $12,618
in 1998, 1997 and 1996, respectively.
<PAGE>
<PAGE>
50
4. NOTES PAYABLE TO BANKS
On May 2, 1996, the Company executed a three-year credit facility with
a bank (the "Principal Lender") for $40.0 million and a one-year credit
facility with the Other Lenders for an additional $55.0 million
(collectively, the "Credit Facility"). Additionally, on June 27, 1996, the
Company executed a separate $10.0 million facility with the Principal
Lender for inventory financing of vendor products (the "Wholesale Financing
Facility"). Interest under the inventory financing facility is accrued at
a rate equal to prime plus 3.00% (11.25% at December 31, 1996). On August
23, 1996, the Company and its banks executed Amendment No. 1 to the Credit
Facility, which modified certain quarterly financial covenants.
On July 28, 1997, the Company and its banks executed the Second
Amended and Restated Business Credit and Security Agreement (the "Credit
Agreement"). The agreement modified some of the terms and conditions
contained in the Credit Facility and effectively eliminated the Company's
default condition with certain 1996 year-end financial covenants. The total
amount available under the Credit Facility was reduced from a total of $95
million to $60 million, with an additional $30 million reduction during the
period February 1 through July 31 of each year. Further, the Wholesale
Financing Facility was increased from $10 million to $20 million, with a
$10 million reduction during the period March 1 through July 31 of each
year. Other modifications included the revision of the Credit Facility's
term to one year with a one-year automatic renewal, the addition of an
unused line fee, an increase in the interest rate accrued against
outstanding borrowings, and the modification of all financial covenants.
At December 31, 1997, the Company was not in compliance with the
annual covenant covering Net Income and the fourth quarter covenant related
to Tangible Net Worth. On February 3, 1998, the Company obtained waivers
from the agent for all covenant violations at December 31, 1997. Amounts
due to the lenders as of December 31, 1997 are classified as current
liabilities and the available portion of the Credit Facility at December
31, 1997 was approximately $18.7 million.
On February 11, 1998, the Credit Agreement was revised to, among other
things, limit the total amount available under the facility to $60 million
for an additional two months. The total available under the facility was
reduced to $30 million only during the period April 1, 1998 to July 31,
1998. As for the Wholesale Financing Facility, the amount available under
the agreement remained at $20 million and was to be used solely for
inventory purchases. The amount available was reduced to $10 million only
during the period April 1, 1998 to July 31, 1998. All other material terms
of both facilities remained the same.
<PAGE>
<PAGE>
51
On July 2, 1998, the Company and its banks executed separate
amendments adjusting, among other things, the seasonality of the total
amount available under the Credit Facility and the Wholesale Financing
Facility, respectively, in any calendar year. The limit of the Credit
Facility will increase to $75 million during the period October 1 through
January 31. During the periods February 1 through April 30 and July 1
through September 30, the total amount available under the Credit Facility
will be limited to $50 million. During the period May 1 through June 30,
the total amount available under the Credit Facility will be limited to $30
million. In addition, the interest rate under the Credit Facility was
amended to a rate of LIBOR plus 2.45%, payable quarterly; reducing to LIBOR
plus 2.25% if, commencing with the fiscal quarter ending September 30,
1998, the Company achieves certain quarterly financial covenants. At
September 30, 1998, the Company was in compliance with all quarterly
financial covenants set forth in the Credit Agreement. As a result, on
October 28, 1998, when the Company delivered its certified financial
statements to the Principal Lender, the interest rate was reduced to LIBOR
plus 2.25%. Prior to this event, the interest rate under the Credit
Agreement was LIBOR plus 2.45% (7.83% at December 31, 1998). On August 14,
1998, the limit of the Wholesale Financing Facility was increased via
temporary overline limit of up to $10,000,000 through January 31, 1999.
The limit of the Wholesale Financing Facility will remain at $20 million
during the period June 1 through January 31, and decrease to $10 million
during the period February 1 through May 31, of any calendar year. All
other material terms of both facilities remained the same. At December 31,
1998, the Company was in compliance with all financial covenants set forth
in the credit facility.
Amounts due to the Lenders as of December 31, 1998 are classified as
current liabilities and the available portion of the Credit Facility at
December 31, 1998 was approximately $24.4 million.
Borrowing is limited to 80% of eligible accounts receivable. The
Credit Facility is substantially secured by all of the operating assets of
the Company. Current obligations are first funded and then all cash
receipts are automatically applied to reduce outstanding borrowings. The
Credit Facility also contains certain covenants that include restrictions
on the payment of dividends and the repurchase of the Company's Common
Stock, as well as provisions specifying compliance with certain quarterly
and annual financial statistical ratios.
<PAGE>
<PAGE>
52
The following information pertains to the notes payable for the years
ended December 31, 1998, 1997 and 1996 (dollars in thousands):
1998 1997 1996
-------- -------- --------
Weighted average interest rate . . . . 8.2% 8.0% 7.6%
Weighted average borrowings. . . . . . $ 12,500 $ 18,600 $ 29,600
5. INCOME TAXES
The components of the benefit for income taxes for the years ended
December 31, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996
-------- -------- --------
Current taxes:
Federal. . . . . . . . . . . . . . . $ 1,443 $ (2,191) $ (4,579)
State. . . . . . . . . . . . . . . . 297 (275) (610)
-------- -------- --------
1,740 (2,466) (5,189)
Deferred taxes:
Federal. . . . . . . . . . . . . . . (1,443) 2,191 2,848
State. . . . . . . . . . . . . . . . (297) 275 310
-------- -------- --------
(1,740) 2,466 3,158
-------- -------- --------
Income tax benefit . . . . . . . . . . - - (2,031)
======== ======== ========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities and the
amounts used for income tax purposes. In 1998 and 1997, the Company
determined that $4.9 million and $7.0 million, respectively, of net
deferred tax assets were not recoverable. Accordingly, valuation
allowances were recorded against the applicable net deferred tax assets.
<PAGE>
<PAGE>
53
Significant components of the Company's deferred taxes as of December
31, 1998 and 1997 were as follows (in thousands):
December 31,
-------------------
1998 1997
-------- --------
Deferred tax assets:
Accounts receivable and inventory
allowances. . . . . . . . . . . . . . . . $ 2,393 $ 2,195
Intangible assets . . . . . . . . . . . . . 1,777 2,029
Accrued warranty and other contract costs . 1,720 564
Restructuring accrual . . . . . . . . . . . - 170
Bid and proposal costs. . . . . . . . . . . 332 356
Vacation accrual. . . . . . . . . . . . . . 231 163
Deferred compensation . . . . . . . . . . . 47 82
Rent abatement. . . . . . . . . . . . . . . 65 73
NOL carryforwards . . . . . . . . . . . . . - 1,717
Other reserves. . . . . . . . . . . . . . . 314 -
Other . . . . . . . . . . . . . . . . . . . 1 10
-------- --------
Total deferred tax assets. . . . . . . 6,880 7,359
-------- --------
Deferred tax liabilities:
Depreciation. . . . . . . . . . . . . . . . 215 381
Rent abatement. . . . . . . . . . . . . . . - 9
-------- --------
Total deferred tax liabilities . . . . 215 390
-------- --------
Net deferred tax assets. . . . . . . . . . . . . 6,665 6,969
Valuation allowance. . . . . . . . . . . . . . . (4,925) (6,969)
-------- --------
Net deferred tax assets reported . . . . . . . . $ 1,740 $ -
======== ========
<PAGE>
<PAGE>
54
The Company's tax benefit for the years ended December 31, 1998 and
1997 differs from the statutory rate for Federal income taxes as a result
of the following factors:
1998 1997
-------- --------
Statutory rate . . . . . . . . . . . . 34.0% 34.0%
State income taxes, net of
Federal tax benefit. . . . . . . . . 4.2 3.7
Valuation allowance. . . . . . . . . . (36.4) (35.7)
Other. . . . . . . . . . . . . . . . . (1.8) (2.0)
-------- --------
- -
======== ========
<PAGE>
<PAGE>
55
6. STOCKHOLDERS' EQUITY
STOCK OPTIONS AND WARRANTS. The Company has two combination incentive
and non-statutory stock option plans, the "1996 Plan" and the "1994 Plan,"
that provide for the granting of options to employees (both plans) and non-
employee directors (only under the 1996 Plan) to purchase up to 1,600,000
and 300,000 shares, respectively, of the Company's common stock. In
addition, in May 1997 the Company's Board of Directors adopted the 1997
Non-Officer Stock Option Plan (the "1997 Plan") under Section (i)(1)(A) of
The Nasdaq Stock Market's National Market Rules. The 1997 Plan provides
for the granting of non-statutory stock options only to employees other
than officers and directors to purchase up to 300,000 shares of the
Company's common stock. Until its expiration on March 15, 1996, the
Company had another combination incentive and non-statutory stock option
plan, the "1986 Plan," that provided for the granting of options to
employees to purchase up to 1,100,000 shares of the Company's common stock.
Under the 1997, 1996, 1994 and 1986 Plans, options have a term of up to ten
years, generally vest over four years and option prices are required to be
at not less than 100% of the fair market value of the Company's common
stock at the date of grant and, except in the case of non-employee
directors, must be approved by the Board of Directors or its Compensation
Committee. Options under the 1997, 1996, 1994 and 1986 plans were as
follows:
<TABLE>
<CAPTION>
Number Weighted Weighted
of Exercise Average Average
Option Price Price Remaining
shares per share per share Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 Plan:
Outstanding at December 31, 1996. . . . . . . . . . . - - -
Granted. . . . . . . . . . . . . . . . . . . . . . 131,675 $ 4.88- 5.50 $ 4.98
Forfeited or canceled. . . . . . . . . . . . . . . (12,333) 4.88 4.88
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 119,342 4.88- 5.50 5.00
Granted. . . . . . . . . . . . . . . . . . . . . . 239,000 3.63- 5.38 4.90
Forfeited or canceled. . . . . . . . . . . . . . . (62,167) 4.88- 5.50 5.07
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1998. . . . . . . . . . . 296,175 $ 3.63- 5.38 $ 4.90 5.3
- ------------------------------------------------------------------------------------------------------------
1996 Plan:
Outstanding at December 31, 1995. . . . . . . . . . . - - -
Granted. . . . . . . . . . . . . . . . . . . . . . 237,000 $ 5.13- 7.31 $ 5.34
Forfeited or canceled. . . . . . . . . . . . . . . - - -
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1996. . . . . . . . . . . 237,000 5.13- 7.31 5.34
Granted. . . . . . . . . . . . . . . . . . . . . . 358,000 4.88- 5.44 5.13
Forfeited or canceled. . . . . . . . . . . . . . . (195,500) 4.88- 6.13 5.21
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 399,500 4.88- 7.31 5.21
Granted. . . . . . . . . . . . . . . . . . . . . . 223,750 4.50- 5.25 4.88
Forfeited or canceled. . . . . . . . . . . . . . . (50,500) 5.00- 7.31 5.58
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1998. . . . . . . . . . . 572,750 $ 4.50- 5.44 $ 5.05 7.7
- ------------------------------------------------------------------------------------------------------------
<PAGE>
<PAGE>
56
<CAPTION>
Number Weighted Weighted
of Exercise Average Average
Option Price Price Remaining
shares per share per share Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 Plan:
Outstanding at December 31, 1995. . . . . . . . . . . 173,000 $ 3.50-12.88 $ 8.28
Granted. . . . . . . . . . . . . . . . . . . . . . 162,500 3.25-12.88 5.46
Forfeited or canceled. . . . . . . . . . . . . . . (44,000) 3.50-12.88 8.11
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1996. . . . . . . . . . . 291,500 3.25-13.44 6.68
Granted. . . . . . . . . . . . . . . . . . . . . . 116,000 5.19- 5.31 5.23
Forfeited or canceled. . . . . . . . . . . . . . . (172,300) 3.50- 6.13 5.30
Exercised. . . . . . . . . . . . . . . . . . . . . (2,700) 3.50 3.50
Outstanding at December 31, 1997. . . . . . . . . . . 232,500 3.25-13.44 7.02
Granted. . . . . . . . . . . . . . . . . . . . . . 80,000 4.53- 5.00 4.81
Forfeited or canceled. . . . . . . . . . . . . . . (26,000) 3.50- 5.19 4.21
Exercised. . . . . . . . . . . . . . . . . . . . . (15,000) 3.50 3.50
Outstanding at December 31, 1998. . . . . . . . . . . 271,500 $ 3.25-13.44 $ 6.83 5.2
- ------------------------------------------------------------------------------------------------------------
1986 Plan:
Outstanding at December 31, 1995. . . . . . . . . . . 579,888 $ 3.50-14.25 $ 9.30
Granted. . . . . . . . . . . . . . . . . . . . . . 20,000 3.25 3.25
Forfeited or canceled. . . . . . . . . . . . . . . (470,038) 3.50-12.50 9.95
Exercised. . . . . . . . . . . . . . . . . . . . . (17,550) 3.50- 5.50 5.05
Outstanding at December 31, 1996. . . . . . . . . . . 112,300 3.50-14.25 6.12
Granted. . . . . . . . . . . . . . . . . . . . . . - - -
Forfeited or canceled. . . . . . . . . . . . . . . (27,800) 6.50-10.25 9.65
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 84,500 3.50-14.25 4.95
Granted. . . . . . . . . . . . . . . . . . . . . . - - -
Forfeited or canceled. . . . . . . . . . . . . . . (13,000) 3.25 3.25
Exercised. . . . . . . . . . . . . . . . . . . . . (7,000) 3.25 3.25
Outstanding at December 31, 1998. . . . . . . . . . . 64,500 $ 3.50-14.25 $ 5.48 5.7
- ------------------------------------------------------------------------------------------------------------
Nonstatutory Stock Options:
Outstanding at December 31, 1995. . . . . . . . . . . 995,000 $ 3.75-10.50 $ 4.10
Granted. . . . . . . . . . . . . . . . . . . . . . 110,000 6.13 6.13
Forfeited or canceled. . . . . . . . . . . . . . . - - -
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1996. . . . . . . . . . . 1,105,000 3.75-10.50 4.35
Granted. . . . . . . . . . . . . . . . . . . . . . 150,000 5.13- 5.25 5.17
Forfeited or canceled. . . . . . . . . . . . . . . - - -
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1997. . . . . . . . . . . 1,255,000 3.75-10.50 4.67
Granted. . . . . . . . . . . . . . . . . . . . . . 81,000 4.88 4.88
Forfeited or canceled. . . . . . . . . . . . . . . (20,000) 6.13 6.13
Exercised. . . . . . . . . . . . . . . . . . . . . - - -
Outstanding at December 31, 1998. . . . . . . . . . . 1,316,000 $ 3.75-10.50 $ 4.61 6.2
- ------------------------------------------------------------------------------------------------------------
FOR ALL PLANS:
Outstanding at December 31, 1998. . . . . . . . . . . 2,520,925 $ 3.25-14.25 $ 5.00 6.3
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
57
OUTSTANDING AND EXERCISABLE BY PRICE RANGE AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/98 Life-Years Price at 12/31/98 Price
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 3.25- $ 4.78 1,081,500 6.9 $ 3.80 988,925 $ 3.75
4.79- 7.13 1,252,925 6.1 5.12 747,518 5.13
7.14- 10.25 16,000 4.0 8.60 9,550 9.14
10.26- 14.25 170,500 4.6 11.46 140,900 11.52
- --------------- --------------- --------------- --------------- --------------- ---------------
$ 3.25- $14.25 2,520,925 6.3 $ 5.00 1,886,893 $ 4.91
=============== =============== =============== =============== =============== ===============
</TABLE>
The Company adopted the disclosure requirements of SFAS 123,
"Accounting for Stock-Based Compensation," effective for the Company's
December 31, 1996 financial statements. The Company applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting
for its plans, as allowed under SFAS 123. Accordingly, no compensation cost
has been recognized for stock option and stock purchase plans. If
compensation cost for the Company's stock-based compensation plans had been
determined on the fair value at the grant dates for 1998, 1997 and 1996
awards under those plans consistent with the method in SFAS 123, the
Company's net loss and net loss per share would have increased to the pro
forma amounts (in thousands, except net loss per share amounts) indicated
below. Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
1998 1997 1996
-------- -------- --------
Net loss - pro forma . . . . . . . . . $ 2,255 $ (5,411) $(18,818)
Net loss per share -
pro forma (basic). . . . . . . . . . $ 0.26 $ (0.80) $ (2.81)
Net loss per share -
pro forma (diluted). . . . . . . . . $ 0.25 $ (0.80) $ (2.81)
The fair value of each option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used
for grants in 1998: no dividend yield, 70% volatility, a risk-free
interest rate of 3.77%, and an expected life of eight years; and the
following assumptions used for grants in 1997 and 1996: no dividend yield,
70% volatility, risk-free interest rates ranging from 5.74% to 6.90% and
expected lives of three to five years.
<PAGE>
<PAGE>
58
At December 31, 1998, in the 1997 Plan options for 116,400 shares were
exercisable and 3,825 options were available for grant; in the 1996 Plan
options for 429,746 shares were exercisable and 1,027,250 options were
available for grant; in the 1994 Plan options for 162,131 shares were
exercisable and 10,800 options were available for grant; and in the 1986
Plan options for 63,450 shares were exercisable.
STOCK PURCHASE PLAN. The Company has established an Employee Stock
Purchase Plan ("ESPP"). Eligible employees may elect to set aside, through
payroll deduction, up to 15% of their compensation to purchase common stock
of the Company. The maximum number of shares that an eligible employee may
purchase during any offering period is equal to 5% of such employee's
compensation for the 12 calendar-month period prior to the commencement of
an offering period divided by 85% of the fair market value of a share of
common stock on the first day of the offering period. The ESPP is
implemented through one offering during each six-month period beginning
January 1 and July 1. The ESPP purchase price is 85% of the lower of the
fair market value of a share of common stock on the first day or the last
day of the offering period. In the offering periods ended June 30 and
December 31, 1998, employees purchased 9,367 and 11,943 shares,
respectively, at prices of $4.04 and $3.85, respectively. In the offering
periods ended June 30 and December 31, 1997, employees purchased 13,126 and
15,435 shares, respectively, at prices of $4.25 and $4.20, respectively.
In the offering periods ended June 30 and December 31, 1996, employees
purchased 22,786 and 10,122 shares, respectively, at prices of $3.72 and
$4.78, respectively. The weighted average fair market value of shares
under the ESPP was $3.93, $4.22 and $4.76 in 1998, 1997 and 1996,
respectively. The Company has reserved 250,000 shares of common stock for
the ESPP, of which 72,551 were available for future issuance as of December
31, 1998.
RIGHTS PLAN. On December 19, 1994, the Board of Directors of the
Company authorized and declared a dividend of one preferred stock purchase
right (a "Right") for each outstanding share of the Company's common stock
payable to stockholders of record at the close of business on January 3,
1995. Each Right entitled the common stockholder to purchase, in certain
circumstances generally relating to a change in control of the Company, one
one-thousandth of a share of the Company's Series B Junior Participating
Cumulative Preferred Stock, par value $0.25 per share (the "Preferred
Shares") at an exercise price of $40, subject to adjustment.
Alternatively, the Right entitled the holder to purchase common stock of
the Company having a market value equal to two times the exercise price, or
to purchase shares of common stock of the acquiring corporation having a
market value equal to two times the exercise price. The Preferred Shares
conferred to holders certain rights as to dividends, voting and liquidation
<PAGE>
<PAGE>
59
in preference to common stockholders. The Rights were non-voting, were not
presently exercisable and traded in tandem with the common stock. The
Rights were redeemable, in whole but not in part, by the Company at $0.01
per Right in accordance with the Rights Plan.
The Rights were scheduled to expire on January 3, 1997, unless earlier
redeemed or exchanged. On November 14, 1996, the Board of Directors of the
Company extended the Rights Plan until the stockholders' vote, at the
annual meeting of stockholders on May 6, 1997, on a proposed three-year
extension of such Rights Plan. At the annual meeting held on May 6, 1997,
the proposal for such three-year extension of the Rights Plan was defeated.
7. COMMITMENTS AND CONTINGENCIES
During the fourth quarter of 1997, the Company recorded an additional
accrual of $1.1 million to account for estimated obligations associated
with state sales tax activity occurring during the years 1992 though 1995.
All outstanding obligations at December 31, 1997 were settled in 1998.
State sales tax laws generally require collection from customers of sales
tax unless such customers provide valid sales tax exemption certificates.
Sales tax exemption certificates are customarily issued to those companies
that resell products to the federal government.
The Company is occasionally a defendant in litigation incidental to
its business. The Company believes that none of such litigation currently
pending against it, individually or in the aggregate, will have a material
adverse effect on the Company's financial condition or results of
operations.
The Company leases office and warehouse space and various equipment
under non-cancelable operating leases.
In November 1988, the Company executed a ten-year lease for its
corporate headquarters that comprises approximately 120,000 square feet of
office space and 14,000 square feet of warehouse space. The Company also
entered into a nine-year lease for 55,170 square feet of office space in
two buildings beginning December 1, 1989. The lease for the entire
facility expired on November 30, 1998. In October 1997, the Company
executed a ten-year lease for a new administrative facility consisting of
approximately 100,500 square feet of new office space in Chantilly,
Virginia. The agreement has one five-year option period and commenced on
December 1, 1998. The Company is obligated under the lease agreement to
provide to the Landlord a Letter of Credit ("LOC") in the amount of $2.0
million as a security deposit for all tenant requested improvements
associated with the lease. This deposit will be reduced by 10%, per year,
over the life of the lease. The Company has recorded leasehold
improvements in the amount of $2.0 million, as well as a liability for
<PAGE>
<PAGE>
60
deferred rent of $2.0 million in conjunction with the build-out
improvements. The asset and liability will be amortized over the life of
the lease. The Company also subleases a 20,000 square foot distribution
center in Chattanooga, Tennessee. The sublease expires March 31, 1999.
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
approximately $2.8 million, $2.7 million and $3.6 million, respectively.
The Company also maintains a sales office in Germany and has entered into a
lease agreement. Collective future minimum lease payments as of December
31, 1998 are as follows (in thousands):
Operating
Year ending December 31, Leases
------------------------ --------
1999. . . . . . . . . . . . . . . $ 2,054
2000. . . . . . . . . . . . . . . 2,077
2001. . . . . . . . . . . . . . . 2,095
2002. . . . . . . . . . . . . . . 2,152
2003. . . . . . . . . . . . . . . 2,210
Thereafter. . . . . . . . . . . . 7,366
--------
Total minimum lease payments . . . . . $ 17,954
========
8. 401(K) PLAN
Effective April 1991, the Company adopted the Employees' 401(k)
Investment Plan (the "Plan"), a savings and investment plan intended to be
qualified under Section 401 of the Internal Revenue Code (the "Code"). All
employees of the Company who are at least 21 years of age and have
completed at least six months of employment with the Company are eligible
to participate. The Plan is voluntary and allows participating employees
to make pretax contributions, subject to limitations under the Code, of a
percentage (not to exceed 15%) of their total compensation. Employee
contributions are fully vested at all times. The Company, in its sole
discretion, may make contributions in amounts, if any, as may be determined
by the Board of Directors for the benefit of all participants. In 1998,
the Company committed to contribute a total of $101,034 to the plan for
1998. No contributions were made in prior years.
<PAGE>
<PAGE>
61
9. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS
131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires certain information about operating segments in the
financial statements and in condensed financial statements of interim
periods. The Company has determined that through December 31, 1998, it
operated as one business segment as defined by SFAS 131. In addition, the
Company aggregates and reports revenues from products which have similar
economic characteristics in their nature, production, and distribution
process. The primary customer of the Company is the federal Government,
which under SFAS 131 is considered a single customer.
<PAGE>
<PAGE>
62
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth selected unaudited quarterly financial
data and the percentages such items represent of sales. The quarterly
financial data reflect, in the opinion of the Company, all normal and
recurring adjustments necessary to present fairly the results of operations
for such periods. Results of any one or more quarters are not necessarily
indicative of annual results or continuing trends.
<TABLE>
<CAPTION>
1998 Quarters Ended
----------------------------------------------------------------------------
(In thousands, except per share data) March 31, June 30, September 30, December 31,
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . $ 99,094 100.0% $136,901 100.0% $ 196,029 100.0% $173,860 100.0%
Gross margin. . . . . . . . . . . . . . . . . . . . 8,540 8.6 12,365 9.0 17,815 9.1 12,917 7.4
Operating expenses. . . . . . . . . . . . . . . . . 11,602 11.7 11,789 8.6 13,535 6.9 11,394 6.6
(Loss) income from operations . . . . . . . . . . . (3,062) (3.1) 576 0.4 4,280 2.2 1,523 0.9
Interest expense, net . . . . . . . . . . . . . . . 447 0.5 408 0.3 320 0.2 (198) (0.1)
(Loss) income before income taxes . . . . . . . . . (3,509) (3.6) 168 0.1 3,960 2.0 1,721 1.0
Net (loss) income . . . . . . . . . . . . . . . . . (3,509) (3.6) 168 0.1 3,960 2.0 1,721 1.0
Basic net (loss) income per share . . . . . . . . . $(0.52) $(0.02) $0.40 $(0.18)
Diluted net (loss) income per share . . . . . . . . (0.52) (0.02) 0.40 (0.17)
Basic weighted average shares
outstanding . . . . . . . . . . . . . . . . . . . 6,756 8,422 9,788 9,778
Diluted weighted average shares
outstanding . . . . . . . . . . . . . . . . . . . 6,756 8,631 9,849 9,845
<CAPTION>
1997 Quarters Ended
----------------------------------------------------------------------------
(In thousands, except per share data) March 31, June 30, September 30, December 31,
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . $ 88,407 100.0% $ 94,464 100.0% $ 161,759 100.0% $141,747 100.0%
Gross margin. . . . . . . . . . . . . . . . . . . . 7,134 8.1 6,443 6.8 11,595 7.2 10,751 7.6
Operating expenses. . . . . . . . . . . . . . . . . 10,116 11.5 9,771 10.3 9,629 6.0 10,963 7.7
(Loss) income from operations . . . . . . . . . . . (2,982) (3.4) (3,328) (3.5) 1,966 1.2 (212) 0.1
Interest expense, net . . . . . . . . . . . . . . . 422 0.5 (341) (0.3) 75 0.0 391 0.3
(Loss) income before income taxes . . . . . . . . . (3,404) (3.9) (2,987) (3.2) 1,891 1.2 (603) (0.4)
Net (loss) income . . . . . . . . . . . . . . . . . (3,404) (3.9) (2,987) (3.2) 1,891 1.2 (603) (0.4)
Basic net (loss) income per share . . . . . . . . . $(0.51) $(0.44) $0.28 $(0.09)
Diluted net (loss) income per share . . . . . . . . $(0.51) $(0.44) $0.27 $(0.09)
Basic weighted average shares
outstanding. . . . . . . . . . . . . . . . . . 6,725 6,725 6,740 6,741
Diluted weighted average shares
outstanding. . . . . . . . . . . . . . . . . . 6,725 6,725 7,048 6,741
</TABLE>
<PAGE>
<PAGE>
63
GOVERNMENT TECHNOLOGY SERVICES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance Charged Balance
at to at
Beginning Costs and End of
Description of Period Expenses Deductions(1) Period
- ------------------------------------------------------------------ --------- --------- ------------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . $ 4,093 $ 2,097 $ (210) $ 5,980
Allowance for slow-moving and obsolete
inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 2,849 2,517 (3,310) 2,056
Year ended December 31, 1997:
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . $ 4,535 $ 2,800 $(3,242) $ 4,093
Allowance for slow-moving and obsolete
inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 4,566 6,766 (8,483) 2,849
Year ended December 31, 1996:
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . $ 4,268 $ 2,761 $(2,494) $ 4,535
Allowance for slow-moving and obsolete
inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 8,250 1,591 (5,275) 4,566
______________
(1) Adjustments and amounts written off during the period.
</TABLE>
<PAGE>
<PAGE>
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Incorporated by reference to the Registrant's Form 8-K filed with the
Commission on June 17, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to
the sections of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 18, 1999, entitled "Election of
Directors -- Nominees," "Executive Officers" and "Common Stock Ownership of
Principal Stockholders and Management -- Section 16(a) Beneficial Ownership
Reporting Compliance," to be filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
the sections of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 18, 1999, entitled "Election of
Directors -- Compensation of Directors" and "Executive Compensation and
Other Information," to be filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item is incorporated by reference to
the section of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 18, 1999, entitled "Common Stock
Ownership of Principal Stockholders and Management," to be filed with the
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to
the sections of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 18, 1999, entitled "Election of
Directors -- Nominees" and "Executive Compensation and Other Information --
Compensation Committee Interlocks and Insider Participation," to be filed
with the Commission.
<PAGE>
<PAGE>
65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(A) (1) FINANCIAL STATEMENTS
See the Index included in Item 8 on Page 38 of this Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES
See the Index included in Item 8 on Page 38 of this Form 10-K.
(3) EXHIBITS
2.1 Stock Purchase Agreement by and among the Registrant, Falcon
Microsystems, Inc. and M. Dendy Young dated August 16,
1994(2)(11)
3.1 Certificate of Incorporation, as amended(3)(6)(13)(18)
3.2 Bylaws, as amended
4.1 Rights Agreement dated as of January 3, 1995 by and between the
Registrant and First Union National Bank of North Carolina, as
Rights Agent, which includes as Exhibit B thereto the form of
Rights Certificate(13)
10.1 Amended and Restated 1986 Stock Option Plan,(4) including forms
of Stock Option Agreements and Stock Purchase Agreement(1)(3)
10.2 Employee Stock Purchase Plan, as amended to date(1)(6)
10.3 GSA Schedule B/C Award/Contract No. GS00K95AGS6407 dated April
1, 1996, issued by the General Services Administration to the
Registrant for the three-year period ending March 31,
1999(2)(16), and amendment thereto dated November 26, 1997(19)
10.4 GSA Schedule A Award/Contract No. GS00K94AGS5681 dated October
1, 1993, issued by the General Services Administration to the
Registrant, and Modifications during 1993(2)(9); and
Modifications during the quarter ended December 31, 1994(12)
<PAGE>
<PAGE>
66
10.5 Deed of Lease Agreement I dated as of November 17, 1987 between
the Registrant and Enterprise Center Limited Partnership Number
Two covering part of the Registrant's facilities in Chantilly,
Virginia, as amended by Amendment No. One dated December 14,
1988(3)
10.6 Deed of Lease Agreement II dated as of November 17, 1987
between the Registrant and Enterprise Center Limited
Partnership Number Two covering part of the Registrant's
facilities in Chantilly, Virginia, as amended by Amendment No.
One dated December 14, 1988(3)
10.7 Lease dated March 31, 1993 between the Registrant and West 50
Associates covering office and warehouse facilities(9); and
Amendment thereto dated September 21, 1995(15)
10.8 Letter Agreement dated September 17, 1990, as amended, between
the Registrant and R. M. Rickenbach(1)(3)
10.9 Warrant of the Registrant dated December 6, 1990 issued to
Lawrence J. Schoenberg(1)(6)
10.10 Nonstatutory Stock Option Agreement dated October 9, 1992
between the Registrant and Frank H. Slovenec(1)(6)
10.11 Officer Severance Plan, as amended to date(15)
10.12 GTSI Employees' 401(k) Investment Plan(3); and Amendment No.
1(5); Amendment No. 2 and Amendment No. 3 thereto(15)
10.13 IBM Business Partner Agreement (Dealer Profile, Dealer Exhibit,
Dealer/Retailer Attachment and Remarketer General Terms)
between IBM and the Registrant, effective January 1994(9)
10.14 U.S. Navy Standard Desktop Computer Companion Contract No.
N66032-91-D-0002 dated February 8, 1991; Modification thereof
dated June 28, 1991(4); Modifications during 1992(6); and
Modifications during 1993(2)(9)
10.15 Credit Agreement, dated as of November 17, 1994, by and among
the Registrant and Falcon Microsystems, Inc., as Borrowers; The
Lenders Parties Thereto From Time To Time; and Mellon Bank,
N.A., as Agent(12); and Amendment thereto dated December 29,
1995(15) (see also Exhibit 10.24)
<PAGE>
<PAGE>
67
10.16 Stock Bonus Agreement dated August 25, 1993 between the
Registrant and R. M. Rickenbach(1)(8)
10.17 Stock Bonus Agreement dated August 25, 1993 between the
Registrant and Frank H. Slovenec(1)(8)
10.18 Authorized Apple Dealer Sales Agreement between Apple Computer,
Inc. and the Registrant, effective April 1993(7)
10.19 U.S. Air Force Desktop IV Microsystems Contract No.
F01620-93-D-0001 dated February 2, 1993; Modifications during
1993(2)(9); and Modifications during the quarter ended March
31, 1994(10); and Modifications during the quarter ended June
30, 1995(14)
10.20 National Aeronautics and Space Administration Scientific &
Engineering Workstation Procurement Contract No. NAS5-37008
dated February 19, 1993; Modifications during 1993(2)(9); and
Modifications during the quarter ended March 31, 1994(10)
10.21 Stock Bonus Agreement dated November 16, 1994 between the
Registrant and R. M. Rickenbach(1)(12)
10.22 Stock Bonus Agreement dated November 16, 1994 between the
Registrant and Frank H. Slovenec(1)(12)
10.23 Stock Bonus Agreement dated November 16, 1994 between the
Registrant and Thomas L. Smudz(1)(12)
10.24 Business Credit and Security Agreement dated as of December 29,
1995 among the Registrant, certain Lenders named therein, and
Deutsche Financial Services Corporation, as a Lender and as
Agent; and Amendment thereto dated March 29, 1996(15)
10.25 Lease dated August 11, 1995 between the Registrant and Security
Capital Industrial Trust covering new distribution center
facility(15)
10.26 Letter agreement dated January 16, 1996 between the Registrant
and Microsoft Corporation(15)
10.27 Employment Agreement dated December 18, 1995 between the
Registrant and M. Dendy Young(1)(15)
<PAGE>
<PAGE>
68
10.28 Employment Agreement dated December 18, 1995 between the
Registrant and Peter E. Janke(1)(15)
10.29 Settlement Agreement between the Registrant and the U.S. Air
Force with respect to the Desktop IV Microsystems Contract No.
F01620-93-D-0001(2)(17)
10.30 Asset Purchase Agreement dated as of February 12, 1998 among
the Registrant, BTG, Inc., BTG Technology Systems, Inc. and
Concept Automation, Inc. of America (excluding attachments and
exhibits)(18)
10.31 Standstill Agreement between the Registrant and BTG, Inc. dated
as of February 12, 1998(18)
10.32 Certificate of Designations, Preferences and Rights of Series C
8% Cumulative Redeemable Convertible Preferred Stock of the
Registrant filed February 12, 1998 with the Secretary of State
of Delaware(18)
10.33 1994 Stock Option Plan, as amended to date(1)(19)
10.34 1996 Stock Option Plan(1)(19)
10.35 Employment Agreement dated January 1, 1998 between the
Registrant and M. Dendy Young(1)(19)
10.36 Lease dated December 10, 1997 between the Registrant and Petula
Associates, Ltd. covering new headquarters facility (excluding
attachments and exhibits)(19)
10.37 Second Amended and Restated Business Credit and Security
Agreement, dated as of July 28, 1997, among the Registrant,
Certain Lenders Named [in such agreement], and Deutsche
Financial Services Corporation, as a Lender and as Agent
(excluding attachments and exhibits)(19)
10.38 Amendment of Certificate of Incorporation filed May 12, 1998
with the Secretary of State of Delaware(20)
10.39 Letter Agreement between the Registrant and BTG, Inc. executed
on May 18, 1998(21)
10.40 Standstill Agreement between the Registrant and Linwood A.
("Chip") Lacy, Jr. dated July 29, 1998(22)
<PAGE>
<PAGE>
69
10.41 Amendment, dated as of July 2, 1998, to Second Amended and
Restated Business Credit and Security Agreement, dated as of
July 28, 1997, among the Registrant, Certain Lenders Named [in
such agreement], and Deutsche Financial Services Corporation,
as a Lender and as Agent(23)
10.42 Amendment, dated as of July 2, 1998, to Agreement for Wholesale
Financing dated as of June 27, 1996, among the Registrant and
Deutsche Financial Services Corporation(23)
10.43 Agreement among the Registrant, BTG, Inc., BTG Technology
Systems, Inc. and Concept Automation, Inc. of America dated
February 10, 1999
10.44 Stock Transfer Agreement between the Registrant and BTG, Inc.
dated February 10, 1999
11.1 Computation of Earnings Per Share
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
________________________
(1) Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Form
10-K.
(2) Confidential treatment has been granted for portions of this
exhibit, and such confidential portions have been removed from
this exhibit pursuant to Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-41351) filed with
the Commission on June 21, 1991.
(4) Incorporated by reference to Pre-effective Amendment No. 3 to
the Registrant's Registration Statement on Form S-1
(Registration No. 33-41351) filed with the Commission on
September 20, 1991.
<PAGE>
<PAGE>
70
(5) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-55090) filed with
the Commission on November 25, 1992.
(6) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1992.
(7) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended March 31,
1993.
(8) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended September
30, 1993.
(9) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1993.
(10) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended March 31,
1994.
(11) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on August 31, 1994, as
amended by Form 8-K/A No. 1 filed with the Commission on
October 31, 1994.
(12) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1994.
(13) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on January 17, 1995.
(14) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended June 30,
1995.
(15) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1995.
<PAGE>
<PAGE>
71
(16) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended March 31,
1996.
(17) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1996.
(18) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on February 12, 1998.
(19) Incorporated by reference to the Registrant's Annual Report on
Form 10-K (File No. 0-19394) for the year ended December 31,
1997.
(20) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on May 18, 1998.
(21) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on May 21, 1998.
(22) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed with the Commission on August 5, 1998.
(23) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q (File No. 0-19394) for the quarter ended June 30,
1998.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
See the list of Exhibits in Item 14(a)(3) beginning on Page 65
of this Form 10-K.
(D) FINANCIAL STATEMENT SCHEDULES
See the Index included in Item 8 on Page 38 of this Form 10-K.
<PAGE>
<PAGE>
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chantilly, Commonwealth of Virginia.
GOVERNMENT TECHNOLOGY SERVICES, INC.
Dated: March 31, 1999 By: /s/ M. Dendy Young
--------------------------------
M. Dendy Young,
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Dendy Young Chairman and March 31, 1999
- --------------------------- Chief Executive Officer
Dendy Young (Principal Executive Officer)
and a Director
/s/ Stephen L. Waechter Senior Vice President and March 31, 1999
- --------------------------- Chief Financial Officer
Stephen L. Waechter (Principal Financial and
Accounting Officer)
/s/ Tania Amochaev Director March 31, 1999
- ---------------------------
Tania Amochaev
<PAGE>
<PAGE>
73
Signature Title Date
--------- ----- ----
/s/ Gerald W. Ebker Director March 31, 1999
- ---------------------------
Gerald W. Ebker
/s/ Lee Johnson Director March 31, 1999
- ---------------------------
Lee Johnson
/s/ Steven Kelman Director March 31, 1999
- ---------------------------
Steven Kelman, Ph. D.
/s/ James J. Leto Director March 31, 1999
- ---------------------------
James J. Leto
/s/ Lawrence J. Schoenberg Chairman Emeritus March 31, 1999
- ---------------------------
Lawrence J. Schoenberg
/s/ John M. Toups Director March 31, 1999
- ---------------------------
John M. Toups
<PAGE>
<PAGE>
74
INDEX TO EXHIBITS
===========================================================================
EXHIBIT |
NUMBER | DESCRIPTION
- ---------------------------------------------------------------------------
3.2 | Bylaws, as amended
- ---------------------------------------------------------------------------
10.43 | Agreement among the Registrant, BTG, Inc., BTG Technology
Systems, Inc. and Concept Automation, Inc. of America dated
February 10, 1999
- ---------------------------------------------------------------------------
10.44 | Stock Transfer Agreement between the Registrant and BTG, Inc.
dated February 10, 1999
- ---------------------------------------------------------------------------
11.1 | Computation of Earnings Per Share
- ---------------------------------------------------------------------------
23.1 | Consent of Arthur Andersen LLP
- ---------------------------------------------------------------------------
27.1 | Financial Data Schedule
===========================================================================
<PAGE>
AS AMENDED THROUGH
NOVEMBER 3, 1998
GOVERNMENT TECHNOLOGY SERVICES, INC.
______________________________
(A Delaware Corporation)
______________________________
BY-LAWS
______________________________
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of the
Corporation shall be located in the City of Dover, County of Kent, State of
Delaware, and the name of the resident agent in charge thereof shall be The
Corporation Trust Company.
SECTION 2. Other Offices. The Corporation may also have offices at
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time appoint or the business of the Corporation
may require.
ARTICLE II
Seal
The seal of the Corporation shall, subject to alteration by the Board
of Directors, consist of a flat-faced circular die with the word
"Delaware," together with the name of the Corporation and the year of
incorporation, cut or engraved thereon.
ARTICLE III
Meetings of Stockholders
SECTION 1. Place of Meeting. Meetings of the stockholders shall be
held either within or without the State of Delaware at such place as the
Board of Directors may fix.
SECTION 2. Annual Meetings. The annual meeting of stockholders shall
be held on the third Tuesday of June of each year or such other date as the
Board of Directors may set by resolution, at such time as the Board of
Directors may fix.
SECTION 3. Special Meetings. Special meetings of the stockholders
for any purpose or purposes may be called by the President, or by the
directors (either by written instrument signed by a majority or by
resolution adopted by a vote of the majority), and special meetings shall
be called by the President or the Secretary whenever stockholders owning a
majority of the capital stock issued, outstanding and entitled to vote so
request in writing. Such request of stockholders shall state the purpose
or purposes of the proposed meeting.
SECTION 4. Notice. Written or printed notice of every meeting of
stockholders, annual or special, stating the hour, date and place thereof,
and the purpose or purposes in general terms for which the meeting is
called shall, not less than ten (10) and not more than sixty (60) days
before such meeting, be served upon or mailed to each stockholder entitled
to vote thereat, at his address as it appears upon the stock records of the
Corporation or, if such stockholder shall have filed with the Secretary of
the Corporation a written request that notices intended for him be mailed
to some other address, then to the address designated in such request.
Notice of the hour, date, place and purpose of any meeting of
stockholders may be dispensed with if every stockholder entitled to vote
thereat shall attend either in person or by proxy and shall not object to
the holding of such meeting for lack of proper notice, or if every absent
stockholder entitled to such notice shall in writing, filed with the
records of the meeting, either before or after the holding thereof, waive
such notice.
SECTION 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the presence in person or by proxy at any
meeting of stockholders of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to
vote thereat, shall be requisite and shall constitute a quorum. If two or
more classes of stock are entitled to vote as separate classes upon any
question, then, in the case of each such class, a quorum for the
consideration of such question shall, except as otherwise provided by law
or by the Certificate of Incorporation, consist of a majority in interest
of all stock of that class issued, outstanding and entitled to vote. If a
majority or, where a larger quorum is required, such quorum, shall not be
represented at any meeting of the stockholders regularly called, the
holders of a majority of the shares present or represented and entitled to
vote thereat shall have power to adjourn the meeting to another time, or to
another time and place, without notice other than announcement of
adjournment at the meeting, and there may be successive adjournments for
like cause and in like manner until the requisite amount of shares entitled
to vote at such meeting shall be represented; provided, however, that if
the adjournment is for more than thirty (30) days, notice of the hour, date
and place of the adjourned meeting shall be given to each stockholder
entitled to vote thereat. The Chairman of the meeting shall have the power
to adjourn any meeting with respect to any issue or matter, whether or not
a quorum is present. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
SECTION 6. Votes, Proxies. At each meeting of stockholders, every
stockholder of record at the closing of the transfer books, if closed, or
on the date set by the Board of Directors for the determination of
stockholders entitled to vote at such meeting, shall have one vote for each
share of stock entitled to vote which is registered in his name on the
books of the Corporation upon any matter properly brought before the
meeting. At each such meeting every stockholder shall be entitled to vote
in person, or by proxy appointed by an instrument in writing subscribed by
such stockholder and bearing a date not more than three (3) years prior to
the meeting in question, unless said instrument provides for a longer
period during which it is to remain in force.
All elections of directors shall be held by ballot. If the Chairman
of the meeting shall so determine, a vote may be taken upon any other
matter by ballot and shall be so taken upon the request of any stockholder
entitled to vote on such matter.
At any meeting at which a quorum is present, a plurality of the votes
properly cast for election to fill any vacancy on the Board of Directors
shall be sufficient to elect a candidate to fill such vacancy, and a
majority of the votes properly cast upon any other question shall decide
the question, except in any case where a larger vote is required by law,
the Certificate of Incorporation, these By-Laws, or otherwise.
SECTION 7. Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than 10 days after the
date upon which the resolution fixing the record date is adopted by the
Board of Directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall,
by written notice to the Secretary, request the Board of Directors to fix a
record date. The Board of Directors shall promptly, but in all events
within 10 days after the date on which such a request is received, adopt a
resolution fixing the record date. If no record date has been fixed by the
Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by
the Board of Directors is required by applicable law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or any officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
SECTION 8. Organization. The Chairman of the Board, if there be one,
or in his absence the President, or in the absence of the Chairman and the
President, a Vice President, shall call meetings of the stockholders to
order and shall act as chairman thereof. The Secretary of the Corporation,
if present, shall act as secretary of all meetings of stockholders, and, in
his absence, the presiding officer may appoint a secretary.
SECTION 9. Nominations and Stockholder Business. Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors, or (c) by
any stockholder of the Corporation who was a stockholder of record at the
time of giving of notice provided for in this Section 9, who is entitled to
vote at the meeting and who complied with the notice procedures set forth
in this Section 9.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to this Section 9, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation, and such business must be a proper subject for stockholder
action under the Delaware General Corporation Law. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 90 days nor more than
180 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, notice by the stockholder to be timely must be
so delivered not later than the close of business on the later of the 90th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owner, and (ii)
the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
Notwithstanding anything in this Section 9 to the contrary, in the
event that the number of directors to be elected to the Board of Directors
of the Corporation is increased and there is no public announcement
specifying the size of the increased Board of Directors made by the
Corporation at least 130 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this
Section 9 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to
the Board of Directors may be made at a special meeting of stockholders at
which directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b) by any
stockholder of the Corporation who is a stockholder of record at the time
of giving of notice provided for in this section, who shall be entitled to
vote at the meeting and who complies with the notice procedures set forth
in this section. Nominations by stockholders of persons for election to
the Board of Directors may be made at such a special meeting of
stockholders if the stockholder's notice required by this section shall be
delivered to the secretary at the principal executive offices of the
Corporation not earlier than the 180th day prior to such special meeting
and not later than the close of business on the later of the 90th day prior
to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
Only such persons who are nominated in accordance with the procedures
set forth in this section shall be eligible for election as directors at
any meeting of stockholders. Only such business shall be conducted at a
meeting of stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this section. The chairman of
the meeting shall have the power and duty to determine whether a nomination
or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this section and, if any
proposed nomination or business is not in compliance with this section, to
declare that such defective proposal shall be disregarded.
For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 9, 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 9, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 9. Nothing in this Section 9 shall be
deemed to affect any rights of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act.
ARTICLE IV
Directors
SECTION 1. Number. The business and property of the Corporation
shall be conducted and managed by a Board of Directors consisting of not
less than one director, none of whom needs to be a stockholder. The Board
shall be composed of nine directors. The whole number of directors for the
ensuing year shall be fixed at each annual meeting of stockholders, but if
the number is not so fixed, the number shall remain as it stood immediately
prior to such meeting.
At any time during any year the whole number of directors may be
increased or reduced, in each case by vote of a majority of the stock
outstanding and entitled to vote for the election of directors or a
majority of the directors in office at the time of such increase or
decrease, regardless of whether such majority of directors constitutes a
quorum.
SECTION 2. Term of Office. Each director shall hold office until the
next annual meeting of stockholders and until his successor is duly elected
and qualified or until his earlier death or resignation, subject to the
right of the stockholders at any time to remove any director or directors
as provided in Section 4 of this Article.
SECTION 3. Vacancies. If any vacancy shall occur among the
directors, or if the number of directors shall at any time be increased,
the directors then in office, although less than a quorum, by a majority
vote may fill the vacancies or newly-created directorships, or any such
vacancies or newly-created directorships may be filled by the stockholders
at any meeting.
SECTION 4. Removal by Stockholders. The holders of record of the
capital stock of the Corporation entitled to vote for the election of
directors may in their discretion at any meeting duly called for the
purpose, by a majority vote, remove any director or directors and elect a
new director or directors in place thereof.
SECTION 5. Meetings. Meetings of the Board of Directors shall be
held at such place, within or without the State of Delaware, as may from
time to time be fixed by resolution of the Board or by the President and as
may be specified in the notice or waiver of notice of any meeting.
Meetings may be held at any time upon the call of the Chairman of the Board
or the President or any two (2) of the directors in office by oral,
telegraphic or written notice, duly served or sent or mailed to each
director not less than twenty-four (24) hours before such meeting, except
that, if mailed, not less than seventy-two (72) hours before such meeting.
Meetings may be held at any time and place without notice if all the
directors are present and do not object to the holding of such meeting for
lack of proper notice or if those not present shall, in writing or by
telegram, waive notice thereof. A regular meeting of the Board may be held
without notice immediately following the annual meeting of stockholders at
the place where such meeting is held. Regular meetings of the Board may
also be held without notice at such time and place as shall from time to
time be determined by resolution of the Board.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee
designated by the Board of Directors, may participate in a meeting of the
Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in
a meeting shall constitute presence in person at the meeting.
SECTION 6. Quorum. A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time without notice other than
announcement of the adjournment at the meeting, and at such adjourned
meeting at which a quorum is present any business may be transacted which
might have been transacted at the meeting as originally noticed.
SECTION 7. Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is
signed by all members of the Board, or of such committee as the case may
be, and such written consent is filed with the minutes of proceedings of
the Board or committee.
SECTION 8. Compensation. Directors shall receive compensation for
their services, as such, and for service on any Committee of the Board of
Directors, as fixed by resolution of the Board of Directors and for
expenses of attendance at each regular or special meeting of the Board or
any Committee thereof. Nothing in this Section shall be construed to
preclude a director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE V
Committees of Directors
SECTION 1. Executive Committee. The Board of Directors may appoint
an Executive Committee of two (2) or more members, to serve during the
pleasure of the Board, to consist of such directors as the Board may from
time to time designate. The Board of Directors shall designate the
Chairman of the Executive Committee.
(a) Procedure. The Executive Committee shall, by a vote of a
majority of its members, fix its own times and places of meeting,
determine the number of its members constituting a quorum for the
transaction of business, and prescribe its own rules of
procedure, no change in which shall be made save by a majority
vote of its members.
(b) Responsibilities. During the intervals between the meetings of
the Board of Directors, except as otherwise provided by the Board
of Directors in establishing such Committee or otherwise, the
Executive Committee shall possess and may exercise all the powers
of the Board in the management and direction of the business and
affairs of the Corporation; provided, however, that the Executive
Committee shall not have the power:
(i) to amend or authorize the amendment of the Certificate
of Incorporation or these By-Laws;
(ii) to issue stock;
(iii)to authorize the payment of any dividend;
(iv) to adopt an agreement of merger or consolidation of the
Corporation or to recommend to the stockholders the sale, lease
or exchange of all or substantially all the property and business
of the Corporation; or
(v) to recommend to the stockholders a dissolution of the
Corporation.
(c) Reports. The Executive Committee shall keep regular minutes of
its proceedings, and all action by the Executive Committee shall
be reported promptly to the Board of Directors. Such action
shall be subject to review, amendment and repeal by the Board,
provided that no rights of third parties shall be adversely
affected by such review, amendment or repeal.
(d) Appointment of Additional Members. In the absence or
disqualification of any member of the Executive Committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum,
may unanimously appoint another member of the Board of Directors
to act at the meeting in place of any such absent or disqualified
member.
SECTION 2. Audit Committee. The Board of Directors may appoint an
Audit Committee of two (2) or more members who shall not be officers or
employees of the Corporation to serve during the pleasure of the Board.
The Board of Directors shall designate the Chairman of the Audit Committee.
(a) Procedure. The Audit Committee, by a vote of a majority of its
members, shall fix its own times and places of meeting, shall
determine the number of its members constituting a quorum for the
transaction of business, and shall prescribe its own rules of
procedure, no change in which shall be made save by a majority
vote of its members.
(b) Responsibilities. The Audit Committee shall have the authority
and responsibility to: (1) select the Company's independent
accountants, review reports from accountants and from the
Company's financial officers; (2) review transactions relating to
officers and directors; (3) assess the Company's quality of
financial reporting and accounting principles as it relates to
the financial condition of the Company; (4) monitor compliance
with applicable laws and regulations that may significantly
impact the Company, including Federal procurement and employment
laws; and (5) monitor compliance with the Company's code of
ethical conduct.
(c) Reports. The Audit Committee shall keep regular minutes of its
proceedings, and all action by the Audit Committee shall, from
time to time, be reported to the Board of Directors as it shall
direct.
(d) Appointment of Additional Members. In the absence or
disqualification of any member of the Audit Committee, the member
or members thereof present at any meeting and not disqualified
from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board of Directors to
act at the meeting in place of any such absent or disqualified
member.
SECTION 3. Other Committees. The Board of Directors, by vote of a
majority of the directors then in office, may at any time appoint one or
more other committees from and outside of its own number. Every such
committee must include at least one member of the Board of Directors. The
Board may from time to time designate or alter, within the limits permitted
by law, the Certificate of Incorporation and this Article, if applicable,
the duties, powers and number of members of such other committees or change
their membership, and may at any time abolish such other committees or any
of them.
(a) Procedure. Each committee, appointed pursuant to this Section,
shall, by a vote of a majority of its members, fix its own times
and places of meeting, determine the number of its members
constituting a quorum for the transaction of business, and
prescribe its own rules of procedure, no change in which shall be
made save by a majority vote of its members.
(b) Responsibilities. Each committee, appointed pursuant to this
Section, shall exercise the powers assigned to it by the Board of
Directors in its discretion.
(c) Reports. Each committee appointed pursuant to this Section shall
keep regular minutes of proceedings, and all action by each such
committee shall, from time to time, be reported to the Board of
Directors as it shall direct.
(d) Appointment of Additional Members. In the absence or
disqualification of any member of each committee, appointed
pursuant to this Section, the member or members thereof present
at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in place of any such
absent or disqualified member.
SECTION 4. Term of Office. Each member of a committee shall hold
office until the first meeting of the Board of Directors following the
annual meeting of stockholders (or until such other time as the Board of
Directors may determine, either in the vote establishing the committee or
at the election of such member or otherwise) and until his successor is
elected and qualified, or until he sooner dies, resigns, is removed, is
replaced by change of membership or becomes disqualified by ceasing to be a
Director (where membership on the Board is required), or until the
committee is sooner abolished by the Board of Directors.
ARTICLE VI
Officers
SECTION 1. Officers. The Board of Directors shall elect a President,
a Secretary and a Chief Financial Officer, and, in their discretion, may
elect a Chairman of the Board, a Chief Executive Officer, one or more
Executive Vice Presidents, Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries and such other officers as deemed necessary or
appropriate. The Chief Executive Officer (in addition to and not in lieu
of such authority as is held by the Board of Directors) may appoint one or
more Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and
such other officers as are equal to or subordinate to such positions as he
deems necessary or appropriate. Each officer shall hold office for the
term provided by the vote of the Board, or, with respect to those officers
he has authority to appoint and has in fact appointed, for the term
designated by the Chief Executive Officer, except that each officer will be
subject to removal from office in the discretion of the Board or the Chief
Executive Officer, as the case may be, as provided herein. The powers and
duties of more than one office may be exercised and performed by the same
person.
SECTION 2. Vacancies. Any vacancy in any office may be filled for
the unexpired portion of the term by the Board of Directors, at any regular
or special meeting.
SECTION 3. Chairman of the Board. The Chairman of the Board of
Directors, if elected, shall be a member of the Board of Directors and
shall preside at its meetings. He shall advise and counsel with the
President, and shall perform such duties as from time to time may be
assigned to him by the Board of Directors. The Board of Directors may also
elect a Vice Chairman of the Board who, if elected, shall be a member of
the Board of Directors and may preside at its meetings. Any person
occupying the position or having the title of Chairman of the Board or Vice
Chairman of the Board shall not, merely in such capacity or because of such
title, be either an officer or employee of the Corporation unless the Board
duly adopts a resolution with respect to such person subsequent to his/her
election to such position specifically designating such position as an
officer and/or employee position specifically with respect to such person.
SECTION 4. Chief Executive Officer. Subject to such supervisory
powers, if any, as may be given by the Board of Directors to the Chairman
of the Board, if there be such an officer, and subject to the control of
the Board of Directors, the Chief Executive Officer of the Corporation, if
there be such an officer, shall have general supervision, direction and
control of the business and officers of the Corporation. Subject to the
Board of Directors, the Chief Executive Officer shall be the final arbiter
in all differences between the officers of the Corporation and his decision
as to any matter affecting the Corporation shall be final and binding as
between the officers of the Corporation. The Chief Executive Officer shall
preside at all meetings of the shareholders and, in the absence of the
Chairman of the Board, or if there be none, at all meetings of the Board of
Directors. The Chief Executive Officer shall have the general powers and
duties of management usually vested in the office of chief executive
officer of a corporation and shall have such other powers and perform such
other duties as may be assigned to him from time to time by the Board of
Directors or prescribed by the By-Laws.
SECTION 5. President. Subject to the control of the Board of
Directors and the Chief Executive Officer of the Corporation, if there be
such an officer, the President of the Corporation shall have such general
powers and duties of management as may be assigned to him from time to time
by the Board of Directors or the Chief Executive Officer of the Corporation
or prescribed by the By-Laws. In the absence or disability of the Chief
Executive Officer, or if there be none, the President shall perform all the
duties of the Chief Executive Officer, and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer.
SECTION 6. Executive Vice Presidents, Vice Presidents and Other
Officers. Each Executive Vice President, Vice President, Assistant Vice
President, Assistant Secretary and such other officers as may be duly
elected or appointed under these By-Laws shall have and exercise such
powers and shall perform such duties as from time to time may be assigned
to him by the Board of Directors, the Chief Executive Officer or the
President.
SECTION 7. Secretary. The Secretary shall keep the minutes of all
meetings of the stockholders and of the Board of Directors in books
provided for the purpose; he shall see that all notices are duly given in
accordance with the provisions of law and these By-Laws; he shall be
custodian of the records and of the corporate seal or seals of the
Corporation; he shall see that the corporate seal is affixed to all
documents the execution of which, on behalf of the Corporation under its
seal, is duly authorized, and, when the seal is so affixed, he may attest
the same; he may sign, with the Chief Executive Officer, President, an
Executive Vice President or a Vice President, certificates of stock of the
Corporation; and, in general, he shall perform all duties incident to the
office of secretary of a corporation, and such other duties as from time to
time may be assigned to him by the Board of Directors.
SECTION 8. Assistant Secretaries. The Assistant Secretaries in order
of their seniority shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall
perform such other duties as the Board of Directors shall prescribe or as
from time to time may be assigned by the Secretary.
SECTION 9. Chief Financial Officer. The Chief Financial Officer of
the Corporation shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus, and
shares. The books of account shall at all reasonable times be open to
inspection by any director. The Chief Financial Officer shall deposit all
monies and other valuables in the name and to the credit of the Corporation
with such depositaries as may be designated by the Board of Directors. He
shall disburse the funds of the Corporation as may be ordered by the Board
of Directors, shall render to the President and directors, whenever they
request it, an account of all his transactions as Chief Financial Officer
and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the
Board of Directors of the By-Laws.
SECTION 10. Subordinate Officers. The Board of Directors may appoint
such subordinate officers as it may deem desirable. Each such officer
shall hold office for such period, have such authority and perform such
duties as the Board of Directors may prescribe. The Board of Directors
may, from time to time, authorize any officer to appoint and remove
subordinate officers and to prescribe the powers and duties thereof.
SECTION 11. Compensation. The Board of Directors shall fix the
compensation of all officers of the Corporation. It may authorize any
officer, upon whom the power of appointing subordinate officers may have
been conferred, to fix the compensation of such subordinate officers, in
conjunction with the Chairperson of the Compensation Committee, as the case
may be.
SECTION 12. Removal. Any officer of the Corporation may be removed,
with or without cause, by action of the Board of Directors or the Chief
Executive Officer.
SECTION 13. Bonds. The Board of Directors may require any officer of
the Corporation to give a bond to the Corporation, conditional upon the
faithful performance of his duties, with one or more sureties and in such
amount as may be satisfactory to the Board of Directors.
ARTICLE VII
Certificates of Stock
SECTION 1. Form and Execution of Certificates. The interest of each
stockholder of the Corporation shall be evidenced by a certificate or
certificates for shares of stock in such form as the Board of Directors may
from time to time prescribe. The certificates of stock of each class shall
be consecutively numbered and signed by the President, an Executive Vice
President or a Vice President and by the Secretary, an Assistant Secretary,
the Treasurer or an Assistant Treasurer of the Corporation, and may be
countersigned and registered in such manner as the Board of Directors may
by resolution prescribe, and shall bear the corporate seal or a printed or
engraved facsimile thereof. Where any such certificate is signed by a
transfer agent or transfer clerk acting on behalf of the Corporation, the
signatures of any such President, Executive Vice President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be
facsimiles, engraved or printed. In case any officer or officers, who
shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates, shall cease to be such
officer or officers, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be issued
and delivered by the Corporation as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures
shall have been used thereon had not ceased to be such officer or officers.
In case the corporate seal which has been affixed to, impressed on, or
reproduced in any such certificate or certificates shall cease to be the
seal of the Corporation before such certificate or certificates have been
delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered by the Corporation as though the seal
affixed thereto, impressed thereon or reproduced therein had not ceased to
be the seal of the Corporation.
Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to law, the Certificate of Incorporation,
these By-Laws, or any agreement to which the Corporation is a party, shall
have the restriction noted conspicuously on the certificate, and shall also
set forth, on the face or back, either the full text of the restriction or
a statement of the existence of such restriction and (except if such
restriction is imposed by law) a statement that the Corporation will
furnish a copy thereof to the holder of such certificate upon written
request and without charge.
Every certificate issued when the Corporation is authorized to issue
more than one class or series of stock shall set forth on its face or back
either the full text of the preferences, voting powers, qualifications, and
special and relative rights of the shares of each class and series
authorized to be issued, or a statement of the existence of such
preferences, powers, qualifications and rights, and a statement that the
Corporation will furnish a copy thereof to the holder of such certificate
upon written request and without charge.
SECTION 2. Transfer of Shares. The shares of the stock of the
Corporation shall be transferred on the books of the Corporation by the
holder thereof in person or by his attorney lawfully constituted, upon
surrender for cancellation of certificates for the same number of shares,
with an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof or guaranty of the authenticity of
the signature as the Corporation or its agents may reasonably require. The
Corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and accordingly shall not be
bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it shall
have express or other notice thereof, save as expressly provided by law or
by the Certificate of Incorporation. It shall be the duty of each
stockholder to notify the Corporation of his post office address.
SECTION 3. Closing of Transfer Books. The stock transfer books of
the Corporation may, if deemed appropriate by the Board of Directors, be
closed for such length of time not exceeding fifty (50) days as the Board
may determine, preceding the date of any meeting of stockholders or the
date for the payment of any dividend or the date for the allotment of
rights or the date when any issuance, change, conversion or exchange of
capital stock shall go into effect, during which time no transfer of stock
on the books of the Corporation may be made.
SECTION 4. Dates of Record. If deemed appropriate, the Board of
Directors may fix in advance a date for such length of time not exceeding
sixty (60) days (and, in the case of any meeting of stockholders, not less
than ten (10) days) as the Board may determine, preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or
the date for the allotment of rights or the date when any issuance, change,
conversion or exchange of capital stock shall go into effect, as a record
date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting or entitled to receive payment of any such
dividend or to any such allotment of rights, or to exercise the rights in
respect of any such issuance, change, conversion or exchange of capital
stock, as the case may be, and in such case only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled to such
notice of, and to vote at, such meeting, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any record date fixed as aforesaid. If
no such record date is so fixed, the record date shall be determined by
applicable law.
SECTION 5. Lost or Destroyed Certificates. In case of the loss or
destruction of any certificate of stock, a new certificate may be issued
under the following conditions:
(a) The owner of said certificate shall file with the Secretary or
any Assistant Secretary of the Corporation an affidavit giving
the facts in relation to the ownership, and in relation to the
loss or destruction of said certificate, stating its number and
the number of shares represented thereby; such affidavit shall be
in such form and contain such statements as shall satisfy the
President, any Executive Vice President, Vice President, the
Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer, that said certificate has been accidentally
destroyed or lost, and that a new certificate ought to be issued
in lieu thereof. Upon being so satisfied, any such officer shall
require such owner to furnish the Corporation a bond in such
penal sum and in such form as he may deem advisable, and with a
surety or sureties approved by him, to indemnify and save
harmless the Corporation from any claim, loss, damage or
liability which may be occasioned by the issuance of a new
certificate in lieu thereof. Upon such bond being so filed, a
new certificate for the same number of shares shall be issued to
the owner of the certificate so lost or destroyed; and the
transfer agent and registrar, if any, of stock shall countersign
and register such new certificate upon receipt of a written order
signed by any such officer, and thereupon the Corporation will
save harmless said transfer agent and registrar in the premises.
In case of the surrender of the original certificate, in lieu of
which a new certificate has been issued, or the surrender of such
new certificate, for cancellation, the bond of indemnity given as
a condition of the issue of such new certificate may be
surrendered; or
(b) The Board of Directors of the Corporation may by resolution
authorize and direct any transfer agent or registrar of stock of
the Corporation to issue and register respectively from time to
time without further action or approval by or on behalf of the
Corporation new certificates of stock to replace certificates
reported lost, stolen or destroyed upon receipt of an affidavit
of loss and bond of indemnity in form and amount and with surety
satisfactory to such transfer agent or registrar in each instance
or upon such terms and conditions as the Board of Directors may
determine.
ARTICLE VIII
Execution of Documents
SECTION 1. Execution of Checks, Notes, etc. All checks and drafts on
the Corporation's bank accounts and all bills of exchange and promissory
notes, and all acceptances, obligations and other instruments for the
payment of money, shall be signed by such officer or officers, or agent or
agents, as shall be thereunto authorized from time to time by the Board of
Directors, which may in its discretion authorize any such signatures to be
facsimile.
SECTION 2. Execution of Contracts, Assignments, etc. Unless the
Board of Directors shall have otherwise provided generally or in a specific
instance, all contracts, agreements, endorsements, assignments, transfers,
stock powers, or other instruments shall be signed by the President, any
Executive Vice President, any Vice President, the Secretary, any Assistant
Secretary, the Treasurer or any Assistant Treasurer. The Board of
Directors may, however, in its discretion, require any or all such
instruments to be signed by any two or more of such officers, or may permit
any or all of such instruments to be signed by such other officer or
officers, agent or agents, as it shall be thereunto authorize from time to
time.
SECTION 3. Execution of Proxies. The President, any Executive Vice
President or any Vice President, and the Secretary, the Treasurer, any
Assistant Secretary or any Assistant Treasurer, or any other officer
designated by the Board of Directors, may sign on behalf of the Corporation
proxies to vote upon shares of stock of other companies standing in the
name of the Corporation.
ARTICLE IX
Inspection of Books
The Board of Directors shall determine from time to time whether, and
if allowed, to what extent and at what time and places and under what
conditions and regulations, the accounts and books of the Corporation
(except such as may by law be specifically open to inspection) or any of
them, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account or book or document
of the Corporation, except as conferred by the laws of the State of
Delaware, unless and until authorized so to do by resolution of the Board
of Directors or of the stockholders of the Corporation.
ARTICLE X
Fiscal Year
The fiscal year of the Corporation shall be determined from time to
time by vote of the Board of Directors.
ARTICLE XI
Amendments
These By-Laws may be altered, amended, changed or repealed and new
By-Laws adopted by the stockholders or by the Board of Directors, in either
case at any meeting called for that purpose at which a quorum shall be
present. Any By-Law, whether made, altered, amended, changed or repealed
by the stockholders or the Board of Directors may be repealed, amended,
changed, further amended, changed, repealed or reinstated, as the case may
be either by the stockholders or by the Board of Directors, as herein
provided; except that this Article may be altered, amended, changed or
repealed only by vote of the stockholders.
ARTICLE XII
Indemnification
SECTION 1. Indemnification.
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding or investigation, whether civil, criminal,
administrative or investigative and whether external or internal to the
Corporation (other than a judicial action or suit brought by or in the
right of the Corporation) by reason of the fact that he or she is or was a
director, officer or employee of the Corporation, or that, being or having
been such a director, officer, or employee, he or she is or was serving at
the request of the Corporation as a director, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (all such persons being referred to hereafter as an "Agent"),
against expenses (including attorneys' fees) judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, or any appeal therein, if
such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such conduct was unlawful. The termination of any action,
suit or proceeding -- whether by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent -- shall not, of
itself, create a presumption that the person did not act in good faith and
in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
judicial action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was an
Agent (as defined above) against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense,
settlement or appeal of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation in the performance of his or
her duty to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or other such court shall deem proper.
(c) Notwithstanding the other provisions of this Article, to the
extent that an Agent has been successful on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice
or the settlement of an action without admission of liability, in defense
of any action, suit or proceeding referred to in this Section or in defense
of any claim, issue or matter therein or on appeal from any such action,
suit, proceeding, claim or matter, he or she shall be indemnified against
all expenses incurred in connection therewith.
(d) Any indemnification provided pursuant to this Section 1 shall be
paid promptly, and in any event within sixty (60) days of the final
disposition of the action, suit or proceeding, upon the written request of
the Agent, unless with respect to claims for indemnification under
Paragraphs (a) or (b) of this Section, a determination is reasonably and
promptly made by the Board of Directors by a majority vote of a quorum of
disinterested directors that such Agent acted in a manner set forth in such
Paragraphs as to justify the Corporation's not indemnifying the Agent.
SECTION 2. Authorization. Any indemnification under Section 1 of
this Article (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Section 1 of this Article. Such determination shall be made: (a)
by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (b)
if such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders.
SECTION 3. Expense Advance. Costs, charges and expenses (including
attorneys' fees) incurred by or on behalf of a director or officer in
defending any action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the Corporation in advance of the final
disposition of such matter, and in any event within sixty (60) days of the
receipt by the Corporation of a demand therefor, upon receipt of an
undertaking by or on behalf of such director or officer to repay the amount
of all such advances if it shall be ultimately determined that he or she is
not entitled to be indemnified by the Corporation as authorized in this
Article. Such expenses incurred by employees and agents of the Corporation
who are not officers, directors or employees may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
SECTION 4. Nonexclusivity. The rights provided by this Article shall
not be deemed exclusive of, and shall not affect, any other rights to which
those seeking indemnification or advancement of expenses may be entitled
under any law, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office. All rights
to indemnification under this Article shall be deemed to be provided by a
contract between the Corporation and the Agent who serves in such capacity
at any time while these By-Laws and other relevant provisions of the
Delaware General Corporation Law and other applicable law, if any, are in
effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing.
SECTION 5. Insurance. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability
under the provisions of this Article. The Corporation may create a trust
fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such sums as may
become necessary to effect indemnification as provided herein.
SECTION 6. "The Corporation." For the purposes of this Article,
references to "the Corporation" include any constituent corporation
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers and employees or agents, as well as the resulting or surviving
corporation, so that any person who is or was a director, officer, employee
or trustee of such a constituent corporation or who, being or having been
such a director, officer, employee or trustee, is or was serving at the
request of such constituent corporation as director, officer, employee, or
trustee of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving corporation as such
person would have stood with respect to such a constituent corporation if
its separate existence had continued.
SECTION 7. "Other Enterprises." For purposes of this Article,
references to "other enterprise" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at
the request of the corporation" shall include any service of an Agent which
imposes duties on, or involves services by, such Agent with respect to any
employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he or she reasonably believed to be
in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the Corporation" as referred to in this Article.
SECTION 8. Benefit. The rights provided by, or granted pursuant to,
this Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be an Agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Such rights shall be enforceable by the Agent in any court of competent
jurisdiction, if the board or independent legal counsel denies Agent's
claim, in whole or in part, or if no disposition of such claim is made
within the respective time periods provided by this Article. Agent's costs
and expenses incurred in connection with successfully establishing, in
whole or in part, his or her right to such indemnification or advancements
in any such proceeding shall also be indemnified by the Corporation. If
this Article or any portion thereof shall be invalidated on any ground by
any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Agent as to expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement with respect to any
action, suit, appeal, proceeding or investigation, whether civil, criminal
or administrative, and whether internal or external, including a grand jury
proceeding and an action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated, or by any other applicable
law.
SECTION 9. Amendment. Notwithstanding any other provision of these
By-Laws, this Article XII may be altered, amended or repealed by the Board
of Directors only pursuant to the affirmative vote of 80 percent or more of
all members of the board in office at the time of such alteration,
amendment or repeal.
<PAGE>
AGREEMENT
This Agreement ("Agreement") dated as of February 10, 1999 among
Government Technology Services, Inc., a Delaware corporation ("GTSI"), BTG,
Inc., a Virginia corporation ("BTG"), BTG Technology Systems, Inc., a
Virginia corporation ("BTG Systems"), and Concept Automation, Inc. of
America, a Virginia corporation ("Concept Automation" and, together with
BTG and BTG Systems, the "BTG Group"). Capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Asset
Purchase Agreement dated as of February 12, 1998 among GTSI and the BTG
Group (the "Purchase Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to the Purchase Agreement, GTSI purchased
substantially all of the assets of the Division;
WHEREAS, concurrently with the execution of the Purchase Agreement,
GTSI and the BTG Group entered into certain ancillary agreements, including
the Escrow Agreement, Trademark License Agreement, Database and Software
Agreement, Standstill Agreement, Transition Services Agreement, Lockbox
Agreement, Sales Commission and Bonus Agreement, Royalty Subcontracts,
Novation Subcontracts, Novation Agreements, Warehouse Sublease Agreement,
Chattanooga Sublease Agreement and Assignment and Assumption of the Germany
Lease (collectively, with the Purchase Agreement, the "Transaction
Documents");
WHEREAS, GTSI and BTG entered into a letter agreement last dated as of
May 18, 1998 (the "Letter Agreement"), which superceded Section 2.10(c) and
2.10(d) of the Purchase Agreement and resolved issues regarding the
disposition of certain BTG Surplus Inventory (as defined therein); and
WHEREAS, certain disagreements have arisen among the parties regarding
their respective rights and obligations under certain Transaction Documents
and, to resolve such disagreements, the parties desire to modify and
clarify such rights and obligations in the manner set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
set forth herein, the parties hereto hereby agree as follows:
Article I
Definitions; Closing
Section 1.01. Definitions
(a) The following terms used herein shall have the following
meanings:
"Affiliate" means with respect to any Person, any Person now or
hereafter controlling, controlled by or under common control with such
Person.
"Ancillary Agreements" means the Royalty Subcontract Amendment, the
Royalty Novation Agreement and the Stock Transfer Agreement dated the date
hereof between GTSI and BTG.
"Common Stock" means common stock, par value $.005 per share, of GTSI.
"Escrow Funds" means the $800,000 cash plus interest accrued thereon
currently on deposit with the Escrow Agent in accordance with the Escrow
Agreement.
"Escrow Shares" means the 300,000 shares of Common Stock currently
held by the Escrow Agent in accordance with the Escrow Agreement.
"Knowledge" means (i) with respect to GTSI, the actual knowledge of
the persons listed on Schedule 1.01(a) and (ii) with respect to any member
of the BTG Group, the actual knowledge of the persons listed on Schedule
1.01(b).
"Lien" means any adverse claim, restriction on voting or transfer or
pledge, lien, mortgage, hypothecation, collateral assignment, charge,
encumbrance, easement, covenant, restriction, title defect, encroachment or
security interest of any kind.
"Novated Contracts" means the contracts listed on Attachment A to the
Novated Subcontract.
"Novated Subcontract" means the Subcontract Agreement Under Novated
Contracts dated as of February 11, 1998 among GTSI, BTG and Concept
Automation.
"PC-2 Contract" means Contract No. DAAB07-97-D-V002 for the Department
of Defense.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a limited liability company, an unincorporated
organization or a government or a department or agency therof.
"Royalty Contracts" means the Contracts as defined in the Royalty
Subcontract.
"Royalty Novation Agreement" means the Novation Agreement attached
hereto as Exhibit 1 which applies to all of the Royalty Contracts other
than the PC-2 Contract.
"Royalty Subcontract" means the Subcontract Agreement Under Royalty
Contracts dated as of February 11, 1998 between GTSI and BTG.
"Royalty Subcontract Amendment" means Modification One to Subcontract
Agreement Under Royalty Contracts attached hereto as Exhibit 2.
"Spare Parts" means the spare parts relating to the PC-2 Contract
listed on Schedule 1.01(c).
(b) The following terms shall have the meanings assigned to such
terms in the
following Sections:
Term Section
Agreement Recitals
BTG Recitals
BTG Group Recitals
Closing 1.02
GTSI Recitals
GTSI Account 2.01(a)
Letter Agreement Recitals
Purchase Agreement Recitals
Released Claims 6.05
Transaction Documents Recitals
Section 1.02. Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Arent
Fox Kintner Plotkin & Kahn, PLLC, 1050 Connecticut Avenue, N.W.,
Washington, D.C. at 10:30 a.m. local time, simultaneously with the
execution and delivery of this Agreement and the Ancillary Agreements;
provided, however, that the parties intend that the Closing shall deemed to
be effective, and the transactions contemplated hereby shall be deemed to
occur simultaneously at 5:00 p.m. local time on the date hereof.
Article II
Termination of Escrow
Section 2.01. Disposition of Escrow Funds and Escrow Shares.
(a) At the Closing, the parties shall cause the Escrow Agent to
deliver the
Escrow Funds to GTSI by wire transfer to a bank account designated by GTSI
(the "GTSI Account").
(b) At the Closing, subject to Section 2.04, the parties shall
cause the
Escrow Agent to deliver the Escrow Shares to BTG free and clear of any
claims under the Escrow Agreement.
Section 2.02. Termination of Escrow Agreement. At the Closing, the
parties shall deliver written instructions to the Escrow Agent terminating
the Escrow Agreement immediately after the Escrow Funds and Escrow Shares
are delivered in accordance with Section 2.01.
Section 2.03. Effect of Termination of Escrow Agreement. Other than
the Released Claims, the parties agree that all of GTSI's claims, causes of
action and remedies under or otherwise in respect of the Transaction
Documents shall remain unchanged.
Section 2.04. Stock Legend. On the date of the Closing, BTG shall
cause the certificates evidencing the Escrow Shares to be tendered to
GTSI's transfer agent, First Union National Bank, which shall issue to BTG
stock certificates of the same denomination in exchange therefor bearing
the following modified legends:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY
TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF A STANDSTILL AGREEMENT DATED FEBRUARY 12, 1998 BY AND BETWEEN THE
CORPORATION AND BTG, INC. AND MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE THEREWITH.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF A STOCK TRANSFER AGREEMENT DATED FEBRUARY 10, 1999 BY BTG, INC. AND
THE CORPORATION AND MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE
THEREWITH.
Article III
Representations of the BTG Group
Section 3.01. Authorization, Binding Obligations and No Conflicts.
Each
member of the BTG Group has full power and authority to enter into this
Agreement and the Ancillary Agreements, as applicable, and to perform the
transactions contemplated hereby and thereby. This Agreement and the
Ancillary Agreements, as applicable, have been duly authorized, executed
and delivered by each member of the BTG Group and are valid and binding
obligations of each such member. The execution, delivery and performance
by each member of the BTG Group of this Agreement and the Ancillary
Agreements, as applicable, the fulfillment of and compliance with the terms
and provisions hereof and thereof, and the consummation by each member of
the BTG Group of the transactions contemplated hereby and thereby do not
require any consent or approval other than that which has been obtained,
conflict with or result in a breach by any member of the BTG Group of any
of the terms or provisions of, or constitute a default under, any
applicable law, rule, or regulation or any applicable decree, judgment or
order of any court, federal or state regulatory body, administrative agency
or other governmental body having jurisdiction over any member of the BTG
Group, or the certificate of incorporation or bylaws of any such member.
Section 3.02. Absence of Litigation. There is no action, suit,
claim, arbitration, proceeding or investigation, at law or in equity, or
before or by any court, arbitrator or governmental authority, pending, or,
to the knowledge of any member of the BTG Group, threatened or reasonably
anticipated against, affecting or involving any member of the BTG Group,
wherein an unfavorable decision, ruling or finding would adversely affect
the validity or enforceability of, or the authority or ability of any
member of the BTG Group to perform its obligations under, this Agreement.
Section 3.03. BTG Group's Knowledge. Except as set forth on Schedule
3.03, no member of the BTG Group has Knowledge as of the date of this
Agreement of any potential claim of any member of the BTG Group against
GTSI with respect to the Transaction Documents, this Agreement, or the
Ancillary Agreements.
Article IV
Representations of GTSI
Section 4.01. Authorization, Binding Obligations and No Conflicts.
GTSI
has full power and authority to enter into this Agreement and to perform
the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by GTSI and is a valid and binding
obligation of GTSI. The execution, delivery and performance by GTSI of this
Agreement, the fulfillment of and compliance with the terms and provisions
hereof, and the consummation by GTSI of the transactions contemplated
hereby do not require any consent or approval other than that which has
been obtained, conflict with or result in a breach by GTSI of any of the
terms or provisions of, or constitute a default under, any applicable law,
rule, or regulation or any applicable decree, judgment or order of any
court, federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over GTSI, or the certificate of
incorporation or bylaws of GTSI.
Section 4.02. Absence of Litigation. There is no action, suit,
claim, arbitration, proceeding or investigation, at law or in equity, or
before or by any court, arbitrator or governmental authority, pending, or,
to the Knowledge of GTSI, threatened or reasonably anticipated against,
affecting or involving GTSI, wherein an unfavorable decision, ruling or
finding would adversely affect the validity or enforceability of, or the
authority or ability of GTSI to perform its obligations under, this
Agreement.
Section 4.03. Title to Spare Parts. GTSI has as of the date of this
Agreement good, valid and marketable title to the Spare Parts, free and
clear of any Liens.
Section 4.04. Royalty Contracts. GTSI has the ability as of the date
of this Agreement to perform under the Royalty Contracts. The amount
payable to BTG as of January 29, 1999 under the Royalty Contracts for work
performed through December 31, 1998 (a) excluding accrued amounts which are
not yet due and payable, is $914,450.87 (the "Royalty Contract Payment"),
and (b) including accrued amounts which are not yet due and payable, is
$1,177,763.35. To the Knowledge of GTSI, such amounts are fully
collectible.
Section 4.05. GTSI's Knowledge. Except as set forth on Schedule
4.05, GTSI has no Knowledge as of the date of this Agreement of any
potential claim of GTSI against any member of the BTG Group with respect to
the Transaction Documents, this Agreement, or the Ancillary Agreements.
Article V
Royalty Issues
Section 5.01. Amendment to Royalty Subcontract; Payment. At the
Closing, GTSI and BTG shall execute the Royalty Subcontract Amendment and
GTSI shall pay the Royalty Contract Payment to BTG by wire transfer to an
account designated by BTG as contemplated by Section 6.08.
Section 5.02. Novation of the Royalty Contracts. At the Closing,
GTSI and BTG shall execute the Royalty Novation Agreement and thereafter
will cooperate fully with each other and will use all reasonable efforts to
obtain consents to the novation of the Royalty Contracts covered thereby.
BTG hereby agrees expeditiously to take all action necessary to request in
accordance with FAR Section 42.12 that the U.S. Government execute the
Royalty Novation Agreement recognizing GTSI as the successor in interest to
the Royalty Contracts covered by the Royalty Novation Agreement. The
Royalty Subcontract, as amended by the Royalty Subcontract Amendment, shall
remain in place and effective with respect to the Royalty Contracts until
novation is obtained and, after such novation, shall remain in place and
effective with respect to the PC-2 Contract in accordance with its terms.
Article VI
Other Agreements
Section 6.01. Spare Parts. At the Closing, BTG agrees to purchase
from GTSI, and GTSI agrees to sell to BTG, the Spare Parts for a purchase
price equal to One Dollar ($1.00) payable to GTSI by wire transfer to the
GTSI Account as contemplated by Section 6.08. BTG agrees to pay and be
responsible for any and all sales, use, transfer and other taxes imposed
with respect to such purchase and sale.
Section 6.02. Outstanding Commercial Invoices. Schedule 6.02 sets
forth a list of all of the commercial invoices outstanding as of the date
of this Agreement regarding (a) amounts owed to BTG by GTSI and (b) amounts
owed to GTSI by BTG. After offsetting these amounts against each other,
BTG owes $219,309.26 to GTSI. Such amount owed by BTG shall be offset
against amounts owed by GTSI to BTG in calculating the payment due from
GTSI to BTG at Closing pursuant to Section 6.08.
Section 6.03. Future Commerce. GTSI and BTG agree that all future
commerce between them shall be on a net 30 basis, unless they agree
otherwise in writing with respect to specific transactions.
Section 6.04. GTSI Board Representation. Effective as of the
Closing, (a) Dr. Edward Bersoff shall resign from the GTSI Board of
Directors (the "GTSI Board") and (b) the Standstill Agreement shall be
amended to delete Article IV thereof, thereby terminating any and all of
BTG's rights with respect to the BTG Designee and the Joint Designee as
defined therein. Subject to the approval of the GTSI Board on an annual
basis in its sole discretion after the Closing, GTSI may to the extent
legally permitted to do so invite Dr. Bersoff, as a representative of BTG,
as long as BTG owns at least ten percent (10%) of the Common Stock
outstanding, to attend all meetings of the GTSI Board (but not committees,
subcommittees or special committees of the GSTI Board) in a nonvoting
observer capacity and, in this respect, may give such representative copies
of all notices, minutes, consents, and other materials that it provides to
its directors; provided, however, that such representative shall agree to
hold in confidence and trust and to act in a fiduciary manner with respect
to all information so provided, and, provided further, that GTSI reserves
the right to withhold any information and to exclude such representative
from any meeting or portion thereof if access to such information or
attendance at such meeting could adversely affect the attorney-client
privilege between GTSI and its counsel or would result in disclosure of
trade secrets to such representative.
Section 6.05. Released Claims.
(a) Effective as of the Closing, in consideration of the payments and
agreements of
the BTG Group herein, GTSI, on behalf of itself and its Affiliates,
successors and assigns (the "GTSI Releasers"), hereby releases and forever
discharges each member of the BTG Group and each of their successors and
assigns (collectively, the "BTG Releasees") of and from any and all causes
of action, suits, claims, demands, defenses, offsets or recoupment of any
kind and nature whatsoever in law or in equity known or unknown which the
GTSI Releasers ever had, may have or may in the future have with respect to
(a) the invalidity of any backlog orders listed on Schedule 3.24(a) of the
Purchase Agreement, (b) noncompliance with Section 5.03(f) of the Purchase
Agreement regarding Returned Products, (c) noncompliance with Section 2.04
of the Purchase Agreement, regarding satisfaction of Retained Liabilities,
insofar as such Retained Liabilities pertain to warranty claims and
obligations (but not "year 2000" claims and obligations) relating to
products and services delivered under the Contracts (other than the PC-2
Contract) on or before the Closing Date as set forth in clause (iii) of the
definition of Retained Liabilities in the Purchase Agreement, (d)
noncompliance with Section 5.11 of the Purchase Agreement and (e) the
matters identified on Schedule 4.05, but only with respect to the period
ending on the date of this Agreement and not with respect to any claims
which may exist in the future with respect to such matters arising after
the date of this Agreement (collectively, the "Released Claims").
(b) Effective as of the Closing, in consideration of the payments and
agreements of
GTSI herein, the BTG Group, on behalf of itself and its Affiliates,
successors and assigns (the "BTG Releasers"), hereby releases and forever
discharges GTSI and its successors and assigns (collectively, the "GTSI
Releasees") of and from any and all causes of action, suits, claims,
demands, defenses, offsets or recoupment of any kind and nature whatsoever
in law or in equity known or unknown which the BTG Releasers ever had, may
have or may in the future have with respect to the matters identified on
Schedule 3.03, but only with respect to the period ending on the date of
this Agreement and not with respect to any claims which may exist in the
future with respect to such matters arising after the date of this
Agreement.
Section 6.06. Warranty Responsibility; Purchase Agreement Amendment.
Except as provided in the Royalty Subcontract Amendment with respect to the
PC-2 Contract, GTSI shall assume, effective as of the Closing, all past,
present and future warranty responsibility under the Royalty Contracts and
the Novated Contracts other than the PC-2 Contract. To this end, effective
as of and after the Closing, the Purchase Agreement shall be amended as
follows:
(a) clause (iii) of the definition of Retained Liabilities in
Section 1.01 of the Purchase Agreement shall be amended to read as follows:
"warranty claims and obligations relating to products and services
delivered under the PC-2 Contract on or before the Closing Date and "year
2000" compliance claims and obligations relating to products and services
delivered under the Contracts on or before the Closing Date;" and
(b) Section 5.11 of the Purchase Agreement shall be deleted.
Section 6.07. Surplus Inventory. The parties acknowledge and agree
that all issues between them have been resolved regarding payments due or
owing for inventory delivered by BTG to GTSI at any time in calendar 1998
which was not included in the definition of Current Inventory and
Noncurrent Inventory as defined in the Purchase Agreement. Without limiting
the generality of the foregoing, the BTG Group specifically acknowledges
that no payments are or will be due and owing from GTSI to BTG with respect
to any additional inventory delivered by BTG to GTSI after the date of the
Letter Agreement for which BTG has previously submitted an invoice to GTSI
in the amount of $182,186.26. The BTG Group further represents and
warrants that there is as of the Closing no inventory in its possession or
under its control which it will deliver to GTSI and/or for which it will
seek payment from GTSI.
Section 6.08. Closing Payment. After offsetting the amounts owed by
the parties to each other pursuant to Sections 5.01, 6.01 and 6.02, it is
agreed that GTSI owes the net amount of $695,140.61 to BTG. At the
Closing, GTSI agrees to pay $695,140.61 to BTG by wire transfer to the BTG
Account.
Article VII
Miscellaneous
Section 7.01. Entire Agreement. This Agreement, together with the
Ancillary Agreements, constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior written
and oral and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof. Except as modified by this Agreement,
the provisions of the Transaction Documents shall remain unchanged.
Section 7.02. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to any member of the BTG Group, to:
Edward H. Bersoff
President and Chief Executive Officer
BTG, Inc.
3877 Fairfax Ridge Road
Fairfax, VA 22030
telecopier: (703) 383-4000
with a copy to:
Deborah Fox, Esq.
General Counsel
BTG, Inc.
3877 Fairfax Ridge Road
Fairfax, VA 22030
telecopier: (703) 383-4205
if to GTSI, to:
M. Dendy Young
President and Chief Executive Officer
Government Technology Services, Inc.
3901 Stonecroft Boulevard
Chantilly, VA 20151-1010
telecopier: (703) 222-5217
with a copy to:
Gerald P. McCartin
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Ave., N.W.
Washington, DC 20036-5339
telecopier: (202) 857-6395
or such other address as such party may hereafter specify for the purpose
by notice to the other parties hereto. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this section
and the appropriate telecopy confirmation is received, or (b) if given by
any other means, when delivered at the address specified in this Section.
Section 7.03. No Waivers. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
Section 7.04. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of parties hereto
and their respective successors and assigns, provided that no party may
assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without the consent of the other parties hereto;
provided, however, that, without the prior consent of GTSI, the BTG Group
may collaterally assign their rights hereunder, subject to the terms and
conditions hereunder and without relieving the BTG Group of any obligation
or liability hereunder, to a financing institution or federal lending
agency, as used in 31 U.S.C. Section 3527 and 41 U.S.C. Section 15, as
security for the BTG Group's obligations to such financing institution or
agency.
Section 7.05. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the Commonwealth of Virginia
regardless of the law that might otherwise govern under principles of
conflicts of laws applicable thereto, except with respect to matters of
corporate law as they apply to GTSI, which shall be governed by the
Delaware General Corporation Law.
Section 7.06. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto.
Section 7.07. Expenses. Except as otherwise provided in this
Agreement, each party will be solely responsible for such party's legal,
accounting, and other costs and expenses associated with the transactions
contemplated by this Agreement. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or an
Ancillary Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
Section 7.08. Terms Generally. The definitions in Article I shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation." All references herein to Articles, Sections,
Attachments, Exhibits and Schedules shall be deemed references to Articles
and Sections of, and Attachments, Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with generally accepted accounting principles.
Section 7.09. No Third-Party Beneficiaries. This Agreement shall
not confer any rights or remedies upon any Person other than the parties
and their respective successors and permitted assigns.
Section 7.10. Specific Performance. Each of the parties acknowledges
and agrees that the other party would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each of
the parties agrees that the other party shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Agreement and
to enforce specifically this Agreement and the terms and provisions hereof
in any action instituted in any court of the United States or any state
thereof having jurisdiction over the parties and the matter (subject to the
provisions set forth in Section 7.11), in addition to any other remedy to
which it may be entitled, at law or in equity.
Section 7.11. Jurisdiction. Each of the parties consents to the
exclusive jurisdiction of the federal courts of the Eastern District of
Virginia for any legal action, suit or proceeding arising out of or in
connection with this Agreement or the transactions contemplated hereby, and
agrees that any such action, suit, or proceeding may be brought only in
such courts. If such forum is not available, each of the parties consents
to the exclusive jurisdiction of the Circuit Court of Fairfax County,
Virginia, for any such action, suit or proceeding. Each of the parties
further waives any objection to the laying of venue for any suit, action or
proceeding in such courts. Each of the parties agrees to accept and
acknowledge service of any and all process that may be served in any suit,
action or proceeding. Each of the parties agrees that any service of
process upon it mailed by registered or certified mail, return receipt
requested to such party at the address provided in Section 7.02 shall be
deemed in every respect effective service of process upon such party in any
such suit, action or proceeding. Each of the parties agrees to waive any
right it might have to a trial by jury in any such suit, action or
proceeding.
Section 7.12. Joint and Several Liability. Notwithstanding anything
herein to the contrary, for all purposes of this Agreement (a) each member
of the BTG Group hereby agrees that (i) it shall be deemed to have made
herein all of the representations and warranties made by all other members
of the BTG Group and under the Ancillary Agreements and (ii) it is jointly
and severally obligated and liable for the obligations and liabilities of
all other members of the BTG Group herein and therein.
Section 7.13. Further Assurances. 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.
Section 7.14. Survival. The representations, warranties and
covenants of GTSI and the BTG Group contained in this Agreement or any
Ancillary Agreement shall survive the Closing.
[Signatures on the following page]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
GOVERNMENT TECHNOLOGY SERVICES, INC.,
a Delaware corporation
By: /s/ STEPHEN L. WAECHTER
-------------------------------
Stephen L. Waechter
Chief Financial Officer
BTG, INC.,
a Virginia corporation
By: /s/ EDWARD H. BERSOFF
-------------------------------
Edward H. Bersoff, President and
Chief Executive Officer
BTG TECHNOLOGY SYSTEMS, INC.,
a Virginia corporation
By: /s/ EDWARD H. BERSOFF
-------------------------------
Edward H. Bersoff, President and
Chief Executive Officer
CONCEPT AUTOMATION, INC. OF AMERICA,
a Virginia corporation
By: /s/ EDWARD H. BERSOFF
-------------------------------
Edward H. Bersoff, President and
Chief Executive Officer
<PAGE>
STOCK TRANSFER AGREEMENT
This Stock Transfer Agreement dated as of February 10, 1999 among
Government Technology Services, Inc., a Delaware corporation ("GTSI") and
BTG, Inc., a Virginia corporation ("BTG"). Capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Asset
Purchase Agreement dated as of February 12, 1998 among GTSI, BTG and
certain BTG subsidiaries (the "Purchase Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to the Purchase Agreement, GTSI purchased
substantially all of the assets of the Division;
WHEREAS, concurrently with the execution of the Purchase Agreement,
GTSI and the BTG Group entered into certain ancillary agreements, including
the Escrow Agreement, Trademark License Agreement, Database and Software
Agreement, Standstill Agreement, Transition Services Agreement, Lockbox
Agreement, Sales Commission and Bonus Agreement, Royalty Subcontracts,
Novation Subcontracts, Novation Agreements, Warehouse Sublease Agreement,
Chattanooga Sublease Agreement and Assignment and Assumption of the Germany
Lease (collectively, with the Purchase Agreement, the "Transaction
Documents"); and
WHEREAS, concurrently herewith, GTSI, BTG, BTG Technology Systems,
Inc., a Virginia corporation ("BTG Systems"), and Concept Automation, Inc.
of America, a Virginia corporation (together with BTG and BTG Systems, the
"BTG Group") are executing and closing an Agreement dated the date hereof
(the "Agreement") resolving certain disagreements among them regarding
their respective rights and obligations under certain Transaction
Documents, and the Agreement contemplates that GTSI and BTG shall
concurrently execute and close this Stock Transfer Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
set forth herein, the parties hereto hereby agree as follows:
Article I
Definitions; Closing
Section 1.01. Definitions
(a) The following terms used herein shall have the following
meanings:
"Affiliate" means with respect to any Person, any Person now or
hereafter controlling, controlled by or under common control with such
Person.
"Common Stock" means common stock, par value $.005 per share, of GTSI.
"Escrow Shares" means the 300,000 shares of Common Stock held by the
Escrow Agent in accordance with the Escrow Agreement and being released to
BTG concurrently with the Closing pursuant to the Agreement.
"GTSI Note" means the promissory note in the form attached hereto as
Exhibit 1.
"GTSI Shares" means the Optioned Shares, the Repurchased Shares and
the Transferred Shares.
"Lien" means any adverse claim, restriction on voting or transfer or
pledge, lien, mortgage, hypothecation, collateral assignment, charge,
encumbrance, easement, covenant, restriction, title defect, encroachment or
security interest of any kind.
"Optioned Shares" means the 1,300,000 shares of Common Stock acquired
by BTG pursuant to the Purchase Agreement, including the Escrow Shares,
which are subject to the Repurchase Option.
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a limited liability company, an unincorporated
organization or a government or a department or agency thereof.
"Repurchased Shares" means the 400,000 shares of Common Stock acquired
by BTG pursuant to the Purchase Agreement which are being repurchased by
GTSI in accordance with Section 2.02.
"Transferred Shares" means the 200,000 shares of Common Stock acquired
by BTG pursuant to the Purchase Agreement which are being transferred to
GTSI in accordance with Section 2.01.
(b) The following terms shall have the meanings assigned to such
terms in the
following Sections:
Term Section
Agreement Recitals
BTG Recitals
BTG Group Recitals
Closing 1.02
Option Period 3.01(a)
Option Price 3.01(a)
Per Share Amount 3.02(a)
Purchase Agreement Recitals
Repurchase Option 3.01(a)
Transaction Documents Recitals
Section 1.02. Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Arent
Fox Kintner Plotkin & Kahn, PLLC, 1050 Connecticut Avenue, N.W.,
Washington, D.C. at 10:30 a.m. local time, simultaneously with the
execution and delivery of this Stock Transfer Agreement, the Agreement and
the Ancillary Agreements (as defined in the Agreement); provided, however,
that the parties intend that the Closing shall deemed to be effective, and
the transactions contemplated hereby shall be deemed to occur
simultaneously at 5:00 p.m. local time on the date hereof.
Article II
The Transferred Shares and the Repurchased Shares
Section 2.01. Transferred Shares. At the Closing, BTG shall transfer
to GTSI, at no cost to GTSI, the Transferred Shares, free and clear of all
Liens, by delivering to GTSI certificates representing the Transferred
Shares duly endorsed for transfer in blank or with assignment separate from
certificates duly endorsed, with all necessary transfer tax stamps, if any,
affixed or provided for.
Section 2.02. Repurchased Shares. At the Closing, (a) BTG shall sell
to GTSI, and GTSI shall purchase from BTG, the Repurchased Shares, free and
clear of all Liens, by delivering to GTSI certificates representing the
Repurchased Shares duly endorsed for transfer in blank or with assignment
separate from certificates duly endorsed, with all necessary transfer tax
stamps, if any, affixed or provided for, and (b) in payment therefor, GTSI
shall deliver the GTSI Note to BTG.
Article III
The Optioned Shares
Section 3.01. Repurchase Option.
(a) BTG hereby grants to GTSI the exclusive option (the
"Repurchase
Option") to purchase all or any part of the Optioned Shares for a per share
price (the "Option Price") of $5.25 at any time or from time to time until
the fifth anniversary of the Closing (the "Option Period") by delivery of
written notice to BTG specifying the number of Optioned Shares being
purchased and the date, no more than 10 days after such notice, on which
payment therefor will be made. The closing on the purchase and sale of
such Optioned Shares shall be held at GTSI's principal office on the date
specified in such notice. At such closing, certificates representing the
Optioned Shares to be sold shall be delivered to GTSI, duly endorsed for
transfer in blank or with assignment separate from certificates duly
endorsed, with all necessary transfer tax stamps, if any, affixed or
provided for, against delivery of payment in immediately available funds or
a promissory note, as provided below, of an amount equal to the product of
the number of Optioned Shares being purchased and the Option Price. All
Optioned Shares purchased pursuant to the Repurchase Option shall be
delivered by BTG to GTSI free and clear of all Liens. Payment by GTSI upon
exercise of the Repurchase Option shall be in immediately available funds
unless notice of exercise of the Repurchase Option is delivered to BTG on
or before December 31, 1999, in which case payment in connection with such
notice may be made, in GTSI's discretion, either in immediately available
funds or by the delivery of a promissory note substantially in the form of
Exhibit 2 hereto, the terms of which (depending on the number of Optioned
Shares purchased) shall be as set forth on Exhibit 3 hereto.
(b) If after the Closing the number of shares of Common Stock
represented by
the original number of Optioned Shares is increased or decreased as a
result of any increase or decrease in the number of issued shares of Common
Stock resulting from the declaration of a dividend or the making of a
distribution on the outstanding Common Stock, the subdivision or
reclassification of the outstanding Common Stock into a greater number of
shares or the combination or reclassification of the outstanding Common
Stock into a smaller number of shares, the Option Price shall be adjusted
by multiplying the Option Price in effect immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of
Optioned Shares issuable upon the exercise of the Repurchase Option
immediately prior to such adjustment, and the denominator of which shall be
the number of Optioned Shares issuable upon the exercise of the Repurchase
Option immediately thereafter.
(c) The parties agree that, effective as of the Closing, Section
2.02 of the
Standstill Agreement shall be amended to delete clauses (b) and (d)
therefrom, so that transfers described therein will thereafter require the
prior written consent of GTSI duly authorized by a majority of the members
of the GTSI Board.
(d) BTG agrees to provide written notification to GTSI of BTG's
bona fide
intention to dispose of or otherwise transfer any GTSI Shares pursuant to
Section 2.02(c) of the Standstill Agreement no less than 10 business days
prior to the intended disposition or transfer. GTSI shall have the
absolute right, but not the obligation, in its sole discretion to exercise
the Repurchase Option at any time prior to the date of such intended
disposition with respect to any Repurchase Shares covered by such
notification.
(e) BTG agrees that it shall be a condition to any permitted
Transfer (as
defined in the Standstill Agreement) under Section 2.02(a) or (e) of the
Standstill Agreement that the transferee agree in writing to be bound by
the terms of the Repurchase Option.
(f) Subject to the terms and conditions of this Section 2.02(f),
the parties
agree that BTG may solicit a bona fide, third party buyer ("Prospective
Buyer") for all or part of the Optioned Shares. If BTG delivers a written
notice to GTSI identifying the Prospective Buyer, the number of Optioned
Shares proposed to be purchased by the Prospective Buyer, and the proposed
price, terms of sale and closing date, accompanied by a copy of the written
offer (the "Offer") signed by the Prospective Buyer with respect to such
proposed purchase, GTSI shall have the right, but not the obligation, in
its sole discretion, and the Offer must so reflect, to exercise the
Repurchase Option with respect to the Optioned Shares which are the subject
of the Offer and immediately thereafter to sell such Optioned Shares to the
Prospective Buyer on the same terms and conditions as are set forth in the
Offer. Closing on the purchase of the Optioned Shares by GTSI shall be
held in accordance with the provisions set forth in Section 3.01(a) and
closing on the sale of such Optioned Shares to the Prospective Buyer shall
be held at the same location immediately thereafter. If GTSI exercises the
Repurchase Option and sells the Optioned Shares to the Prospective Buyer in
accordance with this Section 3.01(f), the payment from BTG to GTSI under
Section 3.02(a) shall not be required with respect to such transaction.
GTSI agrees to consider in good faith any Offer properly delivered to it
hereunder, subject to its absolute discretion to reject any such Offer. If
GTSI rejects an Offer, BTG must retain the Optioned Shares in accordance
with the terms of this Agreement.
Section 3.02. Sale of Optioned Shares by BTG.
(a) If BTG sells during the Option Period any of the Optioned
Shares as
permitted under the Standstill Agreement, BTG agrees as a condition to any
such sale to pay to GTSI concurrently with or prior to such sale an amount
in cash equal to the product of the number of Optioned Shares being sold
and $0.50 (the "Per Share Price").
(b) If after the Closing the number of shares of Common Stock
represented by
the original number of Optioned Shares is increased or decreased as a
result of any increase or decrease in the number of issued shares of Common
Stock resulting from the declaration of a dividend or the making of a
distribution on the outstanding Common Stock, the subdivision or
reclassification of the outstanding Common Stock into a greater number of
shares or the combination or reclassification of the outstanding Common
Stock into a smaller number of shares, the Per Share Price shall be
adjusted by multiplying the Per Share Price in effect immediately prior to
such adjustment by a fraction, the numerator of which shall be the number
of Optioned Shares issuable upon the exercise of the Repurchase Option
immediately prior to such adjustment, and the denominator of which shall be
the number of Optioned Shares issuable upon the exercise of the Repurchase
Option immediately thereafter.
Section 3.03. Stock Legend. On the date of the Closing, BTG shall
cause the certificates evidencing the Optioned Shares to be tendered to
GTSI's transfer agent, First Union National Bank, which shall issue to BTG
stock certificates of the same denomination in exchange therefor bearing
the following modified legends:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY
TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF A STANDSTILL AGREEMENT DATED FEBRUARY 12, 1998 BY AND BETWEEN THE
CORPORATION AND BTG, INC. AND MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE THEREWITH.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF A STOCK TRANSFER AGREEMENT DATED FEBRUARY 10, 1999 BY AND BETWEEN
BTG, INC., AND THE CORPORATION AND MAY NOT BE TRANSFERRED EXCEPT IN
COMPLIANCE THEREWITH.
Article IV
Representations of BTG
Section 4.01. Authorization, Binding Obligations and No Conflicts.
BTG has full power and authority to enter into this Stock Transfer
Agreement and to perform the transactions contemplated hereby. This Stock
Transfer Agreement has been duly authorized, executed and delivered by BTG
and is a valid and binding obligation of BTG. The execution, delivery and
performance by BTG of this Stock Transfer Agreement, the fulfillment of and
compliance with the terms and provisions hereof, and the consummation by
BTG of the transactions contemplated hereby do not require any consent or
approval other than that which has been obtained, conflict with or result
in a breach by BTG of any of the terms or provisions of, or constitute a
default under, any applicable law, rule, or regulation or any applicable
decree, judgment or order of any court, federal or state regulatory body,
administrative agency or other governmental body having jurisdiction over
BTG, or the certificate of incorporation or bylaws of BTG.
Section 4.02. Disclosure. BTG acknowledges that it has received
adequate
access to financial and other information concerning GTSI and the GTSI
Shares and has had the opportunity to ask questions of and receive answers
from GTSI concerning such stock and to obtain therefrom any additional
information necessary to make an informed decision regarding the
disposition of such stock hereunder. BTG has received copies of each
report, registration statement and definitive proxy statement filed by GTSI
with the Securities and Exchange Commission since March 31, 1997.
. Section 4.03. Accredited Investor. BTG has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks with respect to the disposition of the GTSI
Shares. BTG is an "accredited investor" as that term is defined in Rule
501 of Regulation D promulgated under the Securities Act.
Section 4.04. Title; Beneficial Ownership. BTG has good, valid and
marketable title to the GTSI Shares, free and clear of all Liens, with full
right and lawful authority to sell and transfer the GTSI Shares to GTSI
under this Stock Transfer Agreement, and BTG is transferring such title to
the Transferred Shares and the Repurchased Shares to GTSI at the Closing.
Except with respect to the GTSI Shares, no member of the BTG Group or any
Affiliate thereof beneficially owns any Common Stock or has the right to
acquire under any circumstance any Common Stock. No member of the BTG
Group is a party to a written or oral agreement with respect to the GTSI
Shares except for this Stock Transfer Agreement, the Agreement and the
Transaction Documents.
Section 4.05. Absence of Litigation. There is no action, suit,
claim, arbitration, proceeding or investigation, at law or in equity, or
before or by any court, arbitrator or governmental authority, pending, or,
to the knowledge of any member of the BTG Group, threatened or reasonably
anticipated against, affecting or involving any member of the BTG Group,
wherein an unfavorable decision, ruling or finding would adversely affect
the validity or enforceability of, or the authority or ability of BTG to
perform its obligations under, this Stock Transfer Agreement.
Article V
Representations of GTSI
Section 5.01. Authorization, Binding Obligations and No Conflicts.
GTSI
has full power and authority to enter into this Stock Transfer Agreement
and to perform the transactions contemplated hereby. This Stock Transfer
Agreement has been duly authorized, executed and delivered by GTSI and is a
valid and binding obligation of GTSI. The execution, delivery and
performance by GTSI of this Stock Transfer Agreement, the fulfillment of
and compliance with the terms and provisions hereof, and the consummation
by GTSI of the transactions contemplated hereby do not require any consent
or approval other than that which has been obtained, conflict with or
result in a breach by GTSI of any of the terms or provisions of, or
constitute a default under, any applicable law, rule, or regulation or any
applicable decree, judgment or order of any court, federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over GTSI, or the certificate of incorporation or bylaws of
GTSI.
Section 5.02. Absence of Litigation. There is no action, suit,
claim, arbitration, proceeding or investigation, at law or in equity, or
before or by any court, arbitrator or governmental authority, pending, or,
to the knowledge of GTSI, threatened or reasonably anticipated against,
affecting or involving GTSI, wherein an unfavorable decision, ruling or
finding would adversely affect the validity or enforceability of, or the
authority or ability of GTSI to perform its obligations under, this Stock
Transfer Agreement.
ARTICLE VI
Miscellaneous
Section 6.01. Entire Agreement. This Stock Transfer Agreement,
together with the Agreement and the Ancillary Agreements, constitute the
entire agreement among the parties with respect to the subject matter
hereof and supersedes all prior written and oral and all contemporaneous
oral agreements and understandings with respect to the subject matter
hereof.
Section 6.02. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to BTG, to:
Edward H. Bersoff
President and Chief Executive Officer
BTG, Inc.
3877 Fairfax Ridge Road
Fairfax, VA 22030
telecopier: (703) 383-4000
with a copy to:
Deborah Fox, Esq.
General Counsel
BTG, Inc.
3877 Fairfax Ridge Road
Fairfax, VA 22030
telecopier: (703) 383-4205
if to GTSI, to:
M. Dendy Young
President and Chief Executive Officer
Government Technology Services, Inc.
3901 Stonecroft Boulevard
Chantilly, VA 20151-1010
telecopier: (703) 222-5217
with a copy to:
Gerald P. McCartin
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Ave., N.W.
Washington, DC 20036-5339
telecopier: (202) 857-6395
or such other address as such party may hereafter specify for the purpose
by notice to the other parties hereto. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this section
and the appropriate telecopy confirmation is received, or (b) if given by
any other means, when delivered at the address specified in this Section.
Section 6.03. No Waivers. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
Section 6.04. Successors and Assigns. The provisions of this Stock
Transfer Agreement shall be binding upon and inure to the benefit of
parties hereto and their respective successors and assigns, provided that
no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Stock Transfer Agreement without the consent of the
other parties hereto; provided, however, that, without the prior consent of
GTSI, BTG may collaterally assign their rights hereunder, subject to the
terms and conditions hereunder and without relieving BTG of any obligation
or liability hereunder, to a financing institution or federal lending
agency, as used in 31 U.S.C. Section 3527 and 41 U.S.C. Section 15, as
security for BTG's obligations to such financing institution or agency.
Section 6.05. Governing Law. This Stock Transfer Agreement shall be
construed in accordance with and governed by the law of the Commonwealth of
Virginia regardless of the law that might otherwise govern under principles
of conflicts of laws applicable thereto, except with respect to matters of
corporate law as they apply to GTSI, which shall be governed by the
Delaware General Corporation Law.
Section 6.06. Counterparts; Effectiveness. This Stock Transfer
Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Stock Transfer Agreement shall
become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
Section 6.07. Expenses. Except as otherwise provided in this Stock
Transfer Agreement, each party will be solely responsible for such party's
legal, accounting, and other costs and expenses associated with the
transactions contemplated by this Stock Transfer Agreement. If any action
at law or in equity is necessary to enforce or interpret the terms of this
Stock Transfer Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition
to any other relief to which such party may be entitled.
Section 6.08. Terms Generally. The definitions in Article I shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation." All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to Articles and Sections
of, and Exhibits and Schedules to, this Stock Transfer Agreement unless the
context shall otherwise require. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed
in accordance with generally accepted accounting principles.
Section 6.09. No Third-Party Beneficiaries. This Stock Transfer
Agreement shall not confer any rights or remedies upon any Person other
than the parties and their respective successors and permitted assigns.
Section 6.10. Specific Performance. Each of the parties acknowledges
and agrees that the other party would be damaged irreparably in the event
any of the provisions of this Stock Transfer Agreement are not performed in
accordance with their specific terms or otherwise are breached.
Accordingly, each of the parties agrees that the other party shall be
entitled to an injunction or injunctions to prevent breaches of the
provisions of this Stock Transfer Agreement and to enforce specifically
this Stock Transfer Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof
having jurisdiction over the parties and the matter (subject to the
provisions set forth in Section 6.11), in addition to any other remedy to
which it may be entitled, at law or in equity.
Section 6.11. Jurisdiction. Each of the parties consents to the
exclusive jurisdiction of the federal courts of the Eastern District of
Virginia for any legal action, suit or proceeding arising out of or in
connection with this Stock Transfer Agreement or the transactions
contemplated hereby, and agrees that any such action, suit, or proceeding
may be brought only in such courts. If such forum is not available, each
of the parties consents to the exclusive jurisdiction of the Circuit Court
of Fairfax County, Virginia, for any such action, suit or proceeding. Each
of the parties further waives any objection to the laying of venue for any
suit, action or proceeding in such courts. Each of the parties agrees to
accept and acknowledge service of any and all process that may be served in
any suit, action or proceeding. Each of the parties agrees that any
service of process upon it mailed by registered or certified mail, return
receipt requested to such party at the address provided in Section 6.02
shall be deemed in every respect effective service of process upon such
party in any such suit, action or proceeding. Each of the parties agrees
to waive any right it might have to a trial by jury in any such suit,
action or proceeding.
Section 6.12. Further Assurances. 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.
Section 6.13. Survival. The representations, warranties and
covenants of GTSI and BTG contained in this Stock Transfer Agreement shall
survive the Closing.
[Signatures on the following page]
IN WITNESS WHEREOF, the parties hereto have caused this Stock Transfer
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
GOVERNMENT TECHNOLOGY SERVICES, INC.,
a Delaware corporation
By: /s/ STEPHEN L. WAECHTER
-------------------------------
Stephen L. Waechter
Chief Financial Officer
BTG, INC.,
a Virginia corporation
By: /s/ EDWARD H. BERSOFF
-------------------------------
Edward H. Bersoff, President and
Chief Executive Officer
<PAGE>
Exhibit 11.1
GOVERNMENT TECHNOLOGY SERVICES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 2,339 $ (5,104) $(17,838)
======== ======== ========
Weighted average shares of common stock outstanding . . . 8,700 6,733 6,690
Weighted average effect of common share equivalents . . . 209 - -
-------- -------- --------
Weighted average shares outstanding . . . . . . . . . . . 8,909 6,733 6,690
======== ======== ========
Net income (loss) per common share and common share
equivalent. . . . . . . . . . . . . . . . . . . . . . . $ 0.26 $ (0.76) $ (2.67)
======== ======== ========
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (File Nos. 33-44363,
33-55090, 333-29439 and 333-62681).
/s/ Arthur Andersen LLP
-----------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 39
<SECURITIES> 0
<RECEIVABLES> 113,222
<ALLOWANCES> (6,888)
<INVENTORY> 36,544
<CURRENT-ASSETS> 146,016
<PP&E> 2,363
<DEPRECIATION> (9,018)
<TOTAL-ASSETS> 161,690
<CURRENT-LIABILITIES> 103,810
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 55,275
<TOTAL-LIABILITY-AND-EQUITY> 161,690
<SALES> 605,884
<TOTAL-REVENUES> 605,884
<CGS> 554,247
<TOTAL-COSTS> 554,247
<OTHER-EXPENSES> 47,274
<LOSS-PROVISION> 1,047
<INTEREST-EXPENSE> 977
<INCOME-PRETAX> 2,339
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,339
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
