<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Government Technology Services, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[GTSI LOGO]
GOVERNMENT TECHNOLOGY SERVICES, INC.
3901 STONECROFT BOULEVARD
CHANTILLY, VIRGINIA 20151-1010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders (the
"Meeting") of Government Technology Services, Inc., a Delaware corporation (the
"Company"), will be held at 9:00 a.m., Eastern Time, on Tuesday, May 16, 2000,
at the Company's headquarters located at 3901 Stonecroft Boulevard in Chantilly,
Virginia, for the following purposes, as more fully described in the attached
Proxy Statement:
1. To change the Company's name from Government Technology Services,
Inc. to GTSI Corp.
2. To approve amendments to the Certificate of Incorporation to
provide for a classified Board of Directors and to change certain
stockholder rights.
3. To elect [seven] directors, which if proposal 2, above is
approved, directors shall be divided into three classes to serve
terms of one, two and three years. If proposal 2, above is not
approved each director shall serve a term of one year.
4. To approve an amendment to the Company's Employee Stock Purchase
Plan to extend the term of the Plan for 10 years, until November
1, 2011 and to increase the Company's common stock issuable
thereunder by 500,000 shares.
5. To transact such other business as may properly come before the
Meeting or any adjournment(s) thereof.
Only record holders of the Company's common stock at the close of
business on March 29, 2000 are entitled to notice of, and to vote at, the
Meeting and at any adjournment(s) thereof.
All stockholders are cordially invited to attend the Meeting in person.
Whether or not you expect to attend the Meeting in person, to ensure your
representation at the Meeting, please mark, sign, date and return your proxy
card as promptly as possible. IF YOU RECEIVED YOUR PROXY CARD FROM ADP, YOU MAY
ALSO VOTE YOUR SHARES BY TELEPHONE OR VIA THE INTERNET AT WWW.PROXYVOTE.COM.
PLEASE SEE THE INSTRUCTIONS APPEARING ON YOUR ADP PROXY CARD. Any stockholder
attending the Meeting may vote in person even if such stockholder has returned a
proxy.
By Order of the Board of Directors
Judith B. Kassel
Corporate Secretary
Chantilly, Virginia
April , 2000
<PAGE> 3
[GTSI LOGO]
GOVERNMENT TECHNOLOGY SERVICES, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of
Directors (the "Board") of Government Technology Services, Inc. ("GTSI" or the
"Company") for use at the Meeting of Stockholders (the "Meeting") to be held on
Tuesday, May 16, 2000 at 9:00 a.m., Eastern Time, or at any adjournment(s)
thereof, for the purposes set forth herein and in the accompanying Notice of
Meeting of Stockholders. The Meeting will be held at the Company's headquarters
located at 3901 Stonecroft Boulevard in Chantilly, Virginia.
These proxy solicitation materials are being first mailed on or about
April 5, 1999 to all stockholders entitled to vote at the Meeting.
Only stockholders of record at the close of business on March 29, 2000
(the "Record Date") are entitled to notice of, and to vote at, the Meeting. At
the Record Date, ________ shares of the Company's common stock, par value $0.005
per share ("Common Stock"), were issued and, excluding giving ______ shares held
in treasury, _______ shares were outstanding. None of the Company's 680,850
shares of authorized preferred stock is outstanding.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company's
Corporate Secretary a written notice of revocation or a duly executed proxy
bearing a later date or by attending the Meeting and voting in person.
VOTING AND SOLICITATION
As to all matters to be voted upon at the Meeting, each stockholder is
entitled to one vote for each share of Common Stock held. The presence in person
or by proxy of a majority of the outstanding Common Stock entitled to vote
constitutes a quorum for the conduct of business at the Meeting. If a quorum is
present at the Meeting, the nominees for director receiving the highest number
of votes up to the number of directors to be elected will be elected.
Abstentions are included in the determination of the number of shares present
and entitled to vote for purposes of determining the presence of a quorum.
Broker non-votes are counted as shares that are present and entitled to vote for
purposes of determining a quorum. If a broker indicates on the proxy that it
does not have discretionary authority to vote on a particular matter as to
certain shares, those shares will be counted for purposes of determining the
presence of a quorum but will not be treated as present and entitled to vote
with respect to that matter.
IF A STOCKHOLDER RETURNS A PROXY AND NO INSTRUCTIONS ARE GIVEN, SUCH
SHARES WILL BE VOTED "FOR" EACH NOMINEE AS DIRECTOR AND "FOR" EACH OF THE OTHER
PROPOSALS IN THIS POXY STATEMENT.
<PAGE> 4
The cost of this solicitation will be borne by the Company. The Company
has retained the services of Corporate Investor Communications, Inc. to solicit
proxies from brokers and nominees and to distribute proxy materials to brokerage
houses, banks, custodians and other nominee holders. The estimated cost of such
services is approximately $______, including out-of-pocket expenses. Pursuant to
Securities and Exchange Commission ("SEC") rules, the Company will reimburse
brokerage firms and other persons representing beneficial owners of Common Stock
for their expenses in forwarding solicitation materials to such beneficial
owners. Proxies may be solicited personally or by telephone or telegram by
certain of the Company's directors, officers and regular employees, without
additional compensation.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders which are intended to be presented by such
stockholders at the Company's Meeting of stockholders to be held in 2001,
including the nomination of persons to serve on the Board, must be received by
the Company's Secretary not later than December 5, 2000, for inclusion in the
proxy statement for that annual meeting. Stockholders who wish to present a
proposal at the Company's Meeting to be held in 2001 which has not been included
in the Company's proxy materials must submit such proposal in writing to the
Company in care of the Secretary of the Company. Any such proposal received by
the Secretary of the Company on or after February 16, 2001 shall be considered
untimely under the provisions of the Company's bylaws governing nominations and
the proposal of other business to be considered by stockholders at the Company's
annual meetings. In addition, the Company's bylaws contain further requirements
relating to timing and content of the notice which stockholders must provide to
the Secretary of the Company for any nomination or other business to be properly
presented at the annual meeting . It is recommended that stockholders submitting
proposals direct them to the Company's Secretary via certified mail, return
receipt requested, to ensure timely delivery. No stockholder proposals were
received with respect to the Meeting scheduled for May 16, 2000.
FORWARD-LOOKING STATEMENTS
This Proxy Statement, including certain documents incorporated herein by
reference, contains "forward-looking" statements that involve certain risks and
uncertainties. Actual results may differ materially from results express or
implied by such forward-looking statements, based on numerous factors. Such
factors include, but are not limited to, competition in the government markets,
buying patterns of the Company's customers, general economic and political
conditions, results of negotiations with lenders concerning the Company's credit
facilities, changes in laws and government procurement regulations, and other
risks described in this Proxy Statement and in the Company's other SEC filings.
For these statements, the Company claims the protection of the safe harbor for
forward-looking statements under the Private Securities Litigation Reform Act of
1995.
PROPOSAL 1
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO CHANGE THE COMPANY'S NAME
The Board submits and recommends for stockholder approval a proposal to
amend the Company's Certificate of Incorporation (the "Certificate of
Incorporation") to change the Company's name from "Government Technology
Services, Inc." to "GTSI Corp." The Board believes that the name change is
- 2 -
<PAGE> 5
advisable and will benefit the Company because, among other reasons, the Company
has developed a brand recognition throughout the government and vendor community
as "GTSI."
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE CHANGE
OF NAME PROPOSAL.
PROPOSAL 2
APPROVAL OF AMENDMENTS TO THE CERTIFICATE OF
INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD AND
TO CHANGE CERTAIN STOCKHOLDER RIGHTS
INTRODUCTION. The Board submits and recommends for stockholder approval
a proposal to amend the Certificate of Incorporation to provide for a classified
Board and to change certain stockholder rights and related matters, all as
discussed below (the "Charter Amendment Proposal"). The following summary of the
proposed amendments to the Certificate of Incorporation (the "Charter
Amendments") is qualified in its entirety by reference to the complete text of
the Charter Amendments (Articles EIGHTH and THIRTEENTH) attached as Exhibit A.
The Company's current authorized capital stock (which will not change as
result of effectiveness of the Charter Amendments) consists of 20,000,000 shares
of common stock, par value $0.005 per share ("Common Stock"), and 680,850 shares
of preferred stock, par value $0.25 per share ("Preferred Stock"). As of the
date hereof, there were ______ shares of Common Stock and no Preferred Stock
outstanding. Each outstanding share of Common Stock is entitled to one vote for
the election of directors and for all other purposes. Under the General
Corporation Law of Delaware (the "DGCL"), directors are elected by a plurality
of the votes of the shares present in person or represented by proxy at the
stockholders annual meeting and entitled to vote on the election of directors.
In all matters, other than the election of directors, the affirmative vote of
the majority of shares present in person or represented by proxy at the
stockholders annual meeting and entitled to vote on the subject matter shall be
the act of stockholders, subject to the particular corporation's certificate of
incorporation or bylaws requiring a greater vote for a specific matter, as
permitted by the DGCL. (Currently, neither the Certificate of Incorporation nor
the Company's bylaws (the "Bylaws") require a greater vote for any specific
matter than the vote required by the DGCL.)
NUMBER OF DIRECTORS. If stockholders approve the Charter Amendment
Proposal, the Certificate of Incorporation will be amended to provide that the
Board shall consist of not fewer than two directors nor more than twelve
directors. The number of directors which shall constitute the entire Board shall
be fixed, from time to time, exclusively by one or more resolutions adopted by
at least two-thirds of the total number of authorized directors of the Company
(whether or not there exists any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board).
Currently, the Bylaws provide that the total number of directors 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 annual
meeting. The Bylaws further provide that at any time during the year the total
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 then in office at the time of such
increase or decrease, regardless of whether such majority of directors
constitute a quorum. If the Charter Amendments become effective, the Bylaws will
be amended to provide that the number of the Company's directors will be
determined as set forth in Article EIGHTH of the Certificate of Incorporation.
CLASSIFIED BOARD. Subject to the rights of the holders of any series of
Preferred Stock to elect
- 3 -
<PAGE> 6
additional directors under specified circumstances, if stockholders approve the
Charter Amendment Proposal, the Certificate of Incorporation will be amended to
divide the Board into three classes designated as Class 1, Class 2 and Class 3,
respectively. The following nominees shall be assigned to the three classes of
directors of the Company as follows: Class 1 (with a term of one year) -
Lawrence J. Schoenberg and M. Dendy Young; Class 2 (with a term of two years) -
James J. Leto and Lee Johnson; and Class 3 (with a full term of three years) -
Steven Kelman, John M. Toups and ______ (see "Proposal 3 - Election of
Directors").
At the first annual meeting of stockholders following January 1, 2001,
the term of office of the Class 1 directors shall expire and Class 1 directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following January 1, 2001, the term of office of the Class 2
directors shall expire and Class 2 directors shall be elected for a full term of
three years. At the third annual meeting of stockholders following January 1,
2001, the term of office of the Class 3 directors shall expire and Class 3
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
Each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. When the number of
directors is changed, the Board shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned, provided
(a) that the number in each class shall be nearly or equal in number as
possible, and (b) that no decrease in the number of directors shall shorten the
term of any incumbent director.
Currently the Bylaws provide that 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
stockholders at any time to remove any director or directors as provided in the
Bylaws. If the Charter Amendments become effective, the Bylaws will be amended
to remove the above-discussed provision regarding the annual election of the
entire Board and the rights of stockholders to remove directors.
REMOVAL OF DIRECTORS FROM OFFICE. Subject to the rights of the holders
of any series of Preferred Stock, if stockholders approve the Charter Amendment
Proposal, the Certificate of Incorporation will be amended to provide that the
Board or any individual director may be removed from office at any time, but
only for cause (as defined) by the affirmative vote of the holders of two-thirds
of the voting power of all of the Company's then outstanding voting stock
entitled to vote at an election of directors, at a special meeting of the
stockholders called for such a purpose. "Cause" shall mean (a) conduct as a
director of the Company or any subsidiary thereof involving willful material
misconduct, breach of material fiduciary duty involving personal profit, or
gross negligence as to material duties or (b) conduct, whether or not as a
director of the Company or any subsidiary thereof, involving dishonesty or
breach of trust which is punishable by imprisonment for a term exceeding one
year under state or federal law.
Currently, the Bylaws provide that the holders of the Company's stock
entitled to vote for the election of directors may in their discretion at any
meeting duly caused for the purpose, by a majority vote, remove any director or
directors and elect a new director or directors in place thereof. If the Charter
Amendments become effective, the Bylaws will be amended to provide that the
removal of directors shall be determined as set forth in Article EIGHTH of the
Certificate of Incorporation.
VACANCIES ON THE BOARD. Subject to the rights of the holders of any
series of Preferred Stock, if the stockholders approve the Charter Amendment
Proposal, the Certificate of Incorporation will be amended to provide that any
vacancies on the Board resulting from death, resignation, disqualification,
removal or other causes and any newly created directorships resulting from any
increase in the number of directors, shall, unless the Board determines by
resolution that any such vacancies or newly created directorships shall be
- 4 -
<PAGE> 7
filled by the stockholders, except as otherwise provided by law, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board, and not by the stockholders. Any
director so elected shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
Currently, the Bylaws provide that if any vacancy occurs among the
directors, or if the number of directors is at any time 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 annual meeting. If the
Charter Amendments become effective, the Bylaws will be amended to provide that
the vacancies on the Board shall be filled as set forth in Article EIGHTH of the
Certificate of Incorporation.
ELECTION OF DIRECTORS BY WRITTEN BALLOT. If stockholders approve the
Charter Amendment Proposal, the Certificate of Incorporation will be amended to
provide that the Company's directors need not be elected by written ballot
unless the Bylaws so provide. Currently, the Bylaws provide that all elections
of directors shall be held by ballot.
NO ACTION BY STOCKHOLDERS EXCEPT AT ANNUAL OR SPECIAL MEETINGS. If
stockholders approve the Charter Amendment Proposal, the Certificate of
Incorporation will be amended to provide that no action shall be taken by the
Company's stockholders except at an annual or special meeting of stockholders
called in accordance with the Bylaws.
Currently, the Bylaws provide that 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. If the Charter Amendments become effective, the Bylaws will be amended to
eliminate the above-discussed provisions providing for stockholder action
without a meeting.
AUTHORITY TO CALL SPECIAL MEETINGS. If stockholders approve the Charter
Amendment Proposal, the Certificate of Incorporation will be amended to provide
that special meetings of the Company's stockholders may be called, for any
purpose or purposes, only by (a) the Chairman of the Board, (b) the President or
(c) the Board pursuant to a resolution adopted by a majority of the total number
of authorized directors.
Currently, the Bylaws provided that 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. If the
Charter Amendments become effective, stockholders will not be entitled to call
special stockholder meetings. Also, the Bylaws will be amended to provide, as
set forth in the related Charter Amendment discussed above, that special
meetings of the Company's stockholders may be called, for any purpose or
purposes, only by (a) the Chairman of the Board, (b) the President or (c) the
Board pursuant to a resolution adopted by a majority of the total number of
authorized directors.
FUTURE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION. If the
stockholders approve the Charter Amendment Proposal, the Certificate of
Incorporation will be amended to provide that, except as otherwise specifically
required by law, no alteration, amendment or repeal of any provision of the
Certificate of
- 5 -
<PAGE> 8
Incorporation shall be made unless (a) such alteration, amendment or repeal has
been first proposed by the Board upon the affirmative vote of at least
two-thirds of the directors then in office at a duly constituted meeting of the
Board called for such purpose, and (b) thereafter approved by the Company's
stockholders by the affirmative vote of the holders of at least a majority of
the shares entitled to vote thereon at a duly called annual or special meeting;
provided, however, that if such alteration, amendment or repeal is to Article
EIGHTH or Article THIRTEENTH of the Amended and Restated Certificate of
Incorporation, such alteration, amendment or repeal must be approved by the
affirmative vote of the holders of at least 66-2/3 percent of the Company's then
outstanding stock entitled to vote thereon rather than a majority.
Under the DGCL, an amendment to a corporation's certificate of
incorporation requires the approval of the holders of a majority of the
outstanding stock entitled to vote thereon, except that if the certificate of
incorporation requires action by the board of directors, the holders of any
class or series of shares or by the holders of any other securities having
voting power the vote of a greater number or proportion than is required by the
DGCL, the certificate of incorporation provision requiring such greater vote
shall not be altered, amended or repealed except by such greater vote.
Currently, the Certificate of Incorporation does not require a vote
greater than the holders of a majority of the Company's outstanding stock to
amend any provision of the Certificate of Incorporation.
AMENDMENTS TO THE BYLAWS. If the Charter Amendment Proposal becomes
effective, corresponding changes will be made to the Bylaws, as discussed above.
In addition, the Bylaws will be amended to provide that in future, the Bylaws
may be altered or amended or new Bylaws adopted only by the affirmative vote of
a majority of all voting power of all of the Company's then outstanding voting
stock. The Board will also have the power to adopt, amend or repeal the Bylaws.
BACKGROUND AND DESCRIPTION OF REASONS FOR CHARTER AMENDMENT PROPOSAL.
The Board believes that the Charter Amendment Proposal is advisable and in the
best interests of the Company and its stockholders for several reasons.
Principally, the Board believes that the Charter Amendment Proposal will
encourage directors to continue to make independent decisions in good faith on
the Company's behalf, as well as enhance the Company's ability to attract and
retain qualified members of the Board. The interests, however, of the Board,
management and affiliated stockholders in voting on the Charter Amendment
Proposal may not be the same as those of unaffiliated stockholders. The Charter
Amendment Proposal may have the effect of deterring hostile takeover attempts. A
hostile takeover attempt may have a positive or a negative effect on the Company
and its stockholders, depending on the circumstances surrounding a particular
takeover attempt. Takeover attempts that have not been negotiated or approved by
the board of directors of a corporation can seriously disrupt a corporation's
business and management and generally present to the stockholders the risk of
terms which may be less than favorable to all of the stockholders than would be
available in a board-approved transaction. Board-approved transactions may be
carefully planned and undertaken at an opportune time to obtain maximum value
for the corporation and all of its stockholders with due consideration to
matters such as the recognition or postponement of gain or loss for tax
purposes, the management and business of the acquiring corporation and maximum
strategic deployment of corporate assets.
The Board recognizes that hostile takeover attempts do not always have
the unfavorable consequences or effects described above and may frequently be
beneficial to the stockholders, providing all of the stockholders with
considerable value for their shares. The Board, however, believes that the
potential disadvantages of unapproved takeover attempts are sufficiently great
such that prudent steps to reduce the likelihood of such takeover attempts are
in the best interests of the Company and its stockholders.
- 6 -
<PAGE> 9
Notwithstanding the Board's belief as to the benefits to stockholders of
the Charter Amendment Proposal, stockholders should recognize that one of the
effects of the Charter Amendment Proposal may be to discourage a future attempt
to acquire control of the Company which is not presented to and approved by the
Board, but which a substantial number and, perhaps, even stockholders holding a
majority of the outstanding Common Stock might believe to be in their best
interests or in which stockholders might receive a substantial premium for their
shares over the current market price. As a result, stockholders who might desire
to participate in such a transaction may not have an opportunity to do so.
In considering the Charter Amendment Proposal, stockholders should be
aware that the overall or collective effect of such proposal is to make it more
difficult for holders of a majority of the outstanding Common Stock to change
the composition of the Board and to remove existing management in circumstances
where a majority of the stockholders may be dissatisfied with the performance of
the incumbent directors or otherwise desire to make changes. Currently, because,
as provided in the Certificate of Incorporation and Bylaws, the entire Board is
elected annually for a one-year term, a majority or all of the directors can be
changed at one Meeting. In addition, stockholders are currently entitled, under
the Certificate of Incorporation and Bylaws, at any meeting duly called for the
purpose, including by stockholders owning a majority of the outstanding Common
Stock, or by a written consent in lieu of a special meeting, to remove any
director, including all of the directors, with or without cause, and elect a new
director or all directors in place thereof. Also, the classified Board
provisions discussed above, if approved, will apply to every election of
directors, rather than only to an election occurring after a change in control
of the Company. One result of implementing a classified Board, as discussed
above, is that it would require two Meetings, rather than one, for the
stockholders to change a majority of the Company's directors.
The Charter Amendments could (a) make a proxy contest a less effective
means of removing or replacing existing directors, (b) make it more difficult to
make a change in control of the Company which is opposed by the Board, or (c)
discourage a tender offer or perhaps a merger. This strengthened tenure and
authority of the Board could enable the Board to resist change and otherwise
thwart the desires of a majority of the stockholders. Because the Charter
Amendments may have the effect of continuing the tenure of the current Board,
the Board has recognized that the individual directors have a personal interest
in the Charter Amendment Proposal that may differ from those of the
stockholders. The Board, however, believes that the Charter Amendment Proposal's
primary purpose is to ensure that the Board will have sufficient time to
consider fully any proposed takeover attempt in view of the short- and long-term
benefits and other opportunities available to the Company and, to the extent the
Board determines to proceed with the takeover, to negotiate effectively terms
that would maximize the benefits to the Company and its stockholders.
The Board has considered the potential disadvantages and believes that
the potential benefits of the provisions included in the proposed Charter
Amendments outweigh the possible disadvantages. In particular, the Board
believes that the benefits associated with attracting and retaining skilled and
experienced outside directors and with enabling the Board to consider and
negotiate fully proposed takeover attempts, make the Charter Amendment Proposal
beneficial to the Company, its management and its stockholders.
The current Certificate of Incorporation and Bylaws already include
certain provisions that may deter hostile takeover attempts, such as (a) "blank"
Preferred Stock, (b) 90-day advance notice requirement for stockholder proposals
and nominations to the Board, and (c) 10-day advance notice requirement in
respect of establishing a record date for stockholders entitled to participate
in solicitations for action by written consent of stockholders. Also, the
Company's stockholders are not entitled to cumulative voting for election of
directors under the Certificate of Incorporation or the DGCL.
Under the Certificate of Incorporation, the Board has the authority to
determine or alter the rights, preferences, privileges and restrictions to be
granted to or imposed upon any wholly unissued series of
- 7 -
<PAGE> 10
Preferred Stock and to fix the number of shares constituting any such series and
to determine the designation thereof. In certain instances, the authorization of
a series of preferred stock with either unspecified voting rights or rights
providing for the approval of extraordinary corporate transactions may be used
to create voting impediments or to frustrate persons or entities seeking to
effect a merger or otherwise gain control of a corporation. The Board may also
authorize the issuance of Preferred Stock for the purpose of adopting
stockholder rights plans and in connection with various corporate transactions,
including corporate partnering arrangements. The Board currently has no
intention to cause the Company to issue any Preferred Stock. Also, it is not the
Board's current intention to seek stockholder approval prior to any issuance of
Preferred Stock, except as required by applicable law or regulation.
Section 203 of the DGCL prohibits certain business combinations between
"interested stockholders" and the target corporation for three years after a
stockholder becomes interested, unless one of the statute's exceptions applies.
An "interested stockholder" includes a person, broadly defined to include a
group, who owns at least 15% of a corporation's outstanding voting stock.
"Business combinations" are defined broadly to include any merger or
consolidation of, with, or caused by the interested stockholder, or sales or
other dispositions of at least 10% of the corporation's assets to or caused by
the interested stockholder. The business combination prohibition of Section 203
does not apply if:
(i) the interested stockholder obtains board approval for the
business combination or the 15% transaction prior to
crossing the 15% threshold;
(ii) in completing the transaction that crosses the 15%
threshold, the stockholder becomes the owner of at least
85% of the corporation's voting stock as of the time the
transaction commenced; or
(iii) the interested stockholder's business combination is
approved by the board (typically after the interested
stockholder acquires control of the board) and affirmed by
at least 66 2/3% of the outstanding voting stock not owned
by the interested stockholder.
The Board's recommendation of the Charter Amendment Proposal does not
reflect knowledge on the part of the Board or management of any proposed
takeover or other attempt to acquire control of the Company. Management
currently has no intention to propose other anti-takeover measures in future
proxy solicitations. Management may, however, in the future propose other
measures designed to discourage takeovers apart from the proposed Charter
Amendments, if warranted from time to time in the Company's judgment.
Under the DGCL, the affirmative vote of a majority of the outstanding
Common Stock is required for approval of the Charter Amendment Proposal. If
stockholders approve the Charter Amendment Proposal, it is anticipated that the
filing of the Charter Amendments with the Secretary of State of the State of
Delaware and the related amendments to the Bylaws would be completed as soon
thereafter as practicable.
While it is not anticipated, the Board resolutions approving the Charter
Amendments provide that, notwithstanding authorization and approval of such
amendments by the stockholders, the Board may abandon such foregoing Charter
Amendments if the Board deems it advisable to do so for any reason.
Stockholders may approve or reject all of the matters included with the
Charter Amendment Proposal, as discussed above, in whole but not in part.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE CHARTER
AMENDMENT PROPOSAL.
- 8 -
<PAGE> 11
PROPOSAL 3 -- ELECTION OF DIRECTORS
NOMINEES
[Seven] directors will be elected at the Meeting by the holders of
Common Stock as of the Record Date. Unless otherwise instructed, proxy holders
will vote the proxies received by them for the Company's [seven] nominees named
below, all of whom are currently directors of the Company. If any nominee of the
Company is unable or declines to serve as a director at the time of the Meeting,
the proxies will be voted for any nominee who will be designated by the current
Board to fill the vacancy. It is not expected that any nominee will be unable or
will decline to serve as a director. If stockholders approve Proposal 2, the
term of office shall be as follows: Class 1 (with a term of one year) Lawrence
J. Schoenberg and M. Dendy Young; Class 2 ( with a term of two years) James J.
Leto and Lee Johnson; and Class 3 (with a term of three years) Steven Kelman,
John M. Toups and ___________. If the stockholders do not approve Proposal 2,
the term of office of each person elected as a director will continue until
the next meeting of stockholders and such time as his successor is duly
elected and qualified, or until his earlier resignation, removal or death.
The names of the nominees, and certain information about them, are set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(s) WITH THE COMPANY
- ---------------------------- ------------ ----------------------------------
<S> <C> <C>
Lee Johnson 72 Director
Steven Kelman, Ph.D. 51 Director
James J. Leto 56 Director
Lawrence J. Schoenberg 67 Director and Chairman Emeritus
John M. Toups 74 Director
Dendy Young 52 Chairman of the Board and
Chief Executive Officer
</TABLE>
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
There is no family relationship between any director or executive
officer of the Company and any other director or executive officer of the
Company.
Dr. Kelman has been a director since October 1997. Since September 1997,
he has been the Weatherhead Professor of Public Management at Harvard
University's John F. Kennedy School of Government. From November 1993 to
September 1997, Dr. Kelman served as Administrator of the Office of Federal
Procurement Policy at the Office of Management and Budget. From 1986 to 1993, he
was Professor of Public Policy at Harvard. Dr. Kelman is also a director of
SASA.com, Inc.
Mr. Leto has been a director since March 1996. Since June 1996, he has
been the Chairman, President and Chief Executive Officer of Treev, Inc.
(formerly known as Network Imaging Corporation), a developer and marketer of
software used to manage client/server, object-oriented, and enterprise-wide
information. From January 1992 until February 1996, he was Chairman and Chief
Executive Officer of PRC, Inc., a provider of scientific and technology-based
systems, products and services to government and commercial clients around the
world.
Mr. Schoenberg has been a director since December 1991 and served as
Chairman of the Board from February 1995 until his election as Chairman Emeritus
in May 1998. He also previously served as a director
- 10 -
<PAGE> 12
of the Company from March 1990 to December 1990, and as Chairman of the Board
from May 1990 to December 1990. Mr. Schoenberg served as Chief Executive Officer
and Chairman of the Board of Directors of AGS Computers, Inc. from January 1967
until his retirement in December 1990, and as Chairman of its Executive
Committee from January 1991 to December 1991. Mr. Schoenberg is also a director
of Sungard Data Services, Inc.; Merisel, Inc.; and Cellular Technical Services
Company, Inc.
Mr. Toups has been a director since October 1997. From January 1978
until his retirement in February 1987, Mr. Toups was President and CEO of PRC.
Mr. Toups is also a director of NVR, Inc.; CACI, Inc.; Halifax Corporation; and
Thermatrix, Inc.
Mr. Young has served as Chairman of the Board since May 1998 and has
been Chief Executive Officer and a director since December 1995. From December
1995 to May 1998, he also served as President. From August 1994 until joining
the Company, Mr. Young was Principal and Consultant of The Exeter Group, a
management consulting firm he founded. From January 1989 until August 1994, he
served as President, Chief Executive Officer and a director of Falcon
Microsystems, Inc.
PROPOSAL 4
APPROVAL TO EXTEND THE TERM OF THE
1991 EMPLOYEE STOCK PURCHASE PLAN AND TO
INCREASE IN THE SHARE RESERVE FOR THE PLAN
The Board approved the Company's 1991 Employee Stock Purchase Plan
("Purchase Plan") in November 1991, and as amended in January 1992. The Purchase
Plan, which the stockholders approved in June, 1992 has a term of 10 years and
expires on November 7, 2001. An aggregate of 250,000 shares of the Company's
common stock is currently reserved for issuance under the Purchase Plan.
On February 17, 2000, subject to stockholders approval, the Board
extended the term of the Purchase Plan by 10 years, until November 1, 2011, and
increased the number of shares reserved for issuance under the Purchase Plan by
500,000 to a total of 750,000 shares.
The Board believes that the Purchase Plan is an important factor in
attracting, retaining and motivating qualified employees essential to the
success of the Company. Many of the Company's competitors offer similar plans.
The Board believes that the Company will be at a disadvantage if it does not
continue to offer the Purchase Plan to employees. Thus, the Board recommends
that the Purchase Plan be amended for an additional 10 years, until November 1,
2011. Also, without an increase in the 250,000 reserve, the Purchase Plan may
have insufficient shares to meet all employee purchases for calendar year 2000.
In light of historical usage, the Company expects that a 500,000 share increase
will be adequate to meet the Purchase Plan's foreseeable requirements.
The Company intends to register the 500,000 shares on Form S-8 under the
Securities Act of 1993, as amended (the "Securities Act"), as soon as
practicable after receiving stockholder approval.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
- 11 -
<PAGE> 13
SUMMARY OF PURCHASE PLAN TERMS
THE FOLLOWING SUMMARY OF THE PURCHASE PLAN IS QUALIFIED IN ITS ENTIRETY
BY THE SPECIFIC LANGUAGE OF THE PURCHASE PLAN, A COPY OF WHICH WILL BE AVAILABLE
TO ANY STOCKHOLDER UPON WRITTEN REQUEST.
GENERAL
Currently, the Purchase Plan expires on November 7, 2001 and a total of
250,000 shares of Common Stock has been reserved for issuance under the Purchase
Plan. The current proposal is to extend the term of the Purchase Plan 10 years
and to reserve an additional 500,000 of Common Stock for issuance under the
Purchase Plan.
The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code of 1986, as amended (the "Code"). See "Tax
Information" below. The Purchase Plan is not a qualified deferred compensation
Purchase Plan under Section 401(a) of the Code and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974.
PURPOSE
The purpose of the Purchase Plan is to provide employees of the Company
and its subsidiaries with an opportunity to purchase Common Stock through
payroll deductions.
ADMINISTRATION
The Purchase Plan may be administered by the Board or a committee
appointed by the Board. Members of the Board or its committee who are eligible
employees are, subject to certain limitations, permitted to participate in the
Purchase Plan. The interpretation and construction of any provision of the
Purchase Plan is within the sole discretion of the Board or its committee, whose
determination is final, conclusive and binding upon all participants. No charges
for administrative or other costs may be made against the payroll deductions of
a participant in the Purchase Plan. Members of the Board receive no additional
compensation for their services in connection with the administration of the
Purchase Plan. (Questions concerning the Purchase Plan and its administration
may be addressed to the General Counsel or Vice President-Human Resources at the
Company's principal executive offices.)
ELIGIBILITY
Beginning the first day of the month following commencement of
employment, all employees, including officers and directors, who are customarily
employed by the Company or its subsidiaries for more than 20 hours per week and
five months or more per calendar year and who are employed by the Company or its
subsidiaries at the beginning and end of an applicable offering period are
eligible to participate in such offering under the Purchase Plan, subject to
certain limitations imposed by Section 423(b) of the Code and limitations on
stock ownership as defined in the Purchase Plan.
During the fiscal year ended December 31, 1999, the Named Executive
Officers (as defined below) as a group purchased no share of Common Stock under
the Purchase Plan. Non-employee directors are not
- 12 -
<PAGE> 14
eligible to participate in the Purchase Plan, and did not, therefore purchase
any Common Stock under the Purchase Plan.
PARTICIPATION IN THE PURCHASE PLAN
The Purchase Plan is implemented by one offering during each six-month
period. Offering periods commence on January 1 and July 1 of each year. The
Board has the power to alter the duration of the offering periods without
stockholder approval. Eligible employees become participants in the Purchase
Plan by completing a subscription agreement authorizing payroll deductions and
delivering it to the Company's payroll office not less than 15 days prior to the
first offering date with respect to which it is to be effective, unless a later
time for filing the subscription agreement has been set by the Company for all
eligible employees with respect to a given offering. An employee's participation
continues from offering period to offering period at the deduction rate
authorized in the subscription agreement unless the participant makes a timely
election of a different rate or withdraws from the Purchase Plan by filing a new
subscription agreement specifying the desired change. An employee who becomes
eligible to participate in the Purchase Plan after the commencement of an
offering may not participate until the commencement of the next offering.
PURCHASE PRICE
The purchase price per share at which shares will be sold in an offering
under the Purchase Plan is the lower of 85% of the fair market value of a share
of Common Stock on the first day of the offering period or 85% of the fair
market value of a share of Common Stock on the last day of the offering period.
The fair market value of the Common Stock on a given date will be equal to the
closing sales price of the Common Stock on such date as reported in The Wall
Street Journal.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions
over the offering period. The rate of deductions may not exceed 15%, or such
other rate as may be determined from time to time by the Board, of a
participant's compensation and a participant may not increase or decrease the
rate of deduction for an offering period after it commences. Payroll deductions
for a participant shall commence on the first payday following the date of
commencement of the offering period and shall continue thereafter from offering
period to offering period at the same rate unless such rate is changed or the
employee's participant may elect to change his or her percentage rate of payroll
deduction only by completing and filing a new subscription agreement with the
Company not less than 15 days prior to the first day of the offering period with
respect to which it is to become effective.
All payroll deductions are credited to the participant's account under
the Purchase Plan and are deposited with the general funds of the Company. Any
cash remaining to the credit of a participant's account after the purchase of
shares at the end of an offering period, other than an amount representing a
fractional share, will be returned to the participant without interest. All
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase
Plan, an employee is entitled to have shares placed under option to him or her.
The maximum number of shares which may be placed under an option is that number
of whole shares of the Common Stock arrived at by dividing (a) an amount equal
to 5% of a participant's aggregate compensation for the 12 calendar months prior
to the offering date, by (b)
- 13 -
<PAGE> 15
85% of the fair market value of a share of the Common Stock at the offering
date. In other words, although the actual purchase price per share upon the
exercise of an option under the Purchase Plan will be the lesser of 85% of the
fair market value of the Common Stock on the first day of the offering period or
on the last day of the offering period, the maximum number of shares which may
be purchased upon the exercise of an option at the end of an offering period
will not exceed that number calculated in accordance with the formula in the
preceding sentence.
Unless an employee's participation in the Purchase Plan is terminated,
his or her option for the purchase of shares will be exercised automatically on
the last day of the offering period at the applicable price. The shares
purchased for an employee will be delivered to him or her as promptly as
practicable after the end of the applicable offering period, together with any
cash remaining to the credit of his or her account under the Purchase Plan after
the purchase of shares, other than any amount representing a fractional share.
Any amount representing a fractional share will be credited to a participant's
account for the next offering.
Notwithstanding the foregoing, no employee will be permitted to
subscribe for shares under the Purchase Plan if, immediately after the grant of
an option thereunder, the employee would own 5% or more of the voting stock or
value of all classes of stock of the Company or its subsidiaries (including
stock which may be purchased through subscriptions under the Purchase Plan or
pursuant to any other options), nor will any employee be granted an option under
an employee stock purchase plan (within the meaning of Section 423 of the Code
and any successor provision) which would permit the employee to buy more than
$25,000 worth of stock (determined at the fair market value of the shares at the
time the option is granted) in any calendar year. Furthermore, if the number of
shares which would otherwise be placed under option at the beginning of an
offering period exceeds the number of shares then available under the Purchase
Plan, a pro rata allocation of the shares remaining will be made in as equitable
a manner as is practicable.
WITHDRAWAL
Although each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, a participant can
discontinue his or her participation in a given offering in whole, but not in
part, by signing and delivering to the Company a notice of option cancellation
and withdrawal from the Purchase Plan at any time prior to the end of an
offering period. Promptly after such withdrawal, all payroll deductions credited
to the employee's account will be returned to him or her without interest and no
further payroll deductions will be made during the offering period.
Any withdrawal by an employee of accumulated payroll deductions for a
given offering automatically terminates the employee's interest in that
offering. In effect, the employee is given an option which may or may not be
exercised upon termination of the applicable offering period. By executing the
subscription agreement to participate in the Purchase Plan, an employee does not
become obligated to make the stock purchase; rather the subscription agreement
is merely an election by the employee to place shares under option to him or
her. Unless an employee's participation is terminated, his or her option for the
purchase of shares will be exercised automatically at the end of the offering
period, and the maximum number of full shares purchasable with the employee's
accumulated payroll deductions will be purchased for the employee at the
applicable price.
A participant's withdrawal from an offering or an employee's decision
not to participate in an offering does not have any effect upon such
participant's eligibility to participate in subsequent offerings under the
Purchase Plan.
- 14 -
<PAGE> 16
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement, death or the failure of a participant to remain in the continuous
employ of the Company for more than 20 hours per week during the offering
period, terminates his or her participation in the Purchase Plan. In such event,
the payroll deductions credited to the participant's account will be returned
without interest to such participant, or, in the case of death, to the person or
persons entitled thereto as specified by the participant in the subscription
agreement.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Subject to any required action by the stockholders, the number of shares
of Common Stock covered by an option under the Purchase Plan and the number of
shares which are available for issuance, as well as the option price per share
of an unexercised option, will be proportionately adjusted for any change in the
number of shares of Common Stock resulting from a stock split, stock dividend,
spin-off, reorganization, recapitalization, merger, consolidation, exchange of
shares or the like. In the event of a dissolution or liquidation of the Company,
a sale of all or substantially all of the assets of the Company, or the merger
or consolidation of the Company with or into another corporation, outstanding
options will be assumed by the successor corporation or the Board will declare
that any option will terminate as of a date fixed by the Board or its committee
which is at least 30 days after notice thereof is given to participants. Unless
a participant terminates his or her participation in the Purchase Plan prior to
such date, his or her option to purchase shares will be automatically exercised
on such date and the accumulated payroll deductions credited to a participant's
account on such date will be applied to purchase whole shares of the Common
Stock (up to the maximum number of shares subject to his or her option).
NONASSIGNABILITY
No rights or accumulated payroll deductions of an employee under the
Purchase Purchase Plan may be pledged, assigned or transferred for any reason
(other than upon the death of an employee as provided in the Purchase Plan), and
any such attempt may be treated by the Company as an election by the participant
to withdraw from the Purchase Plan.
DESIGNATION OF BENEFICIARY
A participant may file a written designation of a beneficiary who is to
receive any shares and/or cash from the participant's account under the Purchase
Plan in the event of such participant's death. Such designation of beneficiary
may be changed by the participant at any time by written notice to the Company.
In the event of the death of a participant and in the absence of a validly
designated beneficiary who is living at the time of the participant's death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the participant's estate, or if no such person has been appointed, then to
such person as the Company determines in its discretion.
REPORTS
Individual accounts are maintained for each Purchase Plan participant.
Each participant receives as promptly as practicable after the end of each
offering period a report of his or her account setting forth the total number of
accumulated payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any, in his or her account.
- 15 -
<PAGE> 17
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The Board may at any time amend or terminate the Purchase Plan, except
that any termination shall not affect options previously granted thereunder nor
may any amendment make any change in an option granted prior thereto which
adversely affects the rights of any participant without his or her prior written
consent. No amendment may be made to the Purchase Plan without prior approval of
the Company's stockholders if such amendment would increase the number of shares
reserved under the Purchase Plan, modify the eligibility requirements or
materially increase the benefits which may accrue to participants under the
Purchase Plan. In any event, the Purchase Plan will terminate on the tenth
anniversary of its adoption by the Board (i.e., November 7, 2001), provided that
such termination shall not affect options previously granted and then
outstanding. The current proposal extends the term of the Purchase Plan 10
years, to November 1, 2011 and increases by 500,000 to a total of 750,000 the
number of shares available for issuance under the Purchase Plan.
TAX INFORMATION
The Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of grant of an option or purchase of shares. As summarized below, a
participant may become liable for tax upon disposition of the shares acquired
under the Purchase Plan.
If shares are disposed of by a participant at least two years after the
date of the beginning of the offering period in which such shares were acquired,
the lesser of (a) the excess of the fair market value of the shares at the time
of such disposition over the purchase price of the shares or (b) the excess of
the fair market value of the shares at the beginning of the offering period in
which such shares were acquired over the purchase price of the shares (computed
as of the commencement of such offering period) will be treated as ordinary
income to the participant. Any further gain upon such disposition will be
treated as long-term capital gain. If the shares are sold and the sales price is
less than the purchase price, the participant does not recognize any ordinary
income and has a long-term capital loss equal to the difference. The Company is
not allowed an income tax deduction in connection with such disposition.
If shares are disposed of by a participant (including by way of gift)
before the expiration of the two-year holding period described above, the excess
of the fair market value of the shares on the date the option is exercised over
the purchase price of the shares will be treated as ordinary income to the
participant. This excess will constitute ordinary income in the year of sale or
other disposition even if no gain is realized on the sale or a gratuitous
transfer of the shares is made. In the event of such a disposition, the Company
is entitled to a deduction for the amount treated as ordinary income to a
participant. The balance of any gain realized on such disposition will be
treated as a short-term or long-term capital gain, as the case may be. Even if
the shares are sold for less than their fair market value on the date the option
was exercised, the same amount of ordinary income will be attributed to a
participant and a capital loss will be recognized equal to the difference
between the sales price and the value of the shares on the option exercise date.
The ordinary income reported under the rules described above, added to
the actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of the
shares.
- 16 -
<PAGE> 18
RESTRICTIONS ON RESALE
Certain officers and members of the Board may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act.
Common Stock acquired under the Purchase Purchase Plan by an affiliate may be
reoffered or resold only pursuant to an effective registration statement or
pursuant to Rule 144 promulgated under the Securities Act or another exemption
from the registration requirements of the Securities Act.
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
During 1999, the Board held a total of five meetings, and each director
of the Company attended at least 75% of the meetings of the Board held during
the period that he or she was a director and at least 75% of all meetings held
by all committees of the Board on which he or she served. The Board has standing
audit, compensation and nominating committees, as discussed below.
In 1999 the Audit Committee was composed of Ms. Tania Amochaev (a
current director who is not standing for re-election), Mr. Johnson (who also
serves as Chairperson) and Mr. Schoenberg, and did not meet formally during
1999; however, committee business was conducted through committee member
discussions concerning audit and other Company financial matters during meetings
of the entire Board as well as telephone conferences among the Committee
members, the Company's financial personnel and the Company's independent
accountants. The Audit Committee selects the Company's independent accountants;
reviews reports from accountants and from the Company's financial officers;
reviews transactions relating to officers and directors; assesses the Company's
quality of financial reporting and accounting principles as it relates to the
financial condition of the Company; monitors compliance with applicable laws and
regulations that may significantly impact the Company, including Federal
procurement and employment laws; monitors compliance with the Company's code of
ethical conduct; and generally performs functions related to the financial
condition and policies of the Company.
The Compensation Committee is currently composed of Messrs. Gerald W.
Ebker (a current director who is not standing for reelection), Leto (who also
serves as Chairperson) and Toups, and held a total of four meetings in 1999. In
addition, committee business was conducted through committee member discussions
concerning compensation matters during meetings of the entire Board as well as
through telephone conferences, and formalized using forms of unanimous written
consent. See "Executive Compensation and Other Information -- Compensation
Committee Interlocks and Insider Participation" and "Compensation Committee
Report on Executive Compensation." The Compensation Committee's responsibilities
include administering the Company's stock option plans (including determining
the persons to whom options are granted and the terms of such options), the
Company's Purchase Plan, and the Company's 401(k) Plan; advising the Board on
employee compensation matters, including executive bonus plans; and performing
such other duties regarding compensation matters as may be delegated to it by
the Board from time to time.
The Nominating Committee is currently composed of Messrs. Kelman and
Young (who also serves as the Chairperson), and did not meet formally during
1999; however, committee business was conducted through committee member
discussions concerning nomination matters during meetings of the entire Board as
well as through telephone conferences. The Nominating Committee's
responsibilities are to seek, evaluate and recommend to the Board qualified
individuals for election to the Board by the stockholders, or by the Board to
fill vacancies thereon whenever vacancies occur; advise the Board on matters
pertaining to the size and composition of the Board; and consider nominees for
the Board whose names are timely submitted by stockholders in writing to the
Chairperson of the Nominating Committee accompanied by such information
- 17 -
<PAGE> 19
regarding the nominee as would be required under SEC rules if the stockholder
were soliciting proxies with regard to the election of such nominee.
COMPENSATION OF DIRECTORS
All non-employee directors of the Company receive automatic grants of
stock options under the Company's 1996 Stock Option Plan ("1996 Plan") of 15,000
shares upon initial election (30,000 in the case of the non-employee Chairperson
of the Board), and upon each subsequent annual re-election, to the Board. Each
such automatic option grant vests over a 12-month period, with the first vesting
occurring at the end of the month in which the date of grant occurred. Such
options are granted at exercise prices equal to the closing price of Common
Stock on The Nasdaq Stock Market on the date of grant. As of March 1, 1999,
options to purchase an aggregate of 105,000 shares had been granted to the
Company's seven non-employee directors under the 1996 Plan, at exercise prices
of $3.88 per share. Non-employee directors of the Company are not eligible to
participate in the Company's other stock option plans or the Purchase Plan.
Directors of the Company do not receive any other compensation for their service
on the Board or any committee thereof, but are reimbursed for their reasonable
out-of-pocket expenses incurred in association with the performance of their
duties.
In January 1998, the Company entered into an agreement with Federal
Airways Corporation, a company of which Mr. Johnson is the owner and president,
whereby it would be compensated by the Company for his services as primary
negotiator in the Company's February 1998 acquisition of the Technology Systems
Division of BTG, Inc., and for ongoing matters related thereto, as follows: (1)
a daily fee of $1,500 for each full day devoted to the acquisition effort and
for ongoing matters related thereto; (2) a cash payment of $300,000 payable
after the closing; (3) an option to purchase 50,000 shares of Common Stock at
$5.25 per share (i.e., the closing price of Common Stock on the date of grant,
which coincided with the date of execution of the initial letter of intent with
BTG, Inc. for the acquisition), fully vested and exercisable upon grant for a
term of 10 years; and (4) reimbursement of reasonable and documented expenses
incurred in connection with such efforts. During the period from January 1, 1999
through March 1, 2000, Federal Airways had been paid an aggregate of $62,453.74
under the foregoing agreement. In addition, the Company and Federal Airways
entered into a consulting agreement which provides for the Company to pay a
daily fee of $1,500 (not to exceed an aggregate of $50,000 per year) for Mr.
Johnson's consulting services on general company business matters. During the
period from January 1, 1999 through March 1, 2000, $96,471.16 has been paid to
Federal Airways under the agreement, which began in January 1997 and will
continue until Mr. Johnson ceases to be a director or until either party
terminates the agreement. The Government reimbursed the Company for $39,762.41
of the $96,471.16 paid to Mr. Johnson in connection with a negotiation he
handled on behalf of the Company.
In February, 1999 the Board delegated to the Compensation Committee the
authority to compensate Mr. Toups in connection with his efforts relating to the
February 10, 1999 agreements between the Company and BTG. Mr. Toups voted
against this resolution. In June, 1999 the Compensation Committee (with Mr.
Toups' abstaining) granted Mr. Toups the option to purchase 10,000 shares of the
Common Stock pursuant to the Company's 1996 Stock Option Plan, valued at $4.9375
per share, the price of the Common Stock on the date the agreements between the
Company and BTG were executed. The options are fully vested and exercisable as
of the date of grant, and expire within five years of the date of grant.
- 18 -
<PAGE> 20
COMMON STOCK OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of March __ , 2000 (except as noted otherwise) by:
(a) each person who is known by the Company to own beneficially more than 5% of
the outstanding Common Stock; (b) each of the Company's directors who owns
Common Stock; (c) each of the executive officers named in the Summary
Compensation Table set forth below under the "Executive Compensation and Other
Information"; and (d) all current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SHARES PERCENT
NAME OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED OF CLASS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Linwood A. ("Chip") Lacy, Jr.
c/o Solomon, Ward, Seidenwurm & Smith
401 B Street Suite 1200
San Diego, CA 92101 1,493,700 16.2%
- ----------------------------------------------------------------------------------------
BTG, Inc.
3877 Fairfax Ridge Road
Fairfax, VA 22030-7448 1,300,000 14.1%
- ----------------------------------------------------------------------------------------
M. Dendy Young (2) 957,130 8.8%
- ----------------------------------------------------------------------------------------
Franklin Resources, Inc.
777 Mariners Island Blvd
P.O. Box 777
San Mateo, CA 94403-7777 643,000 7.0%
- ----------------------------------------------------------------------------------------
Shufro, Rose & Ehrman LLC
745 Fifth Avenue
New York, NY 10151-2600 631,280 6.8%
- ----------------------------------------------------------------------------------------
Dimensional Fund Advisors
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 94404 502,800 5.4%
- ----------------------------------------------------------------------------------------
Lawrence J. Schoenberg (3) 301,752 2.8%
- ----------------------------------------------------------------------------------------
Gerald W. Ebker (4) 189,950 1.8%
- ----------------------------------------------------------------------------------------
Lee Johnson (5) 113,750 1.1%
- ----------------------------------------------------------------------------------------
William E. Johnson (6) 105,500 1.0%
- ----------------------------------------------------------------------------------------
Tania Amochaev (7) 72,750 *
- ----------------------------------------------------------------------------------------
James J. Leto (8) 64,750 *
- ----------------------------------------------------------------------------------------
John Toups (9) 48,750 *
- ----------------------------------------------------------------------------------------
Joel Lipkin, Ph. D (10) 46,000 *
- ----------------------------------------------------------------------------------------
Steven Kelman, Ph.D (11) 38,750 *
- ----------------------------------------------------------------------------------------
Judith B. Kassel, Esq. (12) 35,500 *
- ----------------------------------------------------------------------------------------
Robert D. Russell (13) 35,000 *
- ----------------------------------------------------------------------------------------
All Directors and Executive Officers (14) 2,009,582 18.6%
- ----------------------------------------------------------------------------------------
</TABLE>
* Less than one percent.
(1) Such persons have sole voting and investment power with respect to all
shares of common stock shown as being beneficially owned by them, subject
to community property laws, where applicable, and the information contained
in the footnotes to this table.
- 19 -
<PAGE> 21
(2) Includes 825,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 1998, and 830 shares held in the
name of Mr. Young's minor children.
(3) Includes 94,750 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(4) Includes 117,750 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(5) Includes 108,750 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(6) Includes 105,500 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(7) Includes 67,750 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(8) Includes 64,750 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(9) Includes 48,750 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(10) Consists of 46,000 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(11) Consists of 38,750 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(12) Consists of 35,500 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(13) Consists 35,000 of shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
(14) Includes 1,588,250 shares for which options are exercisable or become
exercisable within 60 days after March 1, 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as ameded,
requires the Company's directors and officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the SEC
reports concerning their beneficial ownership of the Company's equity
securities. Directors, officers and greater than 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all SEC
reports they file. Pursuant to Item 405 of SEC Regulation S-K, the Company is
required in this Proxy Statement to provide disclosure of "insiders" who do not
timely file such reports. Based solely on a review of such forms furnished to
the Company during the fiscal year ended December 31, 1999. Mr. Young failed to
file a Form 4 timely regarding one Common Stock purchase transaction. Thereafter
the requisite filing was made.
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about
each of them, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------- ----- ------------------------------------------------------------
<S> <C> <C>
Dendy Young 52 Chairman of the Board and Chief Executive Officer
William E. Johnson, Jr. 59 Senior Vice President, Operations
Joel A. Lipkin, Ph.D. 46 Senior Vice President, Sales and Customer Support
Robert D. Russell 60 Senior Vice President and Chief Financial Officer
Judith B. Kassel, Esq. 42 Vice President & General Counsel, and Corporate Secretary
</TABLE>
Officers are appointed by and serve at the discretion of the Board or,
with respect to officers at the Vice President level, the Chief Executive
Officer.
For information concerning Mr. Young, see "Election of Directors --
Nominees."
- 20 -
<PAGE> 22
Mr. Johnson joined the Company in August 1994 as a result of the
Company's acquisition of Falcon Microsystems ("Falcon"). He served as Vice
President, Product Management from October 1994 to June 1995; as Vice President,
Purchasing & Distribution from June 1995 to January 1996; and as Vice President,
Operations from January 1996 until his promotion to Senior Vice President,
Operations in October 1997. From February 1988 until joining the Company, he
served in various inventory management positions, most recently as Senior
Director of Distribution, at Falcon.
Mr. Lipkin joined the Company in March 1997, serving as Vice President,
Business Development until his appointment in October 1999 as Senior Vice
President, Sales and Customer Support. From March 1987 to January 1997, he was
employed by Zenith Data Systems, an integrator and reseller of microcomputer
products and services to the Government, where he served in various business
management positions, including serving as Vice President, Systems Integration
from August 1991 to January 1997.
Mr. Russell joined the Company in April 1999 as Senior Vice President
and Chief Financial Officer. From May 1995 until joining the Company, he served
as Vice President, Treasurer and Chief Financial Officer for TelePad
Corporation, a provider of mobile computer integration services. In March 1999,
TelePad Corp. filed a voluntary petition for relief under Chapter 11 in the U.S.
Bankruptcy Court for the District of Delaware. From August 1994 to May 1995, Mr.
Russell was a consultant to the Company. From April 1986 to August 1994, he
served as Vice President, Finance and Administration, Secretary and Treasurer
for Falcon.
Ms. Kassel joined the Company in November 1991 and served in various
legal positions until her appointment in February 1998 as Vice President and
General Counsel. She has served in the additional capacity of Corporate
Secretary since November 1997 and previously served as an Assistant Corporate
Secretary from May 1996 to November 1997.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the three years
ended December 31, 1999 concerning compensation paid or accrued by the Company
to or on behalf of: (a) the Chief Executive Officer ("CEO"); and (b) the four
most highly compensated executive officers other than the CEO, whose
compensation during 1999 exceeded $100,000 (collectively, the "Named Executive
Officers"):
- 21 -
<PAGE> 23
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
- -----------------------------------------------------------------------------------------------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL
COMP- STOCK UNDERLYING OTHER
NAME AND SALARY BONUS ENSATION AWARD(s) OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
M. Dendy Young, 1999 $300,000 $ 117,500 $ $ 0 100,000 $103,846(4)
Chairman and 1998 310,374 69,405 0 0 0 150,000(4)
Chief Executive Officer 1997 1 0 0 0 0 323,077(4)
- -----------------------------------------------------------------------------------------------------------
William E. Johnson, Jr., 1999 187,864 60,000 0 0 35,000 0
Senior Vice President, 1998 181,846 73,381 0 0 20,000 0
Operations 1997 123,654 8,625 0 0 40,000 0
- -----------------------------------------------------------------------------------------------------------
Joel A. Lipkin, 1999 160,000 72,734 0 0 72,000 0
Senior Vice President, 1998 155,073 61,961 0 0 0 0
Sales & Customer Support 1997 116,558(5) 0 0 0 50,000 0
- ------------------------------------------------------
Judith B. Kassel, 1999 110,000 33,165 24,000 0
Vice President and 1998 110,669 47,515 20,000 0
General Counsel and 1997 88,681 24,373 4,000 0
Corporate Secretary
- -----------------------------------------------------------------------------------------------------------
Robert D. Russell, 1999 106,827(5) 17,778 0 0 110,000 0
Senior Vice President,
Chief Executive Officer
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes amounts, if any, deferred by the Named Executive Officer pursuant
to the Company's 401(k) plan.
(2) Bonuses under any Executive Bonus Plan are based on corporate and
individual performance. See "Compensation Committee Report on Executive
Compensation -- Executive Bonus Plan."
(3) Pursuant to SEC rules, perquisites not exceeding the lesser of $50,000 or
10% of a Named Executive Officer's combined salary and bonus are not
required to be reported.
(4) Consists of payments under the August 16, 1994 Consulting and
Non-Competition Agreement entered into between Mr. Young and the Company in
connection with the Company's acquisition of Falcon August 1994.
(5) Represents compensation for that portion of the year in which the officer
commenced employment with the Company.
- 22 -
<PAGE> 24
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options made during the year ended December 31, 1999 to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(4)
- --------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED(1) IN 1999(2) PRICE(3) EXPIRATION 5% 10%
NAME (#) (%) ($/SH) DATE ($) ($)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
M. Dendy Young 100,000 8.8 % $4.00 08/03/2006 $162,840 $379,487
- --------------------------------------------------------------------------------------------
William E. Johnson, 15,000 1.3 3.75 03/25/2006 22,899 53,365
Jr. 20,000 1.8 2.88 11/02/2007 23,408 54,551
- --------------------------------------------------------------------------------------------
Joel A. Lipkin 12,000 1.1 3.75 03/25/2006 18,320 42,692
40,000 3.5 4.00 08/03/2006 65,136 151,795
20,000 1.8 2.88 11/02/2007 23,408 54,551
- --------------------------------------------------------------------------------------------
Judith B. Kassel 12,000 1.1 3.75 03/25/2006 18,320 42,692
12,000 1.1 4.00 08/03/2006 19,541 45,538
- --------------------------------------------------------------------------------------------
Robert D. Russell 50,000 4.4 3.13 04/15/2006 63,609 148,237
40,000 3.5 4.00 08/03/2006 65,136 151,795
20,000 1.8 2.88 11/02/2007 23,408 54,551
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Such options were granted under the Company's various stock option plans,
vest and become exercisable in three equal annual installments and were
granted for a term of seven years, subject to earlier termination under
certain circumstances relating to termination of employment.
(2) During fiscal 1999, employees were granted under the Company's various
stock option plans or in accordance with employment offers, and
non-employee directors were granted automatically under the 1996 Plan,
options to purchase an aggregate of 1,134,000 shares of Common Stock.
(3) Represents the closing price of Common Stock on The Nasdaq Stock Market on
the grant date.
(4) Potential values are net of exercise price and before taxes payable in
connection with the exercise of such options or the subsequent sale of
shares acquired upon the exercise of such options. These values are based
on certain assumed rates of appreciation (i.e., 5% and 10% compounded
annually over the term of such options) based on SEC rules. The actual
values, if any, will depend upon, among other factors, the future
performance of Common Stock, overall market conditions and the Named
Executive Officer's continued employment with the Company. Therefore, the
potential values reflected in this table may not necessarily be achieved.
- 23 -
<PAGE> 25
AGGREGATED OPTION EXERCISES IN 1999 AND OPTION VALUES AT DECEMBER 31, 1999
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the year ended, and
unexercised options held as of, December 31, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
12/31/99 (#) 12/31/99 ($)(2)
- ----------------------------------------------------------------------------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
M. Dendy Young 0 0 825,000 $0
75,000 0
- ---------------------------------------------------------------------------------------------
William E. Johnson, 0 0 101,250 0
Jr. 33,750 0
- ---------------------------------------------------------------------------------------------
Joel A. Lipkin 0 0 40,500 0
81,500 0
- ---------------------------------------------------------------------------------------------
Judith B. Kassel 0 0 32,500 0
18,000 0
- ---------------------------------------------------------------------------------------------
Robert D. Russell 0 0 22,500 0
87,500 0
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the excess of the market value of the shares acquired upon
exercise of such options over the exercise price of such options.
(2) Represents the excess of the market value of the shares subject to such
options over the exercise price of such options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of three non-employee
directors: Messrs. Ebker, Leto and Toups. No member of the Compensation
Committee is a current or former officer or employee of the Company. Although
Mr. Young is not a member of the Compensation Committee, he is expected to
attend portions of the Committee meetings at the request of the Committee to
provide information to, and respond to questions from, the Committee. Mr. Young
does not exercise any of the rights or have any of the responsibilities of a
Committee member. He is not entitled to vote on any matters before the
Compensation Committee and does not participate in any Committee decisions
regarding compensation, including his own. See "Compensation Committee Report on
Executive Compensation."
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND
CHANGE OF CONTROL ARRANGEMENTS
Pursuant to an employment agreement dated January 1, 1998 (the "1998
Employment Agreement"), Mr. Young serves as the President and Chief Executive
Officer of the Company for a term ending December 31, 2000, and he is nominated
each year to serve as a member of its Board. Mr. Young is paid a salary of
$300,000 per year, reviewed annually by the Board, plus a $150,000 annual bonus
payable quarterly within 30 days after the end of each fiscal quarter.
Eligibility for the bonus payment is determined as follows: 50% upon attainment
of earnings before interest and taxes ("EBIT") (adjusted for Board-approved
one-time charges
- 24 -
<PAGE> 26
(e.g. acquisition costs)) to be determined annually by the Board; and 50% upon
attainment of a return on assets to be determined annually by the Board. Return
on assets is defined as annualized net income divided by average assets
calculated on a 12-month rolling average. (Effective January 1, 1999, the
Company and Mr. Young amended the 1998 Employment Agreement (a) to provide that
eligibility for the bonus payment shall be upon attainment of earnings before
taxes ("EBT") (adjusted for Board-approved one-time charges (e.g. acquisition
costs)) to be determined annually by the Board; and (b) to delete the return on
assets component therefrom.) Bonus payments are paid in ratio to the percentage
of the goal achieved contingent upon achievement of at least 60% of the target.
Mr. Young is also entitled to such other benefits and perquisites as provided to
other senior officers pursuant to policies established from time to time by the
Board.
The 1998 Employment Agreement may be terminated by the Company for Cause
(as defined in such agreement) upon 10 business days' notice to Mr. Young; and
other than for Cause upon 60 days' notice to Mr. Young and by paying to him a
lump sum equal to 12 months' salary plus accrued bonus to date. Mr. Young may
terminate the 1998 Employment Agreement without cause at any time upon 60 days'
notice and, in such event, he will be entitled to all compensation and other
benefits that have accrued as of the termination date. In addition, Mr. Young
may terminate the 1998 Employment Agreement upon five days' notice to the
Company in the event of a Change of Control (as defined in such agreement) and
the assignment of duties to him materially inconsistent with his position and
status with the Company. In such event the Company will be obligated to pay to
him a lump sum equal to 12 months' salary plus all compensation and other
benefits that have accrued as of the termination date.
Mr. Young also received payments of $103,846.14 under the Consulting and
Non-Competition Agreement (entered into between Mr. Young and the Company in
connection with the Company's acquisition of Falcon in August 1994). All
payments under this agreement were completed in 1999.
Under an offer letter agreement dated April 1, 1999, Mr. Russell would
be eligible for six months' base salary and immediate vesting all outstanding
stock options if his duties or responsibility are materially modified without
his consent, or in the case of a change of control (as defined in the
agreement), and or if his employment ceases for any reason other than for cause
(as defined in the agreement).
Under the Company's severance plan as amended to date (the "Severance
Plan"), officers of the Company at the Vice President level and above (not
including Mr. Young) who have completed nine full consecutive calendar months of
employment ("Eligible Officers") are entitled to receive certain severance
benefits for one year following termination of employment, if such termination
is non-temporary, involuntary and without cause. An Eligible Officer is entitled
to such severance benefits regardless of length of employment with the Company
if such termination is a result of the Company's divestment of an operating unit
and the Eligible Officer is not offered employment with the acquiring company on
substantially the same terms as his or her employment with the Company. In
addition, if there is a "change of control" of the Company, an Eligible Officer
will receive benefits under the Severance Plan regardless of length of
employment with the Company if such officer terminates his or her employment
with the Company either for any reason within one year following the change in
control or for "good reason" (which includes the assignment to the Eligible
Officer of significant duties inconsistent with his or her prior position or a
reduction in his or her compensation or benefits) within two years following
such change in control. A "change in control" of the Company is defined in the
Severance Plan to mean: (a) an acquisition of 50% or more of the Company's
outstanding voting securities; (b) during any 12-month period, individuals who
were directors at the beginning of such period cease to constitute at least a
majority of the Board, unless the election of each new director is approved by a
majority of directors then in office who were directors at the beginning of such
period; (c) certain mergers of the Company or a sale of all or substantially all
of its assets; or (d) a liquidation of the Company. Each Eligible Officer is
entitled to one year of severance pay based on his or her highest annual
compensation (base salary plus car allowance) prior to termination. In addition,
an Eligible Officer may elect to accept accelerated
- 25 -
<PAGE> 27
vesting of his or her then outstanding but unvested stock options partially or
wholly in lieu of accrued severance pay. To receive severance benefits under the
Severance Plan, each Eligible Officer is required to execute an employment
separation agreement with the Company which provides, among other things, for
confidentiality, a general release in favor of the Company, and a covenant not
to compete with the Company for a period of 12 months after any termination of
Company employment.
On March 10, 1997, the Board unanimously terminated the Severance Plan.
However, such termination is not effective with respect to current Eligible
Officers, including Mr. Johnson (whose benefits under the Severance Plan, in
accordance with the terms thereof, may not be adversely affected without his
consent and, in any case, not affecting Mr. Young, as noted above), but only to
officers who had not qualified as Eligible Officers prior to March 10, 1997.
Based on current compensation levels, the amount that would be payable under the
Severance Plan to Mr. Johnson if his employment were terminated in March 2000,
if he was eligible for and elected severance benefits solely under the Severance
Plan and if he did not elect accelerated vesting, would be $180,000. payable pro
rata over 24 semimonthly periods. Messrs. Russell, Lipkin and Young and Ms.
Kassel are not eligible for benefits under the Severance Plan.
Under an offer letter agreement dated February 12, 1997, Mr. Lipkin
would be eligible for immediate vesting all outstanding stock options in the
event of a change of control (as defined in the agreement) of the Company. Under
an October 29, 1999 promotion memorandum, Mr. Lipkin is eligible for six months
base salary and immediate vesting of all outstanding stock option if his duties
are materially modified without his consent or if there is a change of control
of the Company and his employment ceases for any reason other than cause.
Under a January 5, 1998 promotion memorandum, Ms. Kassel is eligible for
six months' base salary and immediate vesting of all outstanding stock options
if her duties are materially modified without her consent, if there is a change
of control (as defined in the memorandum) of the Company or if her employment
ceases for other than cause (as defined in the agreement).
The following report on executive compensation by the Compensation
Committee shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act or under the Securities Exchange Act, except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
POLICY AND OBJECTIVES
The Company's compensation program for executive officers is designed to
attract, motivate and retain qualified executive officers and is generally
administered by the Compensation Committee. The Company's program is based on
compensation policies and plans which seek to enhance the profitability of the
Company, and thus stockholder value, by aligning closely the financial interests
of the Company's executive officers with those of its stockholders. Accordingly,
the Committee, which is composed entirely of non-employee directors, structures
such policies and plans to pay competitive levels of compensation for
competitive levels of performance, and to provide for superior compensation
opportunities for superior levels of performance.
The Company actively collects and analyzes compensation information from
ten competitive computer resellers (the "Competitive Group"; all of which are
publicly traded companies, and six of which are listed in
- 26 -
<PAGE> 28
the Company's Peer Index used in the Performance Graph appearing elsewhere in
this Proxy Statement). This information, and other market and competitive
information collected by the Company's Human Resources department, is used as
the basis for comparing the compensation of the Company's executive officers to
amounts paid to executive officers with comparable qualifications, experience
and responsibilities at other companies engaged in the same or similar business
as the Company.
COMPONENTS
The Company's executive compensation program includes three components,
each of which is intended to serve the overall compensation approach described
above: base salary, an executive bonus and stock options.
Base Salary
The Committee believes that the Company pays base salaries to its
executive officers that are set conservatively, and below the median, compared
with executive officers employed at competing companies. The Committee, among
other things, reviews and approves the annual salaries of the Company's CEO and
Executive Vice President(s). The CEO and the Chairperson of the Committee have
been delegated by the Board the collective authority to set the annual base
salaries of the remaining, less senior executive officer positions.
Additionally, all full-time executive officers are eligible to participate in
the Company's broad-based employee benefit plans.
Executive Bonus Plan
The Committee believes that a significant portion of each executive
officer's total compensation should be "at risk" in the form of incentive
compensation. Accordingly, under an annual Executive Bonus Plan developed and
implemented under the Committee's supervision, the Company pays cash bonuses to
all its eligible executive officers according to a formula that varies,
according to position, on two factors: (a) certain Company financial goals (net
income and gross margin); and (b) certain individual goals. Individual bonuses
are calculated as a percentage of base salary and range from 35% to 40% in the
case of officers generally, other than the CEO. In 1999, bonuses were earned by
executive officers based on application of the Executive Bonus Plan's formula.
The CEO additionally employs the occasional use of "spot" bonuses in recognition
of extraordinary performance.
Stock Options
Options to purchase Common Stock are a key component of the Company's
executive compensation program. The Committee views the grant of stock options
as a valuable incentive that serves to align the interests of executive officers
with the Company's goal of enhancing stockholder value. Options will only have
value to an executive officer if the stock price increases over the exercise
price. The Committee reviews and acts upon recommendations by the Company's CEO
with regard to the grant of stock options to executive officers (other than to
himself). In determining the size and other terms of an option grant to an
executive officer, the Committee considers a number of factors, including such
officer's position, responsibilities and previous stock option grants (if any).
Options typically vest in equal installments over three to five years and,
therefore, encourage an officer to remain in the employ of the Company.
During 1999, option grants were made to two executive officers in
connection with each person's acceptance of an executive officer-level position
with the Company, and to all current executive officers as a performance
incentive.
- 27 -
<PAGE> 29
CHIEF EXECUTIVE OFFICER COMPENSATION
In evaluating the CEO's compensation, the Committee reviewed the
compensation for similar positions at each of the companies in the Competitive
Group. In addition, the Committee selected for review 48 of the companies (based
on primary business focus, size and location) participating in the Radford
Associates 1998 Executive Compensation Report for the position of Corporate
CEO/President. The Committee studied the base salary, annual bonuses, stock
options and grants, and other long-term compensation of the chief executive
officers in each of the companies, and recommended Mr. Young's salary to the
Board by targeting the 50th percentile of base and target bonus based upon the
Committee's research. Mr. Young's current compensation plan is intended to
provide significant incentives to him to increase the Company's value (as
reflected in its stock price) to the benefit of all Company stockholders, while
the focus of his annual bonus is on achieving short-term financial goals.
Mr. Young's compensation, as set forth in the 1998 Employment Agreement
(see "Employment Agreements and Termination of Employment and Change of Control
Arrangements" above ), was unanimously approved by the Board. Mr. Young has been
the Company's CEO, as well as a member of its Board, since December 18, 1995.
OTHER MATTERS
Mr. Young from time to time consulted with, and made recommendations to,
the Committee with respect to the compensation of the Company's executive
officers other than himself. Other than as delegated by the Board (as set forth
above), Mr. Young did not participate in decisions relating to executive officer
compensation, including his own, and did not participate on matters relating to
the administration of the Company's stock option plans.
Under Section 162(m) of the Code, a publicly held corporation such as
the Company will not be allowed a federal income tax deduction for compensation
paid to the chief executive officer or one of the four most highly compensated
officers (other than the chief executive officer) to the extent that
compensation (including stock-based compensation) paid to each such officer
exceeds $1 million in any fiscal year unless such compensation was based on
performance goals or paid under a written contract that was in effect on
February 17, 1993. The 1996 Stock Option Plan is designed so that amounts
realized on the exercise of options granted thereunder may qualify as
"performance-based compensation" that is not subject to the deduction limitation
of Section 162(m). The Committee intends to evaluate other elements of
compensation in light of Section 162(m), but may enter into arrangements that do
not satisfy exceptions to Section 162(m), as the Committee determines to be
appropriate. In particular, based upon the Company's current compensation plans
and policies and the final regulations under Section 162(m), it is possible that
the compensation to be paid to Mr. Young (primarily due to the stock option
component of his compensation arrangement) for 2000 may exceed the $1 million
limitation per officer.
COMPENSATION COMMITTEE
Gerald W. Ebker
James J. Leto (Chairperson)
John M. Toups
- 28 -
<PAGE> 30
The following performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Securities
Exchange Act, except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the
cumulative total return on Common Stock with the cumulative total return of the
Nasdaq Composite Index and a Peer Index of companies with the same four-digit
standard industrial classification (SIC) code as the Company (SIC Code 5045 --
Computers and Peripheral Equipment and Software)(1) for the period commencing
December 31, 1994 and ending December 31, 1999. The stock price performance
shown on the graph below is not necessarily indicative of future price
performance.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Index 100 129.71 161.18 197.16 278.08 490.46
- ----------------------------------------------------------------------------------------
Peer Index 100 130.01 175.26 153.95 144.59 148.74
- ----------------------------------------------------------------------------------------
GTSI 100 40.70 52.31 53.49 42.15 25.58
- ----------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
ASSUMES $100 INVESTED ON DEC. 31, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1999
SOURCE: MEDIA GENERAL FINANCIAL SERVICES
(1) The 36 companies listed in SIC Code 5045 are: Actrade Internet LTD; Allstar
Systems, Inc.; Alphanet Solutions, Inc.; Atec Group, Inc.; CDW Computer
Centers, Inc.; CHS Electronics, Inc.; CompuCom Systems, Inc.; Continental
Info. Sys.; En Pointe Technologies.; European Micro Holdings; Government
Technology Services, Inc.; Heartland Technology, Inc.; IFS Intl., Inc.;
Ikon Office Solutions; Ingram Micro, Inc ; Latitude communications;
Mechanical Dynamics, Inc.; Merisel, Inc.; Miami Computer Supply Corp.;
Michael Foods, Inc.; MicroAge, Inc.; Micros-to-Mainframes, Inc.; PC
Services Source, Inc.; PCC Group, Inc.; Peerless Systems Corp.; Programmers
Paradise, Inc.; Safeguard Scientific, Inc.; Sand Technology Systems
International; Scansource, Inc.;
- 29 -
<PAGE> 31
SED Intl. Holdings, Inc.; Software Spectrum, Inc.; Syscomm Intl. Corp.; Tech
Data Corporation; Tekgraf Inc., Cl. A.; and V-One Corp.; Venturian Corp..
Since last year's proxy statement, Applied Cellular Tech.;Bristol Tech. Sys.;
Capital Associates, Inc.; Celebrity Systems, Inc.; Cumetrix Data Systems Corp.;
Egghead.com, Inc; Enstar, Inc.; Global Intellicom, Inc.; Internet Commerce Cl.
A.; Liuski International, Inc.; Omni U.S.A., Inc.; Orcad, Inc.; were deleted
from SIC Code 5045, and Actrade Internet LTD; and Venturian Corp.; were added
to SIC Code 5045.
- 30 -
<PAGE> 32
INDEPENDENT ACCOUNTANTS
The Company's independent accountants for the most recent fiscal year is
Arthur Andersen LLP. The Board has not yet selected the independent accountants
for the fiscal year ended December 31, 2000. A representative of Arthur
Andersen is expected to be present at the Meeting, will have an opportunity to
make a statement if he or she so desires, and is expected to be available to
respond to appropriate questions.
ANNUAL REPORT
A copy of the Company's 1999 Annual Report to Stockholders is being
delivered to each stockholder as of the Record Date. THE COMPANY'S ANNUAL REPORT
ON FORM 10-K, AS FILED WITH THE SEC, IS ALSO AVAILABLE FREE OF CHARGE TO ALL
STOCKHOLDERS OF RECORD AS OF THE RECORD DATE BY WRITING TO THE COMPANY AT 3901
STONECROFT BOULEVARD, CHANTILLY, VIRGINIA 20151-0808, ATTENTION: INVESTOR
RELATIONS.
OTHER MATTERS
The Company currently knows of no matters to be submitted at the Meeting
other than those described herein. If any other matters properly come before the
Meeting, the proxies will vote the shares they represent as they deem advisable.
By Order of the Board of Directors
Judith B. Kassel
Corporate Secretary
Chantilly, Virginia
April , 2000
- 31 -
<PAGE> 33
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GOVERNMENT TECHNOLOGY SERVICES, INC.
GOVERNMENT TECHNOLOGY SERVICES, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify that:
FIRST: The Certificate of Incorporation is duly amended by deleting
therefrom the current Article FIRST, in its entirety, and inserting in
substitution thereof a new Article FIRST, as follows:
FIRST: The name of the Corporation is GTSI, Corp.
SECOND: The Certificate of Incorporation is duly amended by deleting
therefrom the current Article EIGHTH, in its entirety, and inserting in
substitution thereof a new Article EIGHTH, as follows:
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation, of its directors and of its
stockholders or any class thereof, as the case may be, it is further
provided that:
A. (1) The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The Board of Directors shall consist of not fewer than two directors nor
more than twelve directors. The number of directors which shall
constitute the whole Board of Directors shall be fixed, from time to
time, exclusively by one or more resolutions adopted by at least
two-thirds of the total number of authorized directors of the
Corporation (whether or not there exists any vacancies in previously
authorized directorships at the time any such resolution is presented to
the Board of Directors).
(2) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into three classes
designated as Class 1, Class 2 and Class 3, respectively. Directors
shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first meeting of
stockholders following January 1, 2001, the term of office of the Class
1 directors shall expire and Class 1 directors shall be elected for a
full term of three years. At the second meeting of stockholders
following January 1, 2001, the term of office of the Class 2 directors
shall expire and Class 2 directors shall be elected for a full term of
three years. At the third meeting of stockholders following January 1,
2001, the term of office of the Class 3 directors shall expire and Class
3 directors shall be elected for a full term of three years. At each
succeeding meeting of stockholders, directors shall be elected for a
full term of three years to succeed the directors of the class whose
terms expire at such meeting.
Notwithstanding the foregoing provisions of this Article
EIGHTH, each director shall serve until his successor is duly elected
and qualified or until his death, resignation or removal. When the
number of directors is changed, as provided above, the Board of
Directors shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned, provided that
- 32 -
<PAGE> 34
the number in each class shall be nearly or equal in number as possible,
and provided further, that no decrease in the number of directors shall
shorten the term of any incumbent director.
(3) Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may
be removed from office at any time, but only for cause by the
affirmative vote of the holders of two-thirds of the voting power of all
of the then outstanding voting stock of the Corporation entitled to vote
at an election of directors (the "Voting Stock"), at a special meeting
of the stockholders called for such a purpose. For purposes of this
Section A.(3), "cause" shall mean (i) conduct as a director of the
Corporation or any subsidiary thereof involving willful material
misconduct, breach of material fiduciary duty involving personal profit,
or gross negligence as to material duties or (ii) conduct, whether or
not as a director of the Corporation or any subsidiary thereof,
involving dishonesty or breach of trust which is punishable by
imprisonment for a term exceeding one year under state or federal law.
(4) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other causes and any
newly created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled
by the stockholders, except as otherwise provided by law, be filled only
by the affirmative vote of a majority of the directors then in office,
even though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B. (1) The Corporation's Bylaws may be altered or amended or new
Bylaws adopted by the affirmative vote of a majority of all voting power
of all of the then outstanding Voting Stock. The Board of Directors
shall also have the power to adopt, amend or repeal the Corporation's
Bylaws.
(2) The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders
called in accordance with the Bylaws.
(4) Special meetings of the stockholders of the Corporation
may be called, for any purpose or purposes, only by (i) the Chairman of
the Board of Directors, (ii) the President or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies
in previously authorized directorships at the time any such resolution
is presented to the Board of Directors for adoption), and will be held
at such place, on such date, and at such time as the Board of Directors
shall fix.
(5) Advance notice of stockholder nominations for the election
of directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the
manner provided in the Corporation's Bylaws.
THIRD: The Certificate of Incorporation is duly amended by deleting
therefrom the current Article THIRTEENTH, in its entirety, and inserting in
substitution thereof a new Article THIRTEENTH, as follows:
- 33 -
<PAGE> 35
THIRTEENTH: Except as set forth in this Article THIRTEENTH or as
otherwise specifically required by law, no alteration, amendment or
repeal of any provision of this Certificate of Incorporation shall be
made unless such alteration, amendment or repeal has been first proposed
by the Corporation's Board of Directors upon the affirmative vote of at
least two-thirds of the directors then in office at a duly constituted
meeting of the Board of Directors called for such purpose, and
thereafter approved by the Corporation's stockholders by the affirmative
vote of the holders of at least a majority of the shares entitled to
vote thereon at a duly called annual or special meeting; provided,
however, that if such alteration, amendment or repeal is to the
provisions set forth in this Article THIRTEENTH or in Article EIGHTH
hereof, such alteration, amendment or repeal must be approved by the
affirmative vote of the holders of at least 66-2/3 percent of the then
outstanding stock of the Corporation entitled to vote thereon rather
than a majority.
FOURTH: The directors of the Corporation adopted resolutions which set
forth the foregoing amendment, declared that this amendment is advisable and
directed that this amendment be submitted for action by the Corporation's
stockholders.
FIFTH: The foregoing amendments have been duly adopted in accordance
with Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Government Technology Services, Inc. has caused this
Certificate of Amendment to be executed by its duly authorized Chairman,
President and Chief Executive Officer in accordance with Section 103(a)(2) of
the General Corporation Law of the State of Delaware.
DATED: ________ __, 2000 GOVERNMENT TECHNOLOGY SERVICES, INC.
By:
----------------------------------------
M. Dendy Young, Chairman, President and
Chief Executive Officer
- 34 -
