<PAGE>
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:
[_] Preliminary proxy statement [_] Confidential, for Use of the
Commission Only (as permitted by
RULE 14a-6(e)(2))
[X] Definitive proxy statement
[_] Definitive additional Materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TECHNOLOGY SOLUTIONS COMPANY
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(Name of Registrant as Specified in Its Charter)
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(Name of Person Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transactions apply:
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(2) Aggregate number of securities to which transactions apply:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
[LOGO]
TECHNOLOGY SOLUTIONS COMPANY
205 NORTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60601
(312) 228-4500
DEAR STOCKHOLDER:
You are cordially invited to the 1996 Annual Meeting of Stockholders of
Technology Solutions Company, a Delaware corporation, at 10:00 a.m., Local Time,
on Thursday, September 26, 1996, at the offices of Bank of America Illinois, 231
South LaSalle Street, Chicago, Illinois 60697.
The matters to be considered at the meeting are described in the accompanying
Proxy Statement. Regardless of your plans for attending in person, it is
important that your shares be represented at the meeting. Therefore, please
complete, sign, date and return the enclosed proxy card in the enclosed, post-
paid envelope. This will enable you to vote on the business to be transacted
whether or not you attend the meeting.
We hope that you can attend the 1996 Annual Meeting, but in any event, please
vote your shares by signing and returning your proxy card.
Sincerely,
/s/ Bill Waltrip
WILLIAM H. WALTRIP
Chairman
August 27, 1996
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 26, 1996
TO OUR STOCKHOLDERS
The 1996 Annual Meeting of Stockholders (the "Annual Meeting") of Technology
Solutions Company (the "Company") will be held at 10:00 a.m., Local Time, on
Thursday, September 26, 1996 at the offices of Bank of America Illinois, 231
South LaSalle Street, Chicago, Illinois 60697, for the purpose of considering
and acting upon the following matters:
1. To elect two directors to the Board of Directors each to serve for a
three year term;
2. To approve the Technology Solutions Company 1996 Stock Incentive Plan;
3. To ratify the appointment of Price Waterhouse LLP as independent
accountants for the Company for the fiscal year ending May 31, 1997;
and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on August 9, 1996, are
entitled to notice of, and to vote at, the Annual Meeting or any adjournments
thereof. A list of such stockholders will be available for examination by any
stockholder for any purpose germane to the Annual Meeting, during normal
business hours, at the principal executive office of the Company, 205 North
Michigan Avenue, Suite 1500, Chicago, Illinois 60601, for a period of ten days
prior to the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement. Whether or not
you plan to attend the Annual Meeting in person, you are urged to complete,
sign, date and return the enclosed proxy card in the enclosed, post-paid
envelope. If you attend the Annual Meeting and wish to vote in person, you may
withdraw your proxy and vote your shares personally.
By order of the Board of Directors,
Paul R. Peterson
Secretary
August 27, 1996
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
205 North Michigan Avenue, Suite 1500
Chicago, Illinois 60601
PROXY STATEMENT
Annual Meeting of Stockholders
September 26, 1996
Table of Contents
Page
----
General Information............................................................1
Election of Directors..........................................................2
Nominees for Director..........................................................2
Members of Board of Directors Continuing in Office.............................3
Directors Meetings and Committees..............................................5
Approval of the Technology Solutions Company 1996 Stock Incentive Plan.........6
Ratification of Appointment of Independent Accountants........................14
Executive Officer Compensation................................................15
Other Transactions............................................................20
Board Compensation Committee Report on Executive Compensation.................21
Security Ownership of Directors and Management................................23
Additional Information Relating to Voting Securities..........................25
Performance Graph.............................................................26
Stockholder Proposals.........................................................27
Section 16(a) Beneficial Ownership Reporting Compliance.......................27
Annual Report to Stockholders.................................................28
Other Business................................................................28
Technology Solutions Company 1996 Stock Incentive Plan.................Exhibit A
Technology Solutions Company 1996 Financial Report....................Appendix 1
<PAGE>
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Technology Solutions Company (the "Company") for
use at the 1996 Annual Meeting of Stockholders (the "Annual Meeting") to be held
at 10:00 a.m., Local Time, on Thursday, September 26, 1996, at the offices of
Bank of America Illinois, 231 South LaSalle Street, Chicago, Illinois 60697. The
Company's principal executive office is located at 205 North Michigan Avenue,
Suite 1500, Chicago, Illinois 60601.
Each stockholder of record of Common Stock, $.01 par value, of the Company (the
"Common Stock") at the close of business on August 9, 1996 (the "Record Date"),
is entitled to vote at the Annual Meeting or any adjournment thereof and will
have one vote for each share of Common Stock held on the Record Date. A majority
of the shares entitled to vote will constitute a quorum. On the Record Date
there were 15,269,093 shares of Common Stock outstanding.
If you are unable to attend the Annual Meeting, you may vote by proxy. The proxy
holders will vote your shares according to your instructions. If you return a
properly signed and dated proxy card but do not mark a choice on one or more
items, your shares will be voted in accordance with the recommendations of the
Board of Directors for such items as set forth in this Proxy Statement. The
proxy card gives authority to the proxy holders to vote your shares in their
discretion on any other matter presented at the Annual Meeting or any
adjournment thereof. A proxy may indicate that all or a portion of the shares
represented by that proxy are not being voted by a stockholder with respect to a
particular matter. Any such non-voted shares will be considered present for the
purpose of determining the presence of a quorum.
You may revoke your proxy at any time prior to voting at the Annual Meeting by
delivering written notice to the Secretary of the Company, by submitting a
subsequently dated proxy or by attending and voting in person at the Annual
Meeting.
The Company will bear the cost of preparing, handling, printing and mailing this
Proxy Statement, the related proxy card and any additional material which may be
furnished to stockholders, as well as the actual expense incurred by brokerage
houses, fiduciaries and custodians in forwarding such materials to beneficial
owners of Common Stock held in their names. The solicitation of proxies will be
made by the use of the mails and through direct communication with certain
stockholders or their representatives by certain officers, directors or
employees of the Company who will receive no additional compensation therefor.
This Proxy Statement and the related proxy card are expected to be first sent or
given to stockholders on or about August 27, 1996.
Effective July 30, 1996, the Company's Board of Directors approved a three-for-
two stock split of the Company's Common Stock, effected in the form of a
dividend. All financial data reported within this Proxy and made a part of this
Proxy reflects the results of this stock split.
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ELECTION OF DIRECTORS
The Board of Directors consists of seven persons and is divided into three
staggered classes, each of which includes two or more members serving three-year
terms. The terms of the Class II Directors expire on the date of the Annual
Meeting. Each of the nominees for Class II Director, if elected, will serve
three years until the 1999 Annual Meeting of Stockholders and until a successor
has been elected and qualified. The current Class III and I Directors will
continue in office until the 1997 and 1998 Annual Meetings of stockholders,
respectively.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the two Class II nominees recommended by the Board of Directors.
Directors are elected by a plurality of the votes cast. Stockholders may not
cumulate their votes. The two nominees receiving the highest number of votes
will be elected. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. In the event that additional
persons are nominated for election as directors, the proxy holders intend to
vote all proxies received by them for the nominees recommended by the Board of
Directors.
NOMINEES FOR DIRECTOR
Class II -- Nominees to Serve Until
1999 Annual Meeting of Stockholders:
MICHAEL J. MURRAY, age 52, has been a Director of the Company since July 1988.
Mr. Murray has been Vice Chairman of BankAmerica Corporation, responsible for
the U.S. and International Groups, since the fall of 1995. From 1994 to 1995 he
served as Group Executive Vice President for the U.S. Corporate Group of Bank of
America NT & SA. From 1969 until its merger with Bank of America in 1994, he was
employed by Continental Bank Corporation, most recently as Vice Chairman.
STEPHEN B. ORESMAN, age 64, has been a Director of the Company since July 1988.
Since 1990, he has served as President of Saltash, Ltd., a management consulting
firm. He previously served as Senior Vice President of Booz Allen & Hamilton,
Inc. and Chairman of Booz Allen & Hamilton International, management consulting
firms. He is also currently a Director of Angram, Inc., Cleveland-Cliffs Inc.,
Gryphon Laboratories, Inc. and TriNet Corporate Realty Trust, Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS
VOTE FOR ELECTION OF THE NOMINEES LISTED ABOVE.
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<PAGE>
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
Class III -- Serving Until 1997 Annual Meeting of Stockholders:
JOHN R. PURCELL, age 64, has been a Director of the Company since July 1988. He
has served as Chairman and Chief Executive Officer of Grenadier Associates,
Ltd., a venture banking, merger and acquisition consulting firm, since 1989.
Since February 1991, he has served as Chairman of Donnelley Marketing, Inc., a
direct marketing company. From 1987 until 1990, he served as Chairman of
Mindscape, Inc., an educational entertainment computer software company. From
1987 to 1989, Mr. Purcell served as Chairman of Fairfield Publishing Company, a
magazine publisher. From 1982 until 1986, he served as Chairman and President of
SFN Companies, Inc., a communications company. He previously served as Executive
Vice President of CBS, Inc. and Senior Vice President, Finance of Gannett Co.,
Inc. He is also currently a Director of Bausch & Lomb, Inc., Omnicom Group Inc.
and Repap Enterprises, Inc.
WILLIAM H. WALTRIP, age 58, has been a Director of the Company since December
1992 and Chairman of the Board since June 29, 1993. Mr. Waltrip also served as
Chief Executive Officer from June 29, 1993 to June 29, 1995. Since January of
1996, Mr. Waltrip has served as the Chairman of the Board of Directors and Chief
Executive Officer of Bausch & Lomb, Inc. From 1991 to May 1993, he was Vice
Chairman of Unifax, Inc., a broad line food service distributor. From 1985 to
1988, Mr. Waltrip was President, Chief Operating Officer and a Director of IU
International, a diversified services company with major interests in
transportation, environmental services and distribution. From 1982 to 1985 he
was President, Chief Executive Officer and a Director of Purolator Courier
Corporation and from 1972 to 1982 he was President, Chief Operating Officer and
Director of Pan American World Airways, Inc. He is also currently serving as a
Director of Bausch & Lomb, Inc., the Teachers Insurance and Annuity Association
and Thomas & Betts Corporation.
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<PAGE>
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
Class I -- Serving Until 1998 Annual Meeting of Stockholders:
JEFFREY T. CHAMBERS, age 41, has been a Director of the Company since July 1989.
From 1980 to date, he has also been affiliated with TA Associates, (currently as
Managing Director) a venture capital firm which concentrates its investment
activities in the high technology area. He is also currently a Director of
McAfee Associates, a personal computer software development and distribution
company, and Diamond Multimedia Systems, Inc., a multimedia peripherals and
subsystems company.
JOHN T. KOHLER, age 49, is currently the President and Chief Executive Officer
of the Company and has been a Director of the Company since June 23, 1994. He
joined the company as Senior Vice President in June 1992, was promoted to
Executive Vice President and named to the Office of the Chairman in September
1993, became President and Chief Operating Officer on January 29, 1994 and
became Chief Executive Officer on June 29, 1995. From 1986 to 1992, he was
Senior Vice President and Chief Information Officer of Kimberly-Clark Corp. From
1983 to 1986, he was a partner and regional practice director for the Midwest
Region consulting practice of Arthur Young.
MICHAEL J. MCLAUGHLIN, age 46, joined TSC on May 31, 1996, when TSC acquired the
operations of McLaughlin & Associates. Effective with the acquisition, he
assumed the role of Executive Vice President and was elected to the Company's
Board of Directors. From 1992 to 1996, he was President of McLaughlin &
Associates. From 1972 to 1992, he worked for Booz, Allen & Hamilton, completing
his tenure there as Global Practice Leader for the computer and
telecommunications practice.
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<PAGE>
DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors met five times during the fiscal year ended May 31, 1996
("Fiscal 1996"), all pursuant to regularly scheduled meetings. With the
exception of Mr. Oresman, all directors attended 100 percent of the meetings of
the Board and committees thereof on which they served. Mr. Oresman attended 63
percent of these meetings.
The Board of Directors has an Audit Committee presently composed of Messrs.
Murray and Oresman. The Audit Committee reviews the results and scope of the
audit and other services provided by the Company's independent accountants and
recommends the appointment of independent accountants to the Board of Directors.
See "Ratification of Appointment of Independent Accountants." The Audit
Committee met three times during Fiscal 1996.
The Board of Directors has a Compensation Committee presently composed of
Messrs. Chambers and Purcell. The Compensation Committee approves all executive
compensation and stock option grants. The Compensation Committee met four times
during Fiscal 1996.
Those directors who are not employees of the Company ("Outside Directors")
receive an annual fee of $25,000 plus reimbursement of expenses incurred in
attending meetings.
In addition, each Outside Director participates in the Technology Solutions
Company 1993 Outside Directors Plan, as amended, (the "1993 Plan"). Under the
1993 Plan, any new Outside Director will receive an option to purchase 18,000
shares of Common Stock with a per share exercise price equal to the closing
price of a share of Common Stock as reported on The Nasdaq Stock Market(SM) on
the day such stock option is granted. In addition to the stock options already
granted and options to be granted to each new Outside Director, an option to
purchase 18,000 shares of Common Stock will be granted to each Outside Director
at the time that a previously issued stock option granted under the 1993 Plan to
such person becomes exercisable in full (assuming the person is an Outside
Director at that time and assuming there are sufficient options to purchase
shares of Common Stock available for issuance under the 1993 Plan). Each stock
option granted under the 1993 Plan becomes exercisable in thirty-six monthly
installments of 500 shares each, commencing on the last day of the calendar
month immediately following the grant of such option. If the stockholders
approve the Technology Solutions Company 1996 Stock Incentive Plan (the "1996
Plan"), the options described in this paragraph to be granted in the future will
be granted under the 1996 Plan instead of the 1993 Plan. See "Approval of the
Technology Solutions Company 1996 Stock Incentive Plan."
The Board of Directors has no nominating committee. Selection of nominees for
the Board is made by the entire Board of Directors. The names of potential
nominees for the Company's Board should be directed to the Company's Secretary,
Paul R. Peterson, at 205 North Michigan Avenue, Suite 1500, Chicago, Illinois
60601.
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<PAGE>
APPROVAL OF THE TECHNOLOGY SOLUTIONS COMPANY
1996 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors is proposing for stockholder approval the Technology
Solutions Company 1996 Stock Incentive Plan (the "1996 Plan"). The 1996 Plan is
intended to replace each of the Technology Solutions Company Stock Option Plan
(the "Original Plan"), the Technology Solutions Company 1992 Stock Incentive
Plan (the "1992 Plan") and the Technology Solutions Company 1993 Outside
Directors Stock Option Plan (the "1993 Plan" and together with the Original Plan
and the 1992 Plan, the "Predecessor Plans"). If the 1996 Plan is approved by the
Company's stockholders, no future awards will be made under any of the
Predecessor Plans. Previous awards made under the Predecessor Plans will not be
affected. The 1996 Plan has been prepared in light of recently announced
revisions to the rules under Section 16 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and with a view towards meeting, whenever
possible, the requirements of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). The relationship between Section 162(m) and the
1996 Plan is described more fully below.
As of August 1, 1996, a total of 1,118,214 shares of Common Stock were available
for award under the Predecessor Plans. The Board of Directors believes that it
would be appropriate to provide for the ability to award additional shares.
Accordingly, if the 1996 Plan is approved by the Company's stockholders, an
additional 1,000,000 shares would be available under the 1996 Plan. As noted
above, no future awards would be made under any Predecessor Plan, shares
available for future awards under the Predecessor Plans immediately prior to the
effectiveness of the Plan would thereafter become available solely under the
1996 Plan. Thus, if the 1996 Plan had become effective on August 1, 1996, a
total of 2,118,214 shares would be available for awards thereunder and no shares
would be available under the Predecessor Plans. In addition, and as described
more fully below, shares subject to awards made under any of the Predecessor
Plans will be available under the 1996 Plan, under certain circumstances, to the
extent that such shares are not issued or delivered in connection with such
awards. As of August 1, 1996, a total of 5,275,464 shares of Common Stock were
subject to outstanding awards under the Predecessor Plans. On August 1, 1996,
the closing transaction price per share of Common Stock as reported by The
Nasdaq Stock Market was $22 7/8.
Consistent with the Predecessor Plans, the purposes of the 1996 Plan are to:
(i) align the interests of the Company's stockholders and the recipients of
awards under the 1996 Plan by increasing the proprietary interest of such
recipients in the Company's growth and success, (ii) advance the interests of
the Company by attracting and retaining directors (including Non-Employee
Directors), officers, other key employees, consultants, independent contractors
and agents and (iii) motivate such persons to act in the long-term best
interests of the Company's stockholders. Consistent with the 1992 Plan, under
the 1996 Plan, the Company may grant non-qualified stock options, "incentive
stock options" (within the meaning of Section 422 of the Code, stock
appreciation rights ("SARs"), restricted stock, bonus stock, long-range
performance awards and performance shares. Consistent with the 1993 Plan, a non-
qualified option (a "Non-Discretionary
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<PAGE>
Option") to purchase 18,000 shares of Common Stock will be granted automatically
to each new non-employee director on the date he or she first becomes a non-
employee director. Each non-employee director will also receive a Non-
Discretionary Option on the date a previously granted Non-Discretionary Option
or option granted under the 1993 Plan becomes exercisable in full, assuming the
continued service of such person as a non-employee director of the Company. The
terms of the Non-Discretionary Options are, substantially similar to the terms
of options granted automatically under the 1993 Plan.
Reference is made to Exhibit A to this Proxy Statement for the complete text of
the 1996 Plan which is summarized below.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them FOR approval of the 1996 Plan.
Approval of the Technology Solutions Company 1996 Stock Incentive Plan requires
the affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting, in person or by proxy, and entitled to vote
thereon. Abstentions will have the same effect as votes against the proposal.
Non-voted shares will not be considered in attendance for the vote on this
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS
VOTE FOR APPROVAL OF THE TECHNOLOGY SOLUTIONS COMPANY 1996 STOCK INCENTIVE PLAN.
DESCRIPTION OF THE 1996 PLAN
Administration. The 1996 Plan will be administered by a committee of the Board
of Directors (the "Committee") consisting of two or more directors, each of whom
must be (i) a "Non-Employee Director" within the meaning of Rule 16b-3 under the
Exchange Act and (ii) an "outside director" within the meaning of Section 162(m)
of the Code.
Section 162(m) of the Code generally limits to $1 million the amount that a
publicly held corporation is allowed each year to deduct for the compensation
paid to each of the corporation's chief executive officer and the corporation's
four most highly compensated executive officers other than the chief executive
officer. However, "qualified performance-based compensation is not subject to
the $1 million deduction limit. To qualify as performance-based compensation,
the following requirements must be satisfied: (i) the performance goals are
determined by a committee consisting solely of two or more "outside directors",
(ii) the material terms under which the compensation is to be paid, including
the performance goals, are approved by a majority of the corporation's
stockholders, and (iii) the committee certifies that the applicable performance
goals were satisfied before payment of any performance-based compensation is
made. The Committee will consist solely of "outside directors" as defined for
purposes of section 162(m) of the Code. As a result, and based on certain
regulations issued by the United States Department of the Treasury, certain
compensation under the 1996 Plan, such as that payable with respect to options
and SARs, is not expected to be subject to the $1 million deduction limit under
Section 162(m) of the Code, but other compensation payable under the 1996 Plan,
such as any
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<PAGE>
restricted stock award which is not subject to a performance condition to
vesting, would be subject to such limit.
Subject to the express provisions of the 1996 Plan, and except for the grant of
Non-Discretionary Options to non-employee directors, the Committee will have the
authority to select directors (including non-employee directors), officers,
other key employees, consultants, independent contractors and agents of the
Company, and its subsidiaries, who will receive awards and determine all of the
terms and conditions of each award. As of the date of this Proxy Statement the
Company had approximately 650 employees. All awards will be evidenced by a
written agreement containing such provisions not inconsistent with the 1996 Plan
as the Committee shall approve. The Committee will also have authority to
prescribe rules and regulations for administering the 1996 Plan and to decide
questions of interpretation or application of any provision of the 1996 Plan.
Except with respect to grants to executive officers of the Company or other
persons subject to Section 16 of the Exchange Act, and persons whose
compensation is likely to be subject to the $1 million deduction limit under
Section 162(m) of the Code, the Committee may delegate some or all of its power
and authority to administer the 1996 Plan to the President or other executive
officer of the Company.
Available Shares. The number of shares of Common Stock available for awards
under the 1996 Plan is 1,000,000, subject to adjustment in the event of a stock
split, stock dividend, recapitalization, reorganization, merger, spin-off or
other similar change in capitalization or event, or any distribution to holder
of Common Stock other than a regular cash dividend. In addition, shares of
Common Stock available to be granted under the Predecessor Plans on the
effective date of the 1996 Plan will thereafter be available for grant solely
under the 1996 Plan. The number of available shares will be reduced by the sum
of the aggregate number of shares of Common Stock (i) that are issued upon the
grant of a Stock Award and (ii) which become subject to outstanding options
(including Non-Discretionary Options), outstanding Free-Standing SARs and
outstanding Performance Shares. To the extent that shares of Common Stock
subject to an outstanding option issued under the 1996 Plan or any of the
Predecessor Plans (except to the extent shares of Common Stock are issued or
delivered by the Company in connection with the exercise of a Tandem SAR), Free-
Standing SAR, Stock Award or Performance Share are not issued or delivered by
reason of the expiration, termination, cancellation or forfeiture of such award
or by reason of the delivery or withholding of shares of Common Stock to pay all
or a portion of the exercise price of an award, if any, or to satisfy all or a
portion of the tax withholding obligations relating to an award, then such
shares of Common Stock shall again be available under the 1996 Plan.
The maximum number of shares of Common Stock with respect to which options and
SARs, Stock Awards or Performance Share Awards or a combination thereof may be
granted during any fiscal year of the Company to any person is 150,000, subject
to adjustment as described above. To the extent necessary to ensure the
deductibility of the award to the Company, the Fair Market Value of the number
of shares of Common Stock subject to a Stock Award granted to a "covered
employee" within the meaning of Section 162(m) of the Code may not exceed
$250,000 (i) at the time of grant in the case of a Stock Award granted upon the
attainment of Performance Measures or (ii) in the case of a Restricted Stock
Award with Performance Measures which shall be satisfied or met as a condition
to the holder's receipt of the shares of Common Stock subject to such
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<PAGE>
award, on the earlier of (x) the date on which the Performance Measures are
satisfied or met and (y) the date the holder makes an election under Section
83(b) of the Code.
Change in Control. In the event of certain acquisitions of 25% or more of the
Common Stock, a change in a majority of the Board of Directors, or the
consummation of a reorganization, merger or consolidation or sale or disposition
of all or substantially all of the assets of the Company (unless, among other
conditions, the Company's stockholders receive 60% or more of the stock of the
surviving company) or the consummation of a liquidation or dissolution of the
Company, the Board of Directors will have the discretion to make such
adjustments to outstanding awards under the 1996 Plan as it deems appropriate,
including, without limitation, causing all outstanding awards to be "cashed-out"
by the Company; causing all outstanding options and SARs to become exercisable
in full and all other awards to vest; and causing each option, SAR and other
award to represent a right to acquire the appropriate number of shares of common
stock received in the merger or similar transaction.
Effective Date, Termination and Amendment. If approved by stockholders at the
Annual Meeting, the 1996 Plan will become effective as of the date of the Annual
Meeting and will terminate ten years thereafter, unless terminated earlier by
the Board of Directors. The Board of Directors may amend the 1996 Plan at any
time, subject to any requirement of stockholder approval required by applicable
law, rule or regulation and provided that no amendment may be made without
stockholder approval if such amendment would, among other things, (i) increase
the maximum number of shares of Common Stock available under the 1996 Plan, (ii)
effect any change inconsistent with Section 422 of the Code or (iii) extend the
term of the 1996 Plan.
Stock Options-General. Except with respect to Non-Discretionary Options, the
Committee will determine the conditions to the exercisability of an option. Upon
exercise of an option, including an incentive stock option and a Non-
Discretionary Option, the purchase price may be paid in cash or by delivery of
previously owned shares of Common Stock.
Non-Qualified Stock Options and Stock Appreciation Rights. The period for the
exercise of a non-qualified stock option or SAR will be determined by the
Committee. The exercise price of a non-qualified option and the base price of an
SAR will be determined by the Committee on the date of grant of such option or
SAR, provided that the base price of an SAR granted in tandem with an option (a
"tandem SAR") will be the exercise price of the related option. The exercise of
an SAR entitles the holder thereof to receive (subject to withholding taxes)
shares of Common Stock (which may be restricted stock), cash or a combination
thereof with a value equal to the difference between the fair market value of
the Common Stock on the exercise date and the base price of the SAR.
Except with respect to Non-Discretionary Options, all of the terms relating to
the exercise, cancellation or other disposition of a non-qualified stock option
or SAR upon a termination of employment with or service to the Company of the
holder of such option or SAR, as the case may be, whether by reason of
disability, retirement, death or other termination, will be determined by the
Committee. Such determination will be made at the time of the grant of such
option or SAR, as the case may be, and will be specified in the Agreement
relating to such option or SAR.
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<PAGE>
Incentive Stock Options. No incentive stock option will be exercisable more
than ten years after its date of grant, unless the recipient of the incentive
stock option owns greater than ten percent of the voting power of all shares of
capital stock of the Company (a "ten percent holder"), in which case the option
will be exercisable for no more than five years after its date of grant. The
exercise price of an incentive stock option will not be less than the fair
market value of the Common Stock on the date of grant of such option, unless the
recipient of the incentive stock option is a ten percent holder, in which case
the option exercise price will be the price required by the Code, currently 110%
of fair market value.
Except as noted below, all of the terms relating to the exercise, cancellation
or other disposition of Incentive Stock Option upon a termination of employment
with the Company of the holder of such Incentive Stock Option, whether by reason
of disability, retirement, death or other termination, will be determined by the
Committee. Such determination will be made at the time of the grant of such
Incentive Stock Option and will be specified in the Agreement relating to such
Incentive Stock Option.
If the employment with the Company of a holder of an Incentive Stock Option
terminates by reason of permanent and total disability (as defined in Section
22(e)(3) of the Code), each Incentive Stock Option held by such optionee may
thereafter be exercised by such optionee (or such optionee's legal
representative or similar person) until and including the earliest to occur of
(i) the date which is one year (or such shorter period as set forth in the
agreement relating to such option) after the effective date of such termination
of employment and (ii) the expiration date of the term of such option.
If the employment with the Company of a holder of an Incentive Stock Option
terminates by reason of death, each Incentive Stock Option held by such optionee
may thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person until and including the earliest
to occur of (i) the date which is one year (or such other period as set forth in
the agreement relating to such option) after the date of death and (ii) the
expiration date of the term of such option.
If the employment with the Company of a holder of an Incentive Stock Option
terminates for any reason other than permanent and total disability or death,
each Incentive Stock Option held by such optionee may thereafter be exercised by
such holder (or such holder's legal representative or similar person) until and
including the earliest to occur of (i) the date which is three months (or such
shorter period as set forth in the agreement relating to such option) after the
effective date of such optionee's termination of employment and (ii) the
expiration date of the term of such option.
If the holder of an Incentive Stock Option dies during the periods specified
above, each Incentive Stock Option held by such optionee may thereafter be
exercised by the optionee's executor, administrator, legal representative,
beneficiary or similar person until and including the earliest to occur of (i)
the date which is one year (or such other period as set forth in the agreement
relating to such option) after the date of death and (ii) the expiration date of
the term of such option.
- --------------------------------------------------------------------------------
-10-
<PAGE>
Non-Discretionary Options. On the date on which a person is first elected or
begins to serve as a non-employee director (other than by reason of termination
of employment), and, thereafter, if such person is then a non-employee director,
on the date that a Non-Discretionary Option granted to such person under the
1996 Plan or pursuant to the 1993 Plan becomes exercisable in full, such person
shall be granted a Non-Discretionary Option. Each Non-Discretionary Option is a
non-qualified stock option to purchase 18,000 shares of Common Stock at a
purchase price per share equal to the fair market value of a share of Common
Stock on the date of grant of such option. Each Non-Discretionary Option expires
twenty years after the date of grant and becomes exercisable in 36 monthly
installments of 500 shares, commencing with the last day of the calendar month
following the calendar month in which the option is granted.
If a non-employee director ceases to be a director by reason of death, each of
such director's Non-Discretionary Options will become fully exercisable until
the expiration of such Non-Discretionary Option. If a non-employee director
ceases to be a director for any reason other than death, each of such director's
Non-Discretionary Options will be exercisable only to the extent such option was
exercisable on the date of termination of service as a director, and may
thereafter be exercised until the expiration of such Non-Discretionary Option.
Bonus Stock and Restricted Stock Awards. The 1996 Plan provides for the grant
of (i) bonus stock awards, which are vested upon grant, and (ii) stock awards
which may be subject to a restriction period ("restricted stock"). An award of
restricted stock may be subject to specified performance measures for the
applicable restriction period. All of the terms relating to the satisfaction of
performance measures and the termination of the restriction period relating to a
restricted stock award, or any cancellation or forfeiture of such restricted
stock award upon a termination of employment with or service to the Company of
the holder of such restricted stock award, whether by reason of disability,
retirement, death or other termination, shall be set forth in the agreement
relating to such restricted stock award. Unless otherwise determined by the
Committee, the holder of a restricted stock award will have rights as a
stockholder of the Company, including the right to vote and receive dividends
with respect to the shares of restricted stock.
Performance Share Awards. The 1996 Plan also provides for the grant of
performance shares. Each performance share is a right, contingent upon the
attainment of performance measures within a specified performance period, to
receive one share of Common Stock, which may be restricted stock, or the fair
market value of such performance share in cash. Prior to the settlement of a
performance share award in shares of Common Stock, the holder of such award will
have no rights as a stockholder of the Company with respect to the shares of
Common Stock subject to the award. All of the terms relating to the satisfaction
of performance measures and the termination of the performance period relating
to a performance share award, or any cancellation or forfeiture of such
performance share award upon a termination of employment with the Company of the
holder of such performance share award, whether by reason of disability,
retirement, death or other termination, shall be set forth in the agreement
relating to such performance share award.
- --------------------------------------------------------------------------------
-11-
<PAGE>
Performance Goals. Under the 1996 Plan, the vesting or payment of performance
share awards and certain awards of restricted stock will be subject to the
satisfaction of certain performance objectives and criteria, such objectives and
criteria may include one or more of the following: the attainment by a share of
Common Stock of a specified fair market value for a specified period of time,
earnings per share, return to stockholders (including dividends), operating
income, operating income margin, return on equity, earnings of the Company,
revenues, market share, cash flow or cost reduction goals, or any combination of
the foregoing. If the Committee desires that compensation payable pursuant to
any award subject to performance measures be "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code, the performance
measures (i) will be established by the Committee no later than 90 days after
the beginning of the performance period or restriction period, as applicable (or
such other time designated by the Internal Revenue Service) and (ii) will
satisfy all other applicable requirements imposed under Treasury Regulations
promulgated under Section 162(m) of the Code, including the requirement that
such performance measures be stated in terms of an objective formula or
standard.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain U.S. federal income tax consequences
generally arising with respect to awards under the 1996 Plan.
A participant will not recognize any income upon the grant of an option. A
participant will recognize compensation taxable as ordinary income (and subject
to income tax withholding) upon exercise of a non-qualified stock option equal
to the excess of the fair market value of the shares purchased over their
exercise price, and the Company will be entitled to a corresponding deduction. A
participant will not recognize income (except for purposes of the alternative
minimum tax) upon exercise of an incentive stock option. If the shares acquired
by exercise of an incentive stock option are held for the longer of two years
from the date the option was granted and one year from the date it was
exercised, any gain or loss arising from a subsequent disposition of such shares
will be taxed as long-term capital gain or loss, and the Company will not be
entitled to any deduction. If, however, such shares are disposed of within the
above-described period, then in the year of such disposition the participant
will recognize compensation taxable as ordinary income equal to the excess of
the lesser of (i) the amount realized upon such disposition and (ii) the fair
market value of such shares on the date of exercise over the exercise price, and
the Company will be entitled to a corresponding deduction.
A participant who is granted SARs will not recognize any taxable income upon the
grant of the SARs. Upon exercise, the participant recognizes taxable
compensation in an amount equal to the fair market value of any shares delivered
and the amount of cash paid by the Company. This amount is deductible by the
Company as compensation expense.
A participant receiving restricted stock will not recognize taxable income at
the time of the grant, and the Company will not be entitled to a tax deduction
at such time, unless the participant makes an election to be taxed at the time
restricted stock is granted. If such election is not made, the participant will
recognize taxable income at the time the restrictions lapse in an amount equal
to the excess of the fair market value of the shares at such time over the
amount, if any, paid for
- --------------------------------------------------------------------------------
-12-
<PAGE>
such shares. The amount of ordinary income recognized by a participant by making
the above-described election or upon the lapse of the restrictions is deductible
by the Company as compensation expense, except to the extent the deduction
limits of section 162(m) of the Code apply. In addition, a participant receiving
dividends with respect to restricted stock for which the above-described
election has not been made and prior to the time the restrictions lapse will
recognize taxable compensation, rather then dividend income, in an amount equal
to the dividends paid and the Company will be entitled to a corresponding
deduction, except to the extent the deduction limits of section 162(m) of the
Code apply.
A participant receiving bonus stock will recognize taxable income at the time
the bonus stock is awarded in an amount equal to the then fair market value of
such stock. This amount is deductible by the Company as compensation expense,
except to the extent the deduction limits of section 162(m) of the Code apply.
A participant receiving performance shares will not recognize taxable income
upon the grant of such shares and the Company will not be entitled to a tax
deduction at such time. Upon the settlement of performance shares, the
participant will recognize ordinary income in an amount equal to the fair market
value of any shares delivered and any cash paid by the Company. This amount is
deductible by the Company as compensation expense, except to the extent the
deduction limits of Section 162(m) of the Code apply.
- --------------------------------------------------------------------------------
-13-
<PAGE>
RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending May 31, 1997. If a
majority of the stockholders in attendance at the Annual Meeting, in person or
by proxy, fail to ratify the appointment, the appointment of other independent
accountants will be considered by the Board of Directors. Abstentions will have
the same effect as votes against the proposal. Non-voted shares will not be
considered in attendance for the vote on this proposal. Price Waterhouse LLP has
audited the Company's financial statements since the fiscal year ended May 31,
1991. Representatives of Price Waterhouse LLP are expected to be at the Annual
Meeting and will be available to respond to appropriate questions. Price
Waterhouse LLP will also have the opportunity to make a statement at the Annual
Meeting if they desire to do so.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS
VOTE FOR APPROVAL OF THE PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE
LLP AS INDEPENDENT ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR ENDING
MAY 31, 1997.
- --------------------------------------------------------------------------------
-14-
<PAGE>
EXECUTIVE OFFICER COMPENSATION
The following table (the "Compensation Table") sets forth summary information
concerning the compensation of the each person who served as Chief Executive
Officer of the Company during Fiscal 1996 and the Company's four other most
highly compensated executive officers during Fiscal 1996 (collectively, the
"Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
===============================================
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
=======================================================================================================
SECURITIES
FISCAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) OPTIONS (#)
=======================================================================================================
<S> <C> <C> <C> <C>
William H. Waltrip 1996 $176,000 $125,000 30,000
Chairman/(1)/ 1995 240,000 250,000 --
1994 395,000 200,000 150,000
- -------------------------------------------------------------------------------------------------------
John T. Kohler 1996 484,000 460,000 45,000
President and Chief Executive Officer/(2)/ 1995 425,000 425,000 112,500
1994 400,000 481,000/(3)/ 262,500
- -------------------------------------------------------------------------------------------------------
James S. Carluccio 1996 430,000 320,000 15,000
Executive Vice President 1995 400,000 390,000 --
1994 310,000 350,000 285,000
- -------------------------------------------------------------------------------------------------------
Jack N. Hayden 1996 360,000 402,500/(4)/ 45,000
Executive Vice President 1995 300,000 308,000/(4)/ 127,500
1994 250,000 142,500/(4)/ 37,500
- -------------------------------------------------------------------------------------------------------
Kelly D. Conway 1996 340,000 385,000/(5)/ 142,500
Executive Vice President 1995 260,000 279,000/(5)/ 69,000
1994 303,000/(6)/ 30,000 --
- -------------------------------------------------------------------------------------------------------
Paul R. Peterson 1996 180,000 140,000/(7)/ 7,500
Senior Vice President, General Counsel 1995 180,000 127,000/(7)/ 55,500
and Secretary 1994 160,000 60,000 30,000
=======================================================================================================
</TABLE>
- -----------------
(1) Mr. Waltrip served as Chief Executive Officer from June 29, 1993 until June
29, 1995.
(2) Mr. Kohler was named Chief Executive Officer on June 29, 1995.
(3) $56,000 of the Fiscal 1994 bonus represents the accrual charge to earnings
for two deferred compensation agreements, each dated June 16, 1992, in the
amount of $120,000 and $70,000 payable to Mr. Kohler on July 31, 1993 and
July 31, 1994, respectively.
(4) $52,500 of the Fiscal 1996 bonus, $70,000 of the Fiscal 1995 bonus and
$17,500 of the Fiscal 1994 bonus represent the accrual charge to earnings
under the employee retention program announced by the Company in February
1994. Under this program, substantially all employees of the Company,
excluding Messrs. Waltrip, Kohler and Carluccio were awarded a special
compensation of 50 percent of their February 1994 base salary if they
remained with the Company for at least two years. This special compensation
vested 50 percent on March 1, 1995, and 50 percent on March 1, 1996. Under
the terms of this program, Mr. Hayden received a total of $140,000.
(5) $55,000 of the Fiscal 1996 bonus and $55,000 of the Fiscal 1995 bonus
represent the accrual charge to earnings under the employee retention
program described in Note 4 above. Under the terms of this program,
Mr. Conway received a total of $110,000.
(6) $83,000 of the Fiscal 1994 salary represents compensation for moving
expenses.
(7) $40,000 of the Fiscal 1996 bonus and $40,000 of the Fiscal 1995 bonus
represents the accrual charge to earnings under the employee retention
program described in Note 4 above. Under the terms of this program,
Mr. Peterson received a total of $80,000.
- --------------------------------------------------------------------------------
-15-
<PAGE>
OPTION GRANTS
The following table sets forth information with respect to individual grants of
options that were made during Fiscal 1996 to each of the Named Executive
Officers and the potential realizable value of these options assuming five
percent and ten percent rates/(1)/ of compound appreciation in the market value
of the Common Stock over the term of the option grants. The table also relates
those values to the gains that would be realized by all holders of Common Stock
if those rates of appreciation were achieved. No stock appreciation rights were
granted in Fiscal 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
===============================================================================================================================
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS(2) PRICE APPRECIATION FOR OPTION TERM
===============================================================================================================================
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($)/(1)/ 10% ($)/(1)/
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
William H. Waltrip 30,000/(3)/ 2% $ 6.3333 06/23/05 $ 119,490 $ 302,811
- -------------------------------------------------------------------------------------------------------------------------------
John T. Kohler 45,000/(3)/ 4% 6.3333 06/23/05 179,235 454,217
- -------------------------------------------------------------------------------------------------------------------------------
James S. Carluccio 15,000/(3)/ 1% 6.3333 06/23/05 59,745 151,406
- -------------------------------------------------------------------------------------------------------------------------------
Jack N. Hayden 45,000/(3)/ 4% 6.3333 06/23/05 179,235 454,217
- -------------------------------------------------------------------------------------------------------------------------------
Kelly D. Conway 67,500/(3)/ 5% 6.3333 06/23/05 268,852 681,325
- -------------------------------------------------------------------------------------------------------------------------------
Kelly D. Conway 75,000/(4)/ 6% 11.4167 01/11/06 538,491 1,364,642
- -------------------------------------------------------------------------------------------------------------------------------
Paul R. Peterson 7,500/(3)/ 1% 6.3333 06/23/05 29,872 75,702
- -------------------------------------------------------------------------------------------------------------------------------
Potential gain by all
common stock-
holders/(5)/ -- -- -- -- $220,833,639 $559,635,800
===============================================================================================================================
</TABLE>
(1) Amounts reflect assumed rates of appreciation set forth in the Securities
and Exchange Commission's executive compensation disclosure rules. Actual
gains, if any, on stock option exercises depend on future performance of
the Company's Common Stock and overall stock market conditions. No
assurance can be given that the amounts reflected in these columns will be
achieved.
(2) Upon a sale of substantially all of the business and assets of the Company,
the Board may accelerate the exercisability of these options.
(3) Subject to option provisions regarding termination of employment, one third
of these options became exercisable on June 23, 1996, and 1/36 of these
options become exercisable on the last day of each calendar month for 24
months thereafter.
(4) Subject to option provisions regarding termination of employment, one third
of these options become exercisable on January 11, 1997, and 1/36 of these
options become exercisable on the last day of each calendar month for 24
months thereafter.
(5) The future hypothetical value of one share of Common Stock based on a fair
market value of $23.5833 on May 31, 1996, and assumed rates of appreciation
of five percent and ten percent through June 23, 2005, would be $38.41 and
$61.17, respectively. The potential realizable value for all holders of
Common Stock is based on 14,889,570 shares of Common Stock outstanding as of
May 31, 1996.
- --------------------------------------------------------------------------------
-16-
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
=====================================================================================================================
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT MAY 31, 1996 (#) OPTIONS AT MAY 31, 1996 ($)
SHARES ---------------------------- ---------------------------------
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
William H. Waltrip -- $ -- 18,000 180,000 $ 249,000 $3,230,000
- ---------------------------------------------------------------------------------------------------------------------
John T. Kohler 75,000 996,500 240,624 179,376 4,296,076 3,391,112
- ---------------------------------------------------------------------------------------------------------------------
James S. Carluccio -- -- 292,497 67,503 5,405,882 1,255,368
- ---------------------------------------------------------------------------------------------------------------------
Jack N. Hayden 30,000 361,800 4,374 175,626 77,639 3,355,174
- ---------------------------------------------------------------------------------------------------------------------
Kelly D. Conway -- -- 14,375 197,125 280,303 3,155,635
- ---------------------------------------------------------------------------------------------------------------------
Paul R. Peterson -- -- 27,500 65,500 488,125 1,272,196
=====================================================================================================================
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. William H. Waltrip
to serve as its Chairman of the Board of Directors. The agreement does not have
a fixed expiration date and may be terminated by either party on 90 days'
written notice. If Mr. Waltrip is terminated by the Company, he will be entitled
to receive his salary and health insurance benefits for a one-year period
following such termination. If, following a change in control of the Company (i)
Mr. Waltrip's title, position, duties or salary are diminished and he resigns
within 90 days thereafter, or (ii) his employment with the Company is terminated
following his refusal to relocate for a period in excess of six months to any
location outside of the metropolitan area where he resides, he will be entitled
to receive his salary and health insurance benefits for a one-year period
following such termination. Each of Mr. Waltrip's options to purchase common
stock that is not then fully exercisable will become exercisable in full upon a
change in control of the company. If Mr. Waltrip's employment with the Company
is terminated because of his death or disability, he will be entitled to receive
his salary and health insurance benefits for a one-year period following such
termination. Mr. Waltrip's current annual salary is $100,000.
The Company has entered into an employment agreement with Mr. John T. Kohler to
serve as its President and Chief Executive Officer. The agreement does not have
a fixed expiration date and may be terminated by either party on 90 days'
written notice. If Mr. Kohler is terminated by the Company, he will be entitled
to receive his salary, bonus and health insurance benefits for a two-year period
following such termination, or until he is re-employed. If, following a change
in control of the Company (i) Mr. Kohler's title, position, duties or salary are
diminished and he resigns within 90 days thereafter, or (ii) his employment with
the Company is terminated following his refusal to relocate for a period in
excess of six months to any location outside of the metropolitan area where he
resides, he will be entitled to receive his salary, bonus and health insurance
benefits for a two-year period following such termination. Each of Mr. Kohler's
options to purchase common stock that is not then fully exercisable will become
exercisable in full upon a change in control of the Company. If Mr. Kohler's
employment with the Company is terminated because of his death or disability, he
will be entitled to receive his salary, bonus and health
- --------------------------------------------------------------------------------
-17-
<PAGE>
insurance benefits for a one-year period following such termination. Mr.
Kohler's current annual salary is $525,000.
The Company has entered into an employment agreement with Mr. James S. Carluccio
to serve as an Executive Vice President. The agreement expires March 30, 1997,
but will be extended automatically for an indefinite period thereafter unless
the Company provides written notice of non-renewal before October 1, 1996. Once
the agreement has been extended, it may be terminated by the Company upon six
month's written notice (90 days' if Mr. Carluccio fails to perform
satisfactorily his assigned duties), and it may be terminated by Mr. Carluccio
upon 90 days' written notice. In addition, Mr. Carluccio is entitled to
terminate the agreement at any time during the three-month period following a
change in control of the Company or at any time during the 30-day period
commencing six months following the naming of a new Chief Executive Officer of
the Company. The agreement provides that Mr. Carluccio's annual salary will be
increased by at least 5% annually. His current annual salary is $450,000. If the
agreement is terminated by virtue of Mr. Carluccio's death or disability, he
will be entitled to receive a lump-sum payment equal to his then current annual
salary plus a pro-rated bonus for the fiscal year to the date of termination. If
the agreement is terminated by Mr. Carluccio before March 30, 1997, pursuant to
his right to terminate after a change in control or upon the naming of a new
Chief Executive Officer, he will be entitled to receive a lump-sum payment equal
to 75% of his then-current annual salary. If the agreement is terminated by Mr.
Carluccio before March 30, 1997, because the Company has failed to cure its
material breach, or by the Company for reasons other than Mr. Carluccio's death,
disability, serious misconduct or material breach, Mr. Carluccio will be
entitled to receive a lump-sum payment equal to his then-current salary for the
time remaining under the agreement until March 30, 1997.
The Company has entered into an employment agreement with Mr. Jack N. Hayden to
serve as an Executive Vice President. The agreement does not have a fixed
expiration date and may be terminated by either party on 90 days' written
notice. If Mr. Hayden is terminated by the Company, he will be entitled to
receive his salary, bonus and health insurance benefits for a two-year period
following such termination, or until he is re-employed. If, following a change
in control of the Company (i) Mr. Hayden's title, position, duties or salary
are diminished and he resigns within 90 days thereafter, or (ii) his employment
with the Company is terminated following his refusal to relocate for a period in
excess of six months to any location outside of the metropolitan area where he
resides, he will be entitled to receive his salary, bonus and health insurance
benefits for a two-year period following such termination. Each of Mr. Hayden's
options to purchase common stock that is not then fully exercisable will become
exercisable in full upon a change in control of the Company. If Mr. Hayden's
employment with the Company is terminated because of his death or disability, he
will be entitled to receive his salary, bonus and health insurance benefits for
a one-year period following such termination. Mr. Hayden's current annual salary
is $400,000.
The Company has entered into an employment agreement with Mr. Kelly D. Conway to
serve as an Executive Vice President. The agreement does not have a fixed
expiration date and may be terminated by either party on 90 days' written
notice. If Mr. Conway is terminated by the Company, he will be entitled to
receive his salary, bonus and health insurance benefits for a two-year period
following such termination, or until he is re-employed. If, following a change
in
- --------------------------------------------------------------------------------
-18-
<PAGE>
control of the Company (i) Mr. Conway's title, position, duties or salary
are diminished and he resigns within 90 days thereafter, or (ii) his employment
with the Company is terminated following his refusal to relocate for a period in
excess of six months to any location outside of the metropolitan area where he
resides, he will be entitled to receive his salary, bonus and health insurance
benefits for a two-year period following such termination. Each of Mr. Conway's
options to purchase common stock that is not then fully exercisable will become
exercisable in full upon a change in control of the Company. If Mr. Conway's
employment with the Company is terminated because of his death or disability, he
will be entitled to receive his salary, bonus and health insurance benefits for
a one-year period following such termination. Mr. Conway's current annual salary
is $400,000.
The Company has entered into an employment agreement with Mr. Paul R. Peterson
to serve as Senior Vice President, General Counsel and Secretary. The agreement
does not have a fixed expiration date and may be terminated by either party on
90 days' written notice. If Mr. Peterson is terminated by the Company, he will
be entitled to receive his salary, bonus and health insurance benefits for a
one-year period following such termination. If, following a change in control of
the Company (i) Mr. Peterson's title, position, duties or salary are diminished
and he resigns within 90 days thereafter, or (ii) his employment with the
Company is terminated following his refusal to permanently relocate to any
location outside of the metropolitan area where he resides, he will be entitled
to receive his salary, bonus and health insurance benefits for a one-year period
following such termination. If Mr. Peterson's employment with the Company is
terminated because of his death or disability, he will be entitled to receive
his salary, bonus and health insurance benefits for a one-year period following
such termination. Mr. Peterson's current annual salary is $200,000.
- --------------------------------------------------------------------------------
-19-
<PAGE>
OTHER TRANSACTIONS
On January 16, 1995, the Company made a loan of $300,000 to Mr. Kohler, which is
due and payable on January 16, 1997, and bears interest at the rate of 8.5
percent per annum. On July 11, 1995, Mr. Kohler paid $155,764 towards principal
and accrued interest on such loan. On July 29, 1996, Mr. Kohler made a payment
of $170,713, which paid in full the outstanding principal and accrued interest.
During Fiscal 1996, the Company paid Saltash, Ltd. approximately $83,000 for
independent consulting services (including reimbursed expenses) performed by Mr.
Stephen B. Oresman, a Director of the Company and a member of its Audit
Committee. Mr. Oresman is the principal owner of Saltash, Ltd.
During Fiscal 1996, the Company paid McLaughlin & Associates approximately
$221,000 for independent consulting services (including reimbursed expenses). On
May 31, 1996, the Company entered into an agreement to purchase the assets of
McLaughlin & Associates. In connection with the consummation of that purchase,
Michael J. McLaughlin, the President and 72 percent shareholder of McLaughlin &
Associates, became an Executive Vice President and Director of the Company.
- --------------------------------------------------------------------------------
-20-
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
TSC'S COMPENSATION PHILOSOPHY
The Company recognizes that the success of a computer system design and
implementation consulting business is based on the performance of its employees,
and that its employees are the Company's primary asset. With that understanding,
the Compensation Committee of the Board of Directors (the "Compensation
Committee") applies the following operating principles in its duties as
administrator of the Company's Executive Compensation program:
1. Be competitive in all aspects of the compensation program and
consistently demonstrate a willingness to pay levels of compensation
that are necessary to attract and retain highly qualified executives.
2. Award stock options to executives in order to align management's and
stockholders' interests.
3. Provide variable compensation opportunities based on the financial
performance of the Company -- when objectives are met or exceeded, the
incentive awards can be attractive; when objectives are not met, those
rewards generally are not distributed.
4. Adhere to a compensation strategy that effectively balances short- and
long-term goals of the Company.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
The Compensation Committee of the Board, presently comprised of two outside
board members, makes executive compensation decisions. In making these
decisions, the Compensation Committee considers recommendations made by the
Company's senior management team. Key components of the Company's executive
compensation program include:
1. Base salary -- designed to compensate executives competitively within
the industry.
2. Cash bonus/stock option awards -- designed to help provide a direct
link between executive compensation and the individual's role in
helping the Company attain annual performance measures.
The Compensation Committee believes this executive compensation program
effectively serves the interests of both the Company and its stockholders. The
Compensation Committee also believes the program allows the Company to attract
and retain outstanding executives, and motivate these executives to perform at
the highest levels.
- --------------------------------------------------------------------------------
-21-
<PAGE>
CEO COMPENSATION
Mr. William H. Waltrip served as the Company's CEO from June 29, 1993 through
June 29, 1995. In Fiscal 1996, Mr. Waltrip received a salary of $176,000 and
also received 30,000 options. On June 29, 1995, Mr. John T. Kohler was named
Chief Executive Officer. Mr. Waltrip will remain as chairman of the board of the
Company and Mr. Kohler will remain President of the Company. Mr. Kohler's
compensation is substantially related to the Company's performance because his
employment agreement provides for an annual bonus based, in part, on the
Company's achievement of certain revenue and profitability levels. In Fiscal
1996, Mr. Kohler received a salary of $484,000 and also received 45,000 options.
Mr. Kohler's salary and option award during fiscal 1996 reflect the strategic
importance of Mr. Kohler to the Company, his current contribution to the Company
and his anticipated future contributions toward achievement of the Company's
growth objectives.
The foregoing report has been furnished by the Compensation Committee.
The Compensation Committee of the Board of Directors
Jeffrey T. Chambers
John R. Purcell
- --------------------------------------------------------------------------------
-22-
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth information as of July 31, 1996 concerning the
beneficial ownership of Common Stock for each Director, Named Executive Officer
and all Directors and executive officers as a group. Unless otherwise noted, the
listed persons have sole voting and investment powers with respect to the shares
held in their names, subject to community property laws if applicable. The table
does not include options which are not exercisable within 60 days.
<TABLE>
<CAPTION>
NUMBER % OF TOTAL
OF OUTSTANDING
DIRECTOR NAME SHARES SHARES(1)
- ------------- ------ ---------
<S> <C> <C>
Jeffrey T. Chambers 21,998(2) *
John T. Kohler 208,826(3) 1.4
Michael J. Murray 201,294(4) 1.3
Stephen B. Oresman 49,148(5) *
John R. Purcell 321,998(6) 2.1
William H. Waltrip 142,167(7) *
NAMED
EXECUTIVE OFFICERS
- ------------------
William H. Waltrip 142,167(7) *
John T. Kohler 208,826(3) 1.4
James S. Carluccio 280,942(8) 1.8
Kelly D. Conway 9,962(9) *
Jack N. Hayden 27,864(10) *
Paul R. Peterson 25,431(11) *
All Directors and Executive
Officers as a group (11 persons) 1,281,296(12) 8.1%
</TABLE>
- --------------------
* less than one percent
(1) Based on the number of shares outstanding at, or acquirable within 60 days
of, July 31, 1996.
(2) Does not include any shares held by TA Associates or its affiliates; Mr.
Chambers disclaims beneficial ownership of all such shares of Common Stock
held by TA Associates and its affiliates. Includes 21,998 shares which Mr.
Chambers has the right to acquire under options which are currently
exercisable or which will be exercisable within 60 days.
(3) Includes 189,996 shares which Mr. Kohler has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(4) Includes 21,998 shares which Mr. Murray has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(5) Includes 3,998 shares which Mr. Oresman has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(6) Includes 21,998 shares which Mr. Purcell has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(7) Includes 142,167 shares which Mr. Waltrip has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
- --------------------------------------------------------------------------------
-23-
<PAGE>
(8) Includes 262,080 shares which Mr. Carluccio has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(9) Includes 5,000 shares which Mr. Conway has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(10) Includes 24,999 shares which Mr. Hayden has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(11) Includes 22,866 shares which Mr. Peterson has the right to acquire under
options which are currently exercisable or which will be exercisable within
60 days.
(12) Includes 720,014 shares which executive officers and directors have the
right to acquire under options which are currently exercisable or which
will be exercisable within 60 days.
- --------------------------------------------------------------------------------
-24-
<PAGE>
ADDITIONAL INFORMATION RELATING TO VOTING SECURITIES
The following table sets forth the holders of Common Stock known to the Company,
through their form 13-F filings, to own beneficially more than five percent of
its Common Stock as of July 31, 1996.
<TABLE>
<CAPTION>
NAME AND NUMBER
ADDRESS OF OF SHARES PERCENT
BENEFICIAL OWNER OWNED OF CLASS/(1)/
- --------------------------------- ---------- -------------
<S> <C> <C>
Massachusetts Financial Services
500 Boyleston Street
Boston, MA 02116-3741 1,771,500 11.7%
Denver Investment Advisors LLC
1225 17th Street
P.O. Box 17487 1,255,500 8.3%
Denver, CO 80217
Fidelity Management & Research Company
82 Devonshire Street 1,176,000 7.7%
Boston, MA 02109-3614
</TABLE>
- --------------
/(1)/ Calculated on the basis of the actual number of outstanding shares as of
August 1, 1996 in the amount of 15,187,221.
- --------------------------------------------------------------------------------
-25-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder return
since the Common Stock became publicly traded on September 27, 1991 with the S&P
Computer Software and Services index (the "S&P Index") and with The Nasdaq Stock
Market/SM/ U.S. Index (the "Nasdaq Index"). The comparison is based on the
assumption that $100.00 was invested on September 27, 1991 in each of the
Company's Common Stock, the S&P Index and the Nasdaq Index.
Note: The stock price performance shown below is not necessarily indicative of
future price performance.
COMPARISON OF TOTAL RETURN/(1)/
[GRAPH APPEARS HERE]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TSC S&P INDEX NASDAQ INDEX
--- --------- ------------
<S> <C> <C> <C>
9/27/91 100 100 100
05/31/92 155 115 117
05/31/93 70 155 141
05/31/94 39 186 149
05/31/95 62 261 177
05/31/96 236 365 257
</TABLE>
- -----------------------
/(1)/ Total return assumes reinvestment of dividends.
- --------------------------------------------------------------------------------
-26-
<PAGE>
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1997 Annual Meeting of Stockholders must be received by the Company no later
than April 29, 1997. Such proposals may be included in next year's Proxy
Statement if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's officers and directors, and persons who own more
than 10 percent of a registered class of the Company's equity securities
("Reporting Persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Reporting Persons are required by
Securities and Exchange Commission regulation to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of such reports
and written representations from certain Reporting Persons, the Company believes
that, during Fiscal 1996, its Reporting Persons complied with all filing
requirements applicable to them.
- --------------------------------------------------------------------------------
-27-
<PAGE>
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1996 Annual Report for the fiscal year ended May 31, 1996
accompanies this Proxy Statement.
A COPY OF THE 1996 ANNUAL REPORT OF THE COMPANY (WHICH INCLUDES CONDENSED
FINANCIAL DATA AND A LETTER TO STOCKHOLDERS) ACCOMPANIES THIS PROXY STATEMENT.
APPENDIX 1 TO THIS PROXY STATEMENT, TITLED "1996 FINANCIAL REPORT" CONTAINS ALL
OF THE FINANCIAL INFORMATION (INCLUDING THE COMPANY'S AUDITED FINANCIAL
STATEMENTS), AND CERTAIN GENERAL INFORMATION, PREVIOUSLY PUBLISHED IN THE
COMPANY'S ANNUAL REPORT. APPENDIX 1 IS INCORPORATED HEREIN BY REFERENCE. A COPY
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED MAY 31, 1996
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, WILL BE
PROVIDED WITHOUT CHARGE TO ANY STOCKHOLDER SUBMITTING A REQUEST THEREFOR TO:
MARTIN T. JOHNSON
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
TECHNOLOGY SOLUTIONS COMPANY
205 N. MICHIGAN AVENUE, SUITE 1500
CHICAGO, IL 60601
TELEPHONE: (312) 228-4500
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented at the Annual
Meeting, but if any other matters should properly come before the Annual
Meeting, it is intended that the persons named in the accompanying proxy card
will vote on such matters in accordance with their best judgment.
- --------------------------------------------------------------------------------
-28-
<PAGE>
EXHIBIT A
TECHNOLOGY SOLUTIONS COMPANY
1996 STOCK INCENTIVE PLAN
I. INTRODUCTION
1.1 PURPOSES. The purposes of the 1996 Stock Incentive Plan (the "Plan") of
Technology Solutions Company (the "Company") are to (i) align the interests of
the Company's stockholders and the recipients of awards under this Plan by
increasing the proprietary interest of such recipients in the Company's growth
and success, (ii) advance the interests of the Company by attracting and
retaining directors (including Non-Employee Directors), officers, other key
employees, consultants, independent contractors and agents and (iii) motivate
such persons to act in the long-term best interests of the Company's
stockholders.
1.2 CERTAIN DEFINITIONS.
"AGREEMENT" shall mean the written agreement evidencing an award hereunder
between the Company and the recipient of such award.
"BOARD" shall mean the Board of Directors of the Company.
"BONUS STOCK" shall mean shares of Common Stock which are not subject to a
Restriction Period or Performance Measures.
"BONUS STOCK AWARD" shall mean an award of Bonus Stock under this Plan.
"CHANGE IN CONTROL" shall have the meaning set forth in Section 6.8(b).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Committee designated by the Board, consisting of
two or more members of the Board, each of whom shall be (i) a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Exchange Act and (ii) an
"outside director" within the meaning of Section 162(m) of the Code, subject to
any transition rules applicable to the definition of outside director.
"COMMON STOCK" shall mean the common stock, $.01 par value, of the Company.
"COMPANY" has the meaning specified in Section 1.1.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
- --------------------------------------------------------------------------------
A-1
<PAGE>
"FAIR MARKET VALUE" shall mean the closing transaction price of a share of
Common Stock as reported by The Nasdaq Stock Market or the principal national
securities exchange on which the Common Stock is then traded, on the `date as of
which such value is being determined, or, if there shall be no reported
transactions for such date, on the next preceding date for which transactions
were reported; provided, however, that if Fair Market Value for any date cannot
be so determined, Fair Market Value shall be determined by the Committee by
whatever means or method as the Committee, in the good faith exercise of its
discretion, shall at such time deem appropriate.
"FREE-STANDING SAR" shall mean an SAR which is not issued in tandem with,
or by reference to, an option, which entitles the holder thereof to receive,
upon exercise, shares of Common Stock (which may be Restricted Stock), cash or a
combination thereof with an aggregate value equal to the excess of the Fair
Market Value of one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of such SARs which are exercised.
"INCENTIVE STOCK OPTION" shall mean an option to purchase shares of Common
Stock that meets the requirements of Section 422 of the Code, or any successor
provision, which is intended by the Committee to constitute an Incentive Stock
Option.
"INCUMBENT BOARD" shall have the meaning set forth in Section 6.8(b)(2)
hereof.
"MATURE SHARES" shall mean shares of Common Stock for which the holder
thereof has good title, free and clear of all liens and encumbrances and which
such holder has held for at least six months.
"NON-EMPLOYEE DIRECTOR" shall mean any director of the Company who is not
an officer or employee of the Company or any Subsidiary.
"NON-STATUTORY STOCK OPTION" shall mean a stock option which is not an
Incentive Stock Option.
"PERFORMANCE MEASURES" shall mean the criteria and objectives, established
by the Committee, which shall be satisfied or met (i) as a condition to the
exercisability of all or a portion of an option or SAR, (ii) as a condition to
the grant of a Stock Award or (iii) during the applicable Restriction Period or
Performance Period as a condition to the holder's receipt, in the case of a
Restricted Stock Award, of the shares of Common Stock subject to such award, or,
in the case of a Performance Share Award, of the shares of Common Stock subject
to such award and/or of payment with respect to such award. In the sole
discretion of the Committee, the Committee may amend or adjust the Performance
Measures or other terms and conditions of an outstanding award in recognition of
unusual or nonrecurring events affecting the Company or its financial statements
or changes in law or accounting principles. Such criteria and objectives may
include one or more of the following: the attainment by a share of Common Stock
of a specified Fair Market Value for a specified period of time, earnings per
share, return to stockholders (including dividends), operating income, operating
income margin, return on equity, earnings of the Company, revenues, market
share, cash flow or cost reduction goals, or any combination of
- --------------------------------------------------------------------------------
A-2
<PAGE>
the foregoing. If the Committee desires that compensation payable pursuant to
any award subject to Performance Measures be "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code, the Performance
Measures (i) shall be established by the Committee no later than 90 days after
the beginning of the Performance Period or Restriction Period, as applicable (or
such other time designated by the Internal Revenue Service) and (ii) shall
satisfy all other applicable requirements imposed under Treasury Regulations
promulgated under Section 162(m) of the Code, including the requirement that
such Performance Measures be stated in terms of an objective formula or
standard.
"PERFORMANCE PERIOD" shall mean any period designated by the Committee
during which the Performance Measures applicable to a Performance Share Award
shall be measured.
"PERFORMANCE SHARE" shall mean a right, contingent upon the attainment of
specified Performance Measures within a specified Performance Period, to receive
one share of Common Stock, which may be Restricted Stock, or in lieu of all or a
portion thereof, the Fair Market Value of such Performance Share in cash.
"PERFORMANCE SHARE AWARD" shall mean an award of Performance Shares under
this Plan.
"PERMANENT AND TOTAL DISABILITY" shall have the meaning set forth in
Section 22(e)(3) of the Code or any successor thereto.
"PREDECESSOR PLANS" shall mean the Technology Solutions Company Stock
Option Plan, the Technology Solutions Company 1992 Stock Incentive Plan and the
Technology Solutions Company 1993 Outside Directors Stock Option Plan.
"RESTRICTED STOCK" shall mean shares of Common Stock which are subject to a
Restriction Period.
"RESTRICTED STOCK AWARD" shall mean an award of Restricted Stock under this
Plan.
"RESTRICTION PERIOD" shall mean any period designated by the Committee
during which the Common Stock subject to a Restricted Stock Award may not be
sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or
disposed of, except as provided in this Plan or the Agreement relating to such
award.
"SAR" shall mean a stock appreciation right which may be a Free-Standing
SAR or a Tandem SAR.
"STOCK AWARD" shall mean a Restricted Stock Award or a Bonus Stock Award.
"SUBSIDIARY" shall have the meaning set forth in Section 1.4.
- --------------------------------------------------------------------------------
A-3
<PAGE>
"TANDEM SAR" shall mean an SAR which is granted in tandem with, or by
reference to, an option (including a Non-Statutory Stock Option granted prior to
the date of grant of the SAR), which entitles the holder thereof to receive,
upon exercise of such SAR and surrender for cancellation of all or a portion of
such option, shares of Common Stock (which may be Restricted Stock), cash or a
combination thereof with an aggregate value equal to the excess of the Fair
Market Value of one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of shares of Common Stock subject to
such option, or portion thereof, which is surrendered.
"TAX DATE" shall have the meaning set forth in Section 6.5.
"TEN PERCENT HOLDER" shall have the meaning set forth in Section 2.1(a).
1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Any
one or a combination of the following awards may be made under this Plan to
eligible persons: (i) options to purchase shares of Common Stock in the form of
Incentive Stock Options or Non-Statutory Stock Options, (ii) SARs in the form of
Tandem SARs or Free-Standing SARs, (iii) Stock Awards in the form of Restricted
Stock or Bonus Stock and (iv) Performance Shares. The Committee shall, subject
to the terms of this Plan, select eligible persons for participation in this
Plan and determine the form, amount and timing of each award to such persons
and, if applicable, the number of shares of Common Stock, the number of SARs and
the number of Performance Shares subject to such an award, the exercise price or
base price associated with the award, the time and conditions of exercise or
settlement of the award and all other terms and conditions of the award,
including, without limitation, the form of the Agreement evidencing the award.
The Committee may, in its sole discretion and for any reason at any time,
subject to the requirements imposed under Section 162(m) of the Code and
regulations promulgated thereunder in the case of an award intended to be
qualified performance-based compensation, take action such that (i) any or all
outstanding options and SARs shall become exercisable in part or in full, (ii)
all or a portion of the Restriction Period applicable to any outstanding
Restricted Stock Award shall lapse, (iii) all or a portion of the Performance
Period applicable to any outstanding Performance Share Award shall lapse, and
(iv) the Performance Measures applicable to any outstanding Restricted Stock
Award (if any) and to any outstanding Performance Share Award shall be deemed to
be satisfied at the maximum or any other level. The Committee shall, subject to
the terms of this Plan, interpret this Plan and the application thereof,
establish rules and regulations it deems necessary or desirable for the
administration of this Plan and may impose, incidental to the grant of an award,
conditions with respect to the award, such as limiting competitive employment or
other activities. All such interpretations, rules, regulations and conditions
shall be final, binding and conclusive.
The Committee may delegate some or all of its power and authority hereunder
to the President or other executive officer of the Company as the Committee
deems appropriate; provided, however, that the Committee may not delegate its
power and authority with regard to (i) the grant of an award to any person who
is a "covered employee" within the meaning of Section 162(m) of the Code or who,
in the Committee's judgment, is likely to be a covered employee at any time
during the period an award hereunder to such employee would be
- --------------------------------------------------------------------------------
A-4
<PAGE>
outstanding or (ii) the selection for participation in this Plan of an officer
or other person subject to Section 16 of the Exchange Act or decisions
concerning the timing, pricing or amount of an award to such an officer or other
person.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (ii) acts approved in
writing by all of the members of the Committee without a meeting.
1.4 ELIGIBILITY. Participants in this Plan shall consist of such directors,
officers, other key employees, consultants, independent contractors and agents
of the Company, and its subsidiaries (individually a "Subsidiary" and
collectively the "Subsidiaries") as the Committee in its sole discretion may
select from time to time. For purposes of this Plan, references to employment
shall also mean an agency or independent contractor relationship and references
to employment by the Company shall also mean employment by a Subsidiary. The
Committee's selection of a person to participate in this Plan at any time shall
not require the Committee to select such person to participate in this Plan at
any other time. Non-Employee Directors of the Company shall also be eligible to
participate in this Plan in accordance with Section V. Notwithstanding anything
contained herein to the contrary, no person other than an employee of the
Company or a Subsidiary may be granted an Incentive Stock Option hereunder.
1.5 SHARES AVAILABLE. Subject to adjustment as provided in Section 6.7,
1,000,000 shares of Common Stock shall be available under this Plan, reduced by
the sum of the aggregate number of shares of Common Stock (i) that are issued
upon the grant of a Stock Award and (ii) which become subject to outstanding
options, outstanding Free-Standing SARs and outstanding Performance Shares. In
addition, shares of Common Stock available to be granted under the Predecessor
Plans on the effective date of this Plan shall thereafter be available for grant
solely under this Plan. To the extent that shares of Common Stock subject to an
outstanding option granted hereunder or under a Predecessor Plan (except to the
extent shares of Common Stock are issued or delivered by the Company in
connection with the exercise of a Tandem SAR), Free-Standing SAR, Stock Award or
Performance Share are not issued or delivered by reason of the expiration,
termination, cancellation or forfeiture of such award or by reason of the
delivery or withholding of shares of Common Stock to pay all or a portion of the
exercise price of an award, if any, or to satisfy all or a portion of the tax
withholding obligations relating to an award, then such shares of Common Stock
shall again be available under this Plan.
Shares of Common Stock shall be made available from authorized and unissued
shares of Common Stock, or authorized and issued shares of Common Stock
reacquired and held as treasury shares or otherwise or a combination thereof.
To the extent required by Section 162(m) of the Code and the rules and
regulations thereunder, the maximum number of shares of Common Stock with
respect to which options or SARs, Stock Awards or Performance Share Awards or a
combination thereof may be granted during any fiscal year of the Company to any
person shall be 150,000, subject to adjustment as provided in Section 6.7.
- --------------------------------------------------------------------------------
A-5
<PAGE>
II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 STOCK OPTIONS. The Committee may, in its discretion, grant options to
purchase shares of Common Stock to such eligible persons as may be selected by
the Committee. Each option, or portion thereof, that is granted to a person
other than an employee of the Company or a Subsidiary or that is otherwise not
an Incentive Stock Option, shall be a Non-Statutory Stock Option. Each Incentive
Stock Option shall be granted within ten years of the effective date of this
Plan. To the extent that the aggregate Fair Market Value (determined as of the
date of grant) of shares of Common Stock with respect to which options
designated as Incentive Stock Options are exercisable for the first time by a
participant during any calendar year (under this Plan or any other plan of the
Company, or any parent or subsidiary as defined in Section 424 of the Code)
exceeds the amount (currently $100,000) established by the Code, such options
shall constitute Non-Statutory Stock Options.
Options shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
(a) Number of Shares and Purchase Price. The number of shares of Common
Stock subject to an option and the purchase price per share of Common Stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per share of Common Stock purchasable
upon exercise of an Incentive Stock Option shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date of grant of such
option; provided further, that if an Incentive Stock Option shall be granted to
any person who, at the time such option is granted, owns capital stock
possessing more than ten percent of the total combined voting power of all
classes of capital stock of the Company (or of any parent or Subsidiary) (a "Ten
Percent Holder"), the purchase price per share of Common Stock shall be the
price (currently 110% of Fair Market Value) required by the Code in order to
constitute an Incentive Stock Option.
(b) Option Period and Exercisability. The period during which an option
may be exercised shall be determined by the Committee; provided, however, that
no Incentive Stock Option shall be exercised later than ten years after its date
of grant; provided further, that if an Incentive Stock Option shall be granted
to a Ten Percent Holder, such option shall not be exercised later than five
years after its date of grant. The Committee may, in its discretion, establish
Performance Measures which shall be satisfied or met as a condition to the grant
of an option or to the exercisability of all or a portion of an option. The
Committee shall determine whether an option shall become exercisable in
cumulative or non-cumulative installments and in part or in full at any time. An
exercisable option, or portion thereof, may be exercised only with respect to
whole shares of Common Stock.
(c) Method of Exercise. An option may be exercised (i) by giving written
notice to the Company specifying the number of whole shares of Common Stock to
be purchased and accompanied by payment therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (A) in cash, (B) by
delivery of Mature Shares having an aggregate Fair Market Value, determined as
of the date of exercise, equal to the aggregate purchase price
- --------------------------------------------------------------------------------
A-6
<PAGE>
payable by reason of such exercise, (C) in cash by a broker-dealer acceptable to
the Company to whom the optionee has submitted an irrevocable notice of exercise
or (D) a combination of (A) and (B), in each case to the extent set forth in the
Agreement relating to the option, (ii) if applicable, by surrendering to the
Company any Tandem SARs which are cancelled by reason of the exercise of the
option and (iii) by executing such documents as the Company may reasonably
request. The Company shall have sole discretion to disapprove of an election
pursuant to any of clauses (B)-(D) and in the case of an optionee who is subject
to Section 16 of the Exchange Act, the Company may require that the method of
making such payment be in compliance with Section 16 and the rules and
regulations thereunder. Any fraction of a share of Common Stock which would be
required to pay such purchase price shall be disregarded and the remaining
amount due shall be paid in cash by the optionee. No certificate representing
Common Stock shall be delivered until the full purchase price therefor has been
paid (or arrangement made for such payment to the Company's satisfaction).
2.2 STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant
SARs to such eligible persons as may be selected by the Committee. The Agreement
relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-
Standing SAR.
SARs shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
(a) Number of SARs and Base Price. The number of SARs subject to an award
shall be determined by the Committee. Any Tandem SAR related to an Incentive
Stock Option shall be granted at the same time that such Incentive Stock Option
is granted. The base price of a Tandem SAR shall be the purchase price per share
of Common Stock of the related option. The base price of a Free-Standing SAR
shall be determined by the Committee.
(b) Exercise Period and Exercisability. The Agreement relating to an
award of SARs shall specify whether such award may be settled in shares of
Common Stock (including shares of Restricted Stock) or cash or a combination
thereof. The period for the exercise of an SAR shall be determined by the
Committee; provided, however, that no Tandem SAR shall be exercised later than
the expiration, cancellation, forfeiture or other termination of the related
option. The Committee may, in its discretion, establish Performance Measures
which shall be satisfied or met as a condition to the grant of an SAR or to the
exercisability of all or a portion of an SAR. The Committee shall determine
whether an SAR may be exercised in cumulative or non-cumulative installments and
in part or in full at any time. An exercisable SAR, or portion thereof, may be
exercised, in the case of a Tandem SAR, only with respect to whole shares of
Common Stock and, in the case of a Free-Standing SAR, only with respect to a
whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a
certificate or certificates representing such Restricted Stock shall be issued
in accordance with Section 3.2(c) and the holder of such Restricted Stock shall
have such rights of a stockholder of the Company as determined pursuant to
Section 3.2(d). Prior to the exercise of an SAR for shares of Common Stock,
including Restricted Stock, the holder of such SAR shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject to
such SAR and shall have rights as a stockholder of the Company in accordance
with Section 6.10.
- --------------------------------------------------------------------------------
A-7
<PAGE>
(c) Method of Exercise. A Tandem SAR may be exercised (i) by giving
written notice to the Company specifying the number of whole SARs which are
being exercised, (ii) by surrendering to the Company any options which are
cancelled by reason of the exercise of the Tandem SAR and (iii) by executing
such documents as the Company may reasonably request. A Free-Standing SAR may be
exercised (i) by giving written notice to the Company specifying the whole
number of SARs which are being exercised and (ii) by executing such documents as
the Company may reasonably request.
2.3 TERMINATION OF EMPLOYMENT OR SERVICE (a) General. Subject to paragraph
(b) below, all of the terms relating to the exercise, cancellation or other
disposition of an option or SAR upon a termination of employment with or service
to the Company of the holder of such option or SAR, as the case may be, whether
by reason of disability, retirement, death or other termination, shall be
determined by the Committee. Such determination shall be made at the time of the
grant of such option or SAR, as the case may be, and shall be specified in the
Agreement relating to such option or SAR.
(b) Incentive Stock Options. Except as set forth in this paragraph (b),
all of the terms relating to the exercise, cancellation or other disposition of
an Incentive Stock Option upon a termination of employment with the Company of
the holder of such option, including whether such Incentive Stock Option shall
become exercisable in full upon such termination, shall be determined by the
Committee. Such determination shall be made at the time of the grant of such
Incentive Stock Option and shall be specified in the Agreement relating to such
Incentive Stock Option.
If the employment with the Company of a holder of an Incentive Stock Option
terminates by reason of Permanent and Total Disability, each Incentive Stock
Option held by such optionee may thereafter be exercised by such optionee (or
such optionee's legal representative or similar person) until and including the
earliest to occur of (i) the date which is one year (or such shorter period as
set forth in the Agreement relating to such option) after the effective date of
such optionee's termination of employment by reason of Permanent and Total
Disability and (ii) the expiration date of the term of such option.
If the employment with the Company of a holder of an Incentive Stock Option
terminates by reason of death, each Incentive Stock Option held by such optionee
may thereafter be exercised by such optionee's executor, administrator, legal
representative, beneficiary or similar person until and including the earliest
to occur of (i) the date which is one year (or such other period as set forth in
the Agreement relating to such option) after the date of death and (ii) the
expiration date of the term of such option.
If the employment with the Company of a holder of an Incentive Stock Option
terminates for any reason other than Permanent and Total Disability or death,
each Incentive Stock Option held by such optionee may thereafter be exercised by
such holder (or such holder's legal representative or similar person) until and
including the earliest to occur of (i) the date which is three months (or such
shorter period as set forth in the Agreement relating to such option) after the
effective date of such optionee's termination of employment and (ii) the
expiration date of the term of such option.
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If the holder of an Incentive Stock Option dies during the period set forth
in the second paragraph of this Section 2.3(b) following termination of
employment or service by reason of Permanent and Total Disability (or such
shorter period as set forth in the Agreement relating to such option), or if the
holder of an Incentive Stock Option dies during the period set forth in the
fourth paragraph of this Section 2.3(b) following termination of employment or
service for any reason other than Permanent and Total Disability or death, each
Incentive Stock Option held by such optionee may thereafter be exercised by the
optionee's executor, administrator, legal representative, beneficiary or similar
person until and including the earliest to occur of (i) the date which is one
year (or such other period as set forth in the Agreement relating to such
option) after the date of death and (ii) the expiration date of the term of such
option.
III. STOCK AWARDS
3.1 STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards to
such eligible persons as may be selected by the Committee. The Agreement
relating to a Stock Award shall specify whether the Stock Award is a Restricted
Stock Award or Bonus Stock Award.
3.2 TERMS OF STOCK AWARDS. Stock Awards shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem advisable.
(a) Number of Shares and Other Terms. The number of shares of Common Stock
subject to a Restricted Stock Award or Bonus Stock Award and the Performance
Measures (if any) and Restriction Period applicable to a Restricted Stock Award
shall be determined by the Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Restricted Stock
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of the
shares of Common Stock subject to such award (i) if specified Performance
Measures are satisfied or met during the specified Restriction Period or (ii) if
the holder of such award remains continuously in the employment of or service to
the Company during the specified Restriction Period and for the forfeiture of
the shares of Common Stock subject to such award (x) if specified Performance
Measures are not satisfied or met during the specified Restriction Period or (y)
if the holder of such award does not remain continuously in the employment of or
service to the Company during the specified Restriction Period.
Bonus Stock Awards shall not be subject to any Performance Measures or
Restriction Periods.
(c) Share Certificates. During the Restriction Period, a certificate or
certificates representing a Restricted Stock Award may be registered in the
holder's name and may bear a legend, in addition to any legend which may be
required pursuant to Section 6.6, indicating that the ownership of the shares of
Common Stock represented by such certificate is subject to the restrictions,
terms and conditions of this Plan and the Agreement relating to the Restricted
Stock Award. All such certificates shall be deposited with the Company, together
with stock powers or other instruments of assignment (including a power of
attorney), each endorsed in blank with a guarantee of signature if deemed
necessary or appropriate by the Company, which would permit
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transfer to the Company of all or a portion of the shares of Common Stock
subject to the Restricted Stock Award in the event such award is forfeited in
whole or in part. Upon termination of any applicable Restriction Period (and the
satisfaction or attainment of applicable Performance Measures), or upon the
grant of a Bonus Stock Award, in each case subject to the Company's right to
require payment of any taxes in accordance with Section 6.5, a certificate or
certificates evidencing ownership of the requisite number of shares of Common
Stock shall be delivered to the holder of such award.
(d) Rights with Respect to Restricted Stock Awards. Unless otherwise set
forth in the Agreement relating to a Restricted Stock Award, and subject to the
terms and conditions of a Restricted Stock Award, the holder of such award shall
have all rights as a stockholder of the Company, including, but not limited to,
voting rights, the right to receive dividends and the right to participate in
any capital adjustment applicable to all holders of Common Stock; provided,
however, that a distribution with respect to shares of Common Stock, other than
a regular cash dividend, shall be deposited with the Company and shall be
subject to the same restrictions as the shares of Common Stock with respect to
which such distribution was made.
(e) Awards to Certain Executive Officers. Notwithstanding any other
provision of this Article III, and only to the extent necessary to ensure the
deductibility of the award to the Company, the Fair Market Value of the number
of shares of Common Stock subject to a Stock Award granted to a "covered
employee" within the meaning of Section 162(m) of the Code shall not exceed
$$250,000 (i) at the time of grant in the case of a Stock Award granted upon the
attainment of Performance Measures or (ii) in the case of a Restricted Stock
Award with Performance Measures which shall be satisfied or met as a condition
to the holder's receipt of the shares of Common Stock subject to such award, on
the earlier of (x) the date on which the Performance Measures are satisfied or
met and (y) the date the holder makes an election under Section 83(b) of the
Code.
3.3 TERMINATION OF EMPLOYMENT OR SERVICE. All of the terms relating to the
satisfaction of Performance Measures and the termination of the Restriction
Period relating to a Restricted Stock Award, or any cancellation or forfeiture
of such Restricted Stock Award upon a termination of employment with or service
to the Company of the holder of such Restricted Stock Award, whether by reason
of disability, retirement, death or other termination, shall be set forth in the
Agreement relating to such Restricted Stock Award.
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IV. PERFORMANCE SHARE AWARDS
4.1 PERFORMANCE SHARE AWARDS. The Committee may, in its discretion, grant
Performance Share Awards to such eligible persons as may be selected by the
Committee.
4.2 TERMS OF PERFORMANCE SHARE AWARDS. Performance Share Awards shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem advisable.
(a) Number of Performance Shares and Performance Measures. The number of
Performance Shares subject to any award and the Performance Measures and
Performance Period applicable to such award shall be determined by the
Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Performance Share
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of such
award, if specified Performance Measures are satisfied or met during the
specified Performance Period, and for the forfeiture of such award, if specified
Performance Measures are not satisfied or met during the specified Performance
Period.
(c) Settlement of Vested Performance Share Awards. The Agreement relating
to a Performance Share Award (i) shall specify whether such award may be settled
in shares of Common Stock (including shares of Restricted Stock) or cash or a
combination thereof and (ii) may specify whether the holder thereof shall be
entitled to receive, on a current or deferred basis, dividend equivalents, and,
if determined by the Committee, interest on or the deemed reinvestment of any
deferred dividend equivalents, with respect to the number of shares of Common
Stock subject to such award. If a Performance Share Award is settled in shares
of Restricted Stock, a certificate or certificates representing such Restricted
Stock shall be issued in accordance with Section 3.2(c) and the holder of such
Restricted Stock shall have such rights of a stockholder of the Company as
determined pursuant to Section 3.2(d). Prior to the settlement of a Performance
Share Award in shares of Common Stock, including Restricted Stock, the holder of
such award shall have no rights as a stockholder of the Company with respect to
the shares of Common Stock subject to such award and shall have rights as a
stockholder of the Company in accordance with Section 6.10.
4.3 TERMINATION OF EMPLOYMENT OR SERVICE. All of the terms relating to the
satisfaction of Performance Measures and the termination of the Performance
Period relating to a Performance Share Award, or any cancellation or forfeiture
of such Performance Share Award upon a termination of employment with the
Company of the holder of such Performance Share Award, whether by reason of
disability, retirement, death or other termination, shall be set forth in the
Agreement relating to such Performance Share Award.
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V. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS
5.1 ELIGIBILITY. Each Non-Employee Director shall be granted options to
purchase shares of Common Stock in accordance with this Article V. All options
granted under this Article V shall constitute Non-Statutory Stock Options.
5.2 GRANTS OF STOCK OPTIONS. Each Non-Employee Director shall be granted Non-
Statutory Stock Options as follows:
(a) Time of Grant. On the date on which a person is first elected or begins
to serve as a Non-Employee Director (other than by reason of termination of
employment), and, thereafter, if such person is then a Non-Employee Director, on
the date that an option granted to such person pursuant to this Article V or
pursuant to the Technology Solutions Company 1993 Outside Directors Stock Option
Plan becomes exercisable in full in accordance with Section 5.2(b) hereunder or
in accordance with Section 10 of the Technology Solutions Company 1993 Outside
Directors Stock Option Plan, as the case may be, such person shall be granted an
option to purchase 18,000 shares of Common Stock at a purchase price per share
equal to the Fair Market Value of a share of Common Stock on the date of grant
of such option.
(b) Option Period and Exercisability. Except as otherwise provided herein,
each option granted under this Article V shall not be exercisable until the last
day of the calendar month following the calendar month in which such option is
granted (the "Initial Date of Exercisability"). Each option granted under this
Article V shall become exercisable as to 500 shares of Common Stock on the date
of its Initial Date of Exercisability and as to an additional 500 shares of
Common Stock on the last day of each of the next thirty-five calendar months
following the initial date of exercisability. Each option granted under this
Article V shall expire twenty years after its date of grant. An exercisable
option, or portion thereof, may be exercised in whole or in part only with
respect to whole shares of Common Stock. Options granted under this Article V
shall be exercisable in accordance with Section 2.1(c).
5.3 TERMINATION OF DIRECTORSHIP. (a) Death. If the holder of an option granted
under this Article V ceases to be a director of the Company by reason of death,
each such option held by such holder shall become fully exercisable and may
thereafter be exercised by such holder's executor, administrator, legal
representative, beneficiary or similar person until the expiration date of the
term of such option.
(b) Other Termination. If the holder of an option granted under this
Article V ceases to be a director of the Company for any reason other than the
death of such holder, each such option held by such holder shall be exercisable
only to the extent such option is exercisable on the effective date of such
holder's ceasing to be a director and may thereafter be exercised by such holder
(or such holder's legal representative or similar person) until the expiration
date of the term of such option.
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(c) Death Following Termination of Directorship. If the holder of an option
granted under this Article V dies during the period set forth in Section 5.3(b)
following such holder's ceasing to be a director for any reason other than by
reason of the death of such holder, each such option held by such holder shall
be exercisable only to the extent that such option is exercisable on the date of
the holder's death and may thereafter be exercised by such holder's executor,
administrator, legal representative, beneficiary or similar person until the
expiration date of the term of such option.
VI. GENERAL
6.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan shall be submitted to the
stockholders of the Company for approval and, if approved by the affirmative
vote of a majority of the shares of Common Stock present in person or
represented by proxy at the 1996 annual meeting of stockholders of the Company,
shall become effective on the date of such approval. This Plan shall terminate
ten years after its effective date, unless terminated earlier by the Board.
Termination of this Plan shall not affect the terms or conditions of any award
granted prior to termination.
In the event that this Plan is not approved by the stockholders of the
Company at the 1996 annual meeting of stockholders of the Company, this Plan and
any awards granted hereunder shall be null and void.
6.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of stockholder approval required by applicable law,
rule or regulation, including Section 162(m) and Section 422 of the Code;
provided, however, that no amendment shall be made without stockholder approval
if such amendment would (a) increase the maximum number of shares of Common
Stock available under this Plan (subject to Section 6.7), (b) effect any change
inconsistent with Section 422 of the Code or (c) extend the term of this Plan.
No amendment may impair the rights of a holder of an outstanding award without
the consent of such holder.
6.3 AGREEMENT. Each award under this Plan shall be evidenced by an Agreement
setting forth the terms and conditions applicable to such award. No award shall
be valid until an Agreement is executed by the Company and the recipient of such
award and, upon execution by each party and delivery of the Agreement to the
Company, such award shall be effective as of the effective date set forth in the
Agreement.
6.4 NON-TRANSFERABILITY OF AWARDS. Unless otherwise specified in the Agreement
relating to an award, no award shall be transferable other than by will, the
laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company. Except to the extent permitted by the first
sentence of this Section 6.4, or the Agreement relating to an award, each award
may be exercised or settled during the holder's lifetime only by the holder or
the holder's legal representative or similar person. Except to the extent
permitted by the first sentence of this Section 6.4 or the Agreement relating to
an award, no award may be sold, transferred, assigned, pledged, hypothecated,
encumbered or otherwise disposed of (whether by operation of law or otherwise)
or be subject to execution, attachment or similar process. Upon any attempt to
so sell,
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<PAGE>
transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any such
award, other than as permitted by the first sentence of this Section 6.4 or the
Agreement relating to an award, such award and all rights thereunder shall
immediately become null and void.
6.5 TAX WITHHOLDING. The Company shall have the right to require, prior to the
issuance or delivery of any shares of Common Stock or the payment of any cash
pursuant to an award made hereunder, payment by the holder of such award of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection with such award. An Agreement may provide that (i) the
Company shall withhold whole shares of Common Stock which would otherwise be
delivered to a holder, having an aggregate Fair Market Value determined as of
the date the obligation to withhold or pay taxes arises in connection with an
award (the "Tax Date"), or withhold an amount of cash which would otherwise be
payable to a holder, in the amount necessary to satisfy any such obligation or
(ii) the holder may satisfy any such obligation by any of the following means:
(A) a cash payment to the Company, (B) delivery to the Company of Mature Shares
having an aggregate Fair Market Value, determined as of the Tax Date, equal to
the amount necessary to satisfy any such obligation, (C) authorizing the Company
to withhold whole shares of Common Stock which would otherwise be delivered
having an aggregate Fair Market Value, determined as of the Tax Date, or
withhold an amount of cash which would otherwise be payable to a holder, equal
to the amount necessary to satisfy any such obligation, (D) in the case of the
exercise of an option, a cash payment by a broker-dealer acceptable to the
Company to whom the optionee has submitted an irrevocable notice of exercise or
(E) any combination of (A), (B) and (C), in each case to the extent set forth in
the Agreement relating to the award; provided, however, that the Company shall
have sole discretion to disapprove of an election pursuant to any of clauses
(B)-(E) and that in the case of a holder who is subject to Section 16 of the
Exchange Act, the Company may require that the method of satisfying such an
obligation be in compliance with Section 16 and the rules and regulations
thereunder. Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the holder.
6.6 RESTRICTIONS ON SHARES. Each award made hereunder shall be subject to the
requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the delivery of shares
thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any award made hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
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6.7 ADJUSTMENT. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding option and the
purchase price per security, the number of securities subject to each option to
be granted to Non-Employee Directors pursuant to Article V, the terms of each
outstanding SAR, the number and class of securities subject to each outstanding
Stock Award, and the terms of each outstanding Performance Share shall be
appropriately adjusted by the Committee, such adjustments to be made in the case
of outstanding options and SARs without an increase in the aggregate purchase
price or base price. The decision of the Committee regarding any such adjustment
shall be final, binding and conclusive. If any such adjustment would result in a
fractional security being (a) available under this Plan, such fractional
security shall be disregarded, or (b) subject to an award under this Plan, the
Company shall pay the holder of such award, in connection with the first the
vesting, exercise or settlement of such award in whole or in part occurring
after such adjustment, an amount in cash determined by multiplying (i) the
fraction of such security (rounded to the nearest hundredth) by (ii) the excess,
if any, of (A) the Fair Market Value on the vesting, exercise or settlement date
over (B) the exercise or base price, if any, of such award.
6.8 CHANGE IN CONTROL.
(a) (1) Notwithstanding any provision in this Plan or any Agreement, in the
event of a Change in Control, the Board of Directors may, but shall not be
required to, make such adjustments to outstanding awards hereunder as it deems
appropriate, including, without limitation, electing that each outstanding award
shall be surrendered to the Company by the holder thereof, and that each such
award shall immediately be cancelled by the Company, and that the holder shall
receive, within a specified period of time from the occurrence of the Change in
Control, a cash payment from the Company in an amount equal to:
(i) in the case of an option, the number of shares of Common Stock
then subject to such option, multiplied by the excess, if any, of the
greater of (A) the highest per share price offered to stockholders of the
Company in any transaction whereby the Change in Control takes place or (B)
the Fair Market Value of a share of Common Stock on the date of occurrence
of the Change in Control, over the purchase price per share of Common Stock
subject to the option,
(ii) in the case of a Free-Standing SAR, the number of shares of
Common Stock then subject to such SAR, multiplied by the excess, if any, of
the greater of (A) the highest per share price offered to stockholders of
the Company in any transaction whereby the Change in Control takes place or
(B) the Fair Market Value of a share of Common Stock on the date of
occurrence of the Change in Control, over the base price of the SAR, and
(iii) in the case of a Restricted Stock Award or Performance Share
Award, the number of shares of Common Stock or the number of Performance
Shares, as the case may be, then subject to such award, multiplied by the
greater of (A) the highest per share price offered to stockholders of the
Company in any transaction whereby the Change in
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Control takes place or (B) the Fair Market Value of a share of Common Stock
on the date of occurrence of the Change in Control.
In the event of a Change in Control in which options are cancelled, each Tandem
SAR shall be surrendered by the holder thereof and shall be cancelled
simultaneously with the cancellation of the related option. The Company may, but
is not required to, cooperate with any person who is subject to Section 16 of
the Exchange Act to assure that any cash payment in accordance with the
foregoing to such person is made in compliance with Section 16 and the rules and
regulations thereunder.
In the event of a Change in Control, the Board of Directors may, but shall
not be required to, substitute for each share of Common Stock available under
this Plan, whether or not then subject to an outstanding award, the number and
class of shares into which each outstanding share of Common Stock shall be
converted pursuant to such Change in Control. In the event of any such
substitution, the purchase price per share in the case of an option and the base
price in the case of an SAR shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding options and SARs without
an increase in the aggregate purchase price or base price.
(b) "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 25% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Common
Stock") or (ii) the combined voting power of the then outstanding securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"); excluding, however, the following: (A) any
acquisition directly from the Company (excluding any acquisition resulting from
the exercise of an exercise, conversion or exchange privilege unless the
security being so exercised, converted or exchanged was acquired directly from
the Company), (B) any acquisition by the Company, (C) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (3) of this Section 6.8(b); provided further, that for
purposes of clause (B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the beneficial owner of 25%
or more of the Outstanding Common Stock or 25% or more of the Outstanding Voting
Securities by reason of an acquisition by the Company, and such Person shall,
after such acquisition by the Company, become the beneficial owner of any
additional shares of the Outstanding Common Stock or any additional Outstanding
Voting Securities and such beneficial ownership is publicly announced, such
additional beneficial ownership shall constitute a Change in Control;
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(2) individuals who, as of the date this Plan is approved by the Board of
Directors constitute the Board of Directors (the "Incumbent Board") cease for
any reason to constitute at least a majority of such Board; provided that any
individual who becomes a director of the Company subsequent to the date this
Plan is approved by the Board of Directors whose election, or nomination for
election by the Company's stockholders, was approved by the vote of at least a
majority of the directors then comprising the Incumbent Board shall be deemed a
member of the Incumbent Board; and provided further, that any individual who was
initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall not be deemed a member of the Incumbent Board;
(3) the consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all of the assets
of the Company (a "Corporate Transaction"); excluding, however, a Corporate
Transaction pursuant to which (i) all or substantially all of the individuals or
entities who are the beneficial owners, respectively, of the Outstanding Common
Stock and the Outstanding Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the combined voting
power of the outstanding securities of such corporation entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or indirectly) in
substantially the same proportions relative to each other as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Common Stock
and the Outstanding Voting Securities, as the case may be, (ii) no Person (other
than: the Company; any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company; the
corporation resulting from such Corporate Transaction; and any Person which
beneficially owned, immediately prior to such Corporate Transaction, directly or
indirectly, 25% or more of the Outstanding Common Stock or the Outstanding
Voting Securities, as the case may be) will beneficially own, directly or
indirectly, 25% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding securities of such corporation entitled to vote
generally in the election of directors and (iii) individuals who were members of
the Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate Transaction;
or
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(4) the consummation of a plan of complete liquidation or dissolution of
the Company.
(c) (1) With respect to any optionee who is subject to Section 16 of the
Exchange Act, notwithstanding the exercise period contained in any Agreement to
which such optionee is a party and notwithstanding the expiration date of the
term of such option (other than an Incentive Stock Option), in the event the
Company is involved in a business combination which is intended to be treated as
a pooling of interests for financial accounting purposes (a "Pooling
Transaction") or pursuant to which such optionee receives a substitute option to
purchase securities of any entity, including an entity directly or indirectly
acquiring the Company, then each option (or option in substitution thereof) held
by such optionee shall be exercisable to the extent set forth in the Agreement
evidencing such option until and including the latest of (x) the expiration date
of the term of the option, (y) the date which is six months and one day after
the consummation of such business combination and (z) the date which is ten
business days after the date of expiration of any period during which such
optionee may not dispose of a security issued in the Pooling Transaction in
order for the Pooling Transaction to be accounted for as a pooling of interests;
and
(2) With respect to any holder of an SAR (other than an SAR which may be
settled only for cash) who is subject to Section 16 of the Exchange Act,
notwithstanding the exercise periods set forth in any Agreement to which such
holder is a party, and notwithstanding the expiration date of the term of such
SAR (other than a Tandem SAR which is related to an Incentive Stock Option), in
the event the Company is involved in a Pooling Transaction or pursuant to which
such holder receives a substitute SAR relating to any entity, including an
entity directly or indirectly acquiring the Company, then each such SAR (or SAR
in substitution thereof) held by such holder shall be exercisable to the extent
set forth in the Agreement evidencing such SAR until and including the latest of
(x) the expiration date of the term of such SAR, (y) the date which is six
months and one day after the consummation of such business combination and (z)
the date which is ten business days after the date of expiration of any period
during which such holder may not dispose of a security issued in the Pooling
Transaction in order for the Pooling Transaction to be accounted for as a
pooling of interests.
6.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any
right to participate in this Plan. Neither this Plan nor any award made
hereunder shall confer upon any person any right to continued employment by the
Company, any Subsidiary or any affiliate of the Company or affect in any manner
the right of the Company, any Subsidiary or any affiliate of the Company to
terminate the employment of any person at any time without liability hereunder.
6.10 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder of
the Company with respect to any shares of Common Stock or other equity security
of the Company which is subject to an award hereunder unless and until such
person becomes a stockholder of record with respect to such shares of Common
Stock or equity security.
6.11 GOVERNING LAW. This Plan, each award hereunder and the related Agreement,
and all determinations made and actions taken pursuant thereto, to the extent
not otherwise governed by the Code or the laws of the United States, shall be
governed by the laws of the State of Delaware and construed in accordance
therewith without giving effect to principles of conflicts of laws.
- --------------------------------------------------------------------------------
A-18
<PAGE>
6.12 FOREIGN EMPLOYEES. Without amending this Plan, the Committee may grant
awards to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of this Plan and, in furtherance of such purposes the Committee may
make such modifications, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries or
jurisdictions in which the Company or its Subsidiaries operates or has
employees.
- --------------------------------------------------------------------------------
A-19
<PAGE>
APPENDIX 1
TECHNOLOGY SOLUTIONS COMPANY
1996 FINANCIAL REPORT
CONTENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Business of TSC 1
Financial Statements and Notes 3
Report of Independent Accountants 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Assumptions Underlying Certain Forward-Looking Statements
and Factors That May Affect Future Results 23
Five-Year Financial Summary 24
Selected Information on TSC Stock 25
Other Information 26
</TABLE>
<PAGE>
BUSINESS OF TSC
Technology Solutions Company ("TSC" or the "Company") provides strategic
business and management consulting and information technology services to major
corporations and financial institutions. These services help manufacturing,
technology, health care, telecommunications, financial services, and other
service industry clients transform their businesses, their internal business
processes and their relationships with customers, suppliers, distributors and
employees. The information technology services provided by TSC help these
clients achieve clearly defined business benefits. As used herein the terms
"TSC" or the "Company," unless the context otherwise clearly requires, refer to
Technology Solutions Company and its subsidiaries.
TSC services span the full range of strategic business and management consulting
services and information technology services. The strategic business and
management consulting services offered include business strategic planning,
market research and analysis, new venture growth services, product and
distribution channel planning and organizational restructuring services. TSC's
information technology ("IT") services address the entire spectrum of IT
consulting and systems integration, including the identification of areas
of a client's business that can benefit from computer technology, feasibility
studies, business case justification, business process redesign and
reengineering, benchmarking and best practices, project management,
architecture, logical and physical systems design, hardware and software
selection, programming, implementation, change management, education, training,
and benefits realization.
In May 1996, the Company strengthened its service offerings through the
acquisition of Aspen Consultancy, Ltd. ("Aspen") and McLaughlin & Associates
("McLaughlin"). Aspen, a London-based consultancy, provides expertise in
customer service and call center consulting, including business strategy for
Pan-European and domestic European call centers, technology vision,
communications infrastructure and architecture. This acquisition accelerates
the Company's efforts to enter the European call center market as Aspen has an
established client base, a local team of experts, and in-depth knowledge of the
European call center market.
McLaughlin, the Company's second strategic acquisition, provides expertise in
high-end business and product strategy and management consulting services.
McLaughlin's business focuses principally on computer, telecommunications,
software and services firms. This acquisition adds significant expertise to the
Company's high-end strategic consulting services and provides the Company with
additional expertise to serve the growing telecommunications market space.
TSC is organized into specific areas of business focus, called practice areas,
to better address the needs of its clients by providing specialized business and
systems knowledge. TSC believes that a structure based on focused practice areas
gives its clients access to very specialized industry and systems knowledge and
allows its employees the flexibility and opportunity to grow and develop.
The Company is currently organized into six practice areas: Call Center,
Enterprise Applications and Change & Learning Technologies (formerly known as
the Applications and Training), Financial Services, Managed Health Care,
McLaughlin & Associates, and Products. Additionally, the Call Center and
Enterprise Applications and Learning Systems practice areas conduct business in
international markets.
- --------------------------------------------------------------------------------
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<PAGE>
Since its inception in May 1988, TSC has performed systems work for
approximately 300 corporations, including Aetna, ConAgra, Georgia-Pacific,
The Equitable, First Union Corporation, Goldman, Sachs & Co., The Chicago Board
Options Exchange (CBOE), Pfizer Pharmaceuticals, Cisco Systems, Pepsi, Square D
Corporation and Whirlpool Corporation.
TSC is a corporation formed under the laws of the state of Delaware. Its
principal executive offices are located in Chicago, Illinois. In addition to
its Chicago office, the Company maintains domestic offices in New York; Atlanta;
and the Dallas; and Philadelphia metropolitan areas. International offices are
located in Mexico City, Mexico; London, England; and Toronto, Canada.
- --------------------------------------------------------------------------------
Page 2
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
------
May 31, May 31,
1996 1995
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $12,990 $ 7,595
Marketable securities..................................................... 11,580 9,714
Receivables, less allowance for doubtful receivables
of $1,870 and $1,837.................................................... 23,537 13,710
Refundable income taxes................................................... 5,117 1,256
Deferred income taxes..................................................... 1,194 1,757
Other current assets...................................................... 6,166 3,813
------- -------
Total current assets.................................................... 60,584 37,845
COMPUTERS, FURNITURE AND EQUIPMENT, NET.................................... 4,443 3,083
LONG-TERM INVESTMENTS...................................................... 17,140 21,422
COST IN EXCESS OF NET ASSETS OF ACQUIRED
BUSINESSES AND OTHER INTANGIBLES.......................................... 3,079 --
LONG-TERM RECEIVABLES AND OTHER............................................ 4,191 2,872
------- -------
Total assets............................................................ $89,437 $65,222
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................................... $ 1,344 $ 772
Accrued compensation and related costs.................................... 11,621 8,932
Accrued legal costs....................................................... 953 1,640
Capitalized lease obligations............................................. 2,616 1,750
Deferred compensation..................................................... 2,660 --
Other current liabilities................................................. 214 402
------- -------
Total current liabilities............................................... 19,408 13,496
------- -------
CONTINGENCIES (Note 15)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized --
10,000,000; none issued -- --
Common stock, $.01 par value; shares authorized --
50,000,000; shares issued -- 17,903,593................................. 179 179
Capital in excess of par value............................................. 50,344 44,061
Retained earnings.......................................................... 35,983 31,409
Unrealized holding loss.................................................... (642) (853)
------- -------
85,864 74,796
Less: Treasury Stock, at cost (3,014,045 and 4,584,645 shares)............ (15,835) (23,070)
------- -------
Total stockholders' equity.............................................. 70,029 51,726
------- -------
Total liabilities and stockholders' equity.............................. $89,437 $65,222
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page 3
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
For the year ended May 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Professional fees............................. $97,004 $65,704 $52,521
Software and hardware products................ 595 113 636
------- ------- -------
97,599 65,817 53,157
------- ------- -------
COSTS AND EXPENSES:
Project personnel............................. 46,744 29,204 24,509
Other project expenses........................ 13,010 8,991 5,137
Cost of products sold......................... 476 110 618
Management and administrative support......... 22,605 18,501 22,297
Shareholder litigation settlement............. 2,345 -- --
Company founders litigation settlement........ 944 -- --
Former company executive settlements.......... -- 1,590 --
Incentive compensation........................ 6,611 4,651 3,738
------- ------- -------
92,735 63,047 56,299
------- ------- -------
OPERATING INCOME (LOSS) 4,864 2,770 (3,142)
------- ------- -------
OTHER INCOME (EXPENSE):
Net investment income......................... 2,073 1,958 2,359
Interest expense.............................. (169) (28) (28)
------- ------- -------
1,904 1,930 2,331
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES.............. 6,768 4,700 (811)
INCOME TAX PROVISION (BENEFIT)................. 2,194 1,333 (846)
-------- -------- -------
NET INCOME..................................... $ 4,574 $ 3,367 $ 35
======= ======= =======
EARNINGS PER COMMON SHARE...................... $ 0.30 $ 0.24 $ 0.00
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING................................... 16,142,027 16,112,471 15,524,661
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
- --------------------------------------------------------------------------------
Page 4
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended May 31, 1996, 1995 and 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Common Stock Capital in Holding
------------ Excess of Retained Gains and Treasury
Shares Amount Par Value Earnings (Losses) Stock Total
------ ------ --------- ---------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance May 31, 1993, as previously reported....... 11,935,743 $119 $43,611 $30,201 $ -- $ (5,882) $68,049
Effect of July 30, 1996 three-for-two
stock split on May 31, 1993 balances............. 5,967,850 60 (60) -- -- -- --
Issuance of 527,526 treasury shares
from exercise of stock options................... -- -- 484 (2,173) -- 3,008 1,319
Change in net unrealized holding
loss on available-for-sale securities........... -- -- -- -- (238) -- (238)
Net income......................................... -- -- -- 35 -- -- 35
Purchase of 1,854,923 treasury shares.............. -- -- -- -- -- (10,065) (10,065)
Acquisition of 945,180 treasury shares............. -- -- -- -- -- (5,000) (5,000)
---------- ---- ------- ------ ----- -------- --------
Balance May 31, 1994............................... 17,903,593 179 44,035 28,063 (238) (17,939) 54,100
Issuance of 41,076 treasury shares
from exercise of stock options................... -- -- 26 (21) -- 207 212
Change in net unrealized holding
loss on available-for-sale securities........... -- -- -- -- (615) -- (615)
Net income......................................... -- -- -- 3,367 -- -- 3,367
Purchase of 1,350,000 treasury shares.............. -- -- -- -- -- (5,338) (5,338)
---------- ---- ------- ------- ----- -------- --------
Balance May 31, 1995............................... 17,903,593 179 44,061 31,409 (853) (23,070) 51,726
Issuance of 1,598,609 treasury shares
from exercise of stock options................... -- -- 6,085 -- -- 8,107 14,192
Issuance of 39,046 treasury shares
from employee stock purchase plan................ -- -- 198 -- -- 200 398
Change in net unrealized holding
loss on available-for-sale securities............ -- -- -- -- 211 -- 211
Net income......................................... -- -- -- 4,574 -- -- 4,574
Acquisition of 67,055 treasury shares.............. -- -- -- -- -- (1,072) (1,072)
---------- ----- ------- ------- ----- -------- --------
Balance May 31, 1996............................... 17,903,593 $179 $50,344 $35,983 $(642) $(15,835) $ 70,029
========== ===== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page 5
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the year ended May 31,
----------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 4,574 $ 3,367 $ 35
Adjustments to reconcile net income to net
cash from operating activities:
Provisions for receivable valuation allowances and
reserves for possible losses 1,339 2,059 1,078
Loss (gain) on sales of marketable securities.......................... (18) 67 (118)
Deferred compensation.................................................. -- -- (662)
Deferred income taxes.................................................. 447 2,945 (2,263)
Depreciation and amortization.......................................... 2,558 2,048 1,646
Changes in assets and liabilities:
Receivables........................................................... (11,166) (6,925) (2,730)
Purchase of trading securities related to deferred
compensation program................................................. (2,660) -- --
Other current assets.................................................. (2,292) (662) (130)
Accounts payable...................................................... 572 354 277
Accrued compensation and related costs................................ 2,849 1,630 5,164
Refundable income taxes............................................... (3,861) 541 (1,642)
Accrued legal costs................................................... (687) (3,459) 1,082
Capitalized lease obligations......................................... 866 814 936
Deferred compensation funds from employees............................ 2,660 -- --
Other current liabilities............................................. (188) (1,083) 444
-------- ------- --------
Net cash provided by (used in) operating activities (5,007) 1,696 3,117
-------- ------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of available-for-sale securities............................... -- (909) (10,043)
Proceeds from available-for sale securities.............................. 1,075 966 9,809
Proceeds from held-to-maturity investments............................... 4,015 -- --
Loan to former company executives........................................ -- -- (5,000)
Capital expenditures..................................................... (3,651) (2,101) (1,002)
Net assets of acquired businesses and other intangibles.................. (3,079) -- --
Long-term receivables and other.......................................... (1,319) 178 765
-------- ------- --------
Net cash used in investing activities............................... (2,959) (1,866) (5,471)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options.................................. 9,100 196 834
Refundable income taxes from exercise of stock options................... 4,935 16 712
Proceeds from Employee Stock Purchase Plan............................... 398 -- --
Treasury stock........................................................... (1,072) (5,338) (10,065)
-------- ------- --------
Net cash provided by (used in) financing activities................ 13,361 (5,126) (8,519)
-------- ------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................................... 5,395 (5,296) (10,873)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................ 7,595 12,891 23,764
-------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................................... $ 12,990 $ 7,595 $ 12,891
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 1 -- THE COMPANY
Technology Solutions Company and subsidiaries ("TSC" or the "Company") delivers
business benefits through consulting and systems integration services that help
clients transform customer relationships and improve operations. The Company's
clients generally are located throughout the United States. During the current
fiscal year the Company opened an office and began project work in Mexico. In
addition, the Company opened an office in London, England.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is presented to assist the reader
in understanding and evaluating TSC's consolidated financial statements. These
policies are in conformity with generally accepted accounting principles
consistently applied in all material respects.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of TSC and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION -- The Company recognizes revenue on contracts as work is
performed primarily based on hourly billing rates. Out-of-pocket expenses are
presented net of amounts billed to clients in the accompanying statements of
income. Substantially all of the Company's revenues are generated from contracts
for consulting services. These contracts are performed in phases. Reserves for
possible losses on contracts, if any, are recognized in full when determined.
Revenue from licensing of software is recognized upon delivery of the product.
The Company does not presently have any significant maintenance contracts for
software licensed to clients. Revenue from hardware sales is recognized upon
delivery.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid investments
readily convertible into cash to be cash equivalents with original maturities of
three months or less. These short-term investments are carried at cost plus
accrued interest, which approximates market.
MARKETABLE SECURITIES -- The Company's marketable securities primarily consist
of preferred stocks. These preferred stocks, all of which are classified as
available-for-sale, are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a net after-tax amount in a separate
component of stockholders' equity until realized. The Company's investments
related to the executive deferred compensation plan (See Note 9) are
- --------------------------------------------------------------------------------
Page 7
<PAGE>
classified as trading securities, with unrealized gains and losses included in
net investment income. Realized gains or losses are determined on the specific
identification method.
COMPUTERS, FURNITURE AND EQUIPMENT -- Computers, furniture and equipment are
stated at cost, less accumulated depreciation. The cost of computers includes
hardware and software used for management and administrative purposes.
Additions, improvements, and major renewals are capitalized. Maintenance and
repairs are expensed as incurred. Depreciation is generally provided over five
years or less, using the straight-line method.
LONG-TERM INVESTMENTS -- The Company's long-term investments consist of
municipal bonds with maturities primarily through 1998. Since the Company has
the ability and intent to hold the bonds to maturity, the investments are
classified as held -to- maturity and, accordingly, are accounted for at cost,
net of accumulated amortization. Municipal bonds held by the Company are
regarded as investment grade by independent nationally recognized rating
agencies.
CAPITALIZED LEASE OBLIGATIONS -- Capitalized lease obligations are primarily
related to certain portable computers which are leased under terms of up to
three years.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- The Financial Accounting Standards
Board has issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
becomes effective in 1996. This Statement establishes an alternative to the
Company's current method of accounting for compensation associated with stock
issued to employees. The Company does not intend to adopt the alternative method
established by SFAS No. 123 and will make the required footnote disclosures in
the financial statements for fiscal 1997.
INCOME TAXES -- The Company files its federal and state income tax returns on a
calendar year basis. The current income tax provision (benefit) represents the
Company's federal and state and foreign income taxes for the fiscal year as
though tax returns were filed on a fiscal year basis ending on May 31.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The Company has adopted for all years presented Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
provides for income taxes to be measured on an asset and liability approach.
EMPLOYEE BENEFIT PLAN -- The Company has a Section 401(k) Savings Plan (the
Plan). The Plan allows employees to contribute up to 15 percent of their annual
compensation, subject to statutory limitations. Company contributions to the
Plan are discretionary. No Company contributions have been made to the Plan.
SOFTWARE DEVELOPMENT COSTS -- The Company capitalizes certain software
development costs once technological feasibility is established in accordance
with Statement of Financial Accounting Standards No. 86--"Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES -- The excess of cost over
the fair market value of the net identifiable assets of businesses acquired in
May 1996 will be amortized on a straight-line basis, typically over a five-year
period.
- --------------------------------------------------------------------------------
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<PAGE>
EARNINGS PER COMMON SHARE -- Earnings per common share are computed by dividing
net income per the modified treasury stock method by the weighted average number
of common shares outstanding during each year presented, including common share
equivalents arising from the assumed exercise of stock options, where
appropriate. All share and per share amounts have been adjusted to reflect the
Company's three-for-two stock split effective July 30, 1996.
RECLASSIFICATIONS -- Certain reclassifications have been made to the prior
period to conform to the current period classification.
NOTE 3 -- ACQUISITIONS
In May 1996, the Company acquired Aspen Consultancy, a U.K.-based call center
consulting firm. Aspen Consultancy became a wholly-owned subsidiary of the
Company. The acquisition has been accounted for under the purchase method of
accounting. The purchase price was approximately $1,600 and could be increased
by approximately $2,400 if certain performance targets are met over the next
three years. Results for the period from acquisition through May 31, 1996 were
not material to the consolidated statements of income of Technology Solutions
Company. The excess of cost over fair value of net assets acquired approximated
$1,600.
In May 1996, the Company acquired McLaughlin & Associates, an Illinois based
consulting firm. McLaughlin & Associates became a division of Technology
Solutions Company. The purchase price approximated $2,000. The acquisition has
been accounted for under the purchase method of accounting. The excess of cost
over fair value of net assets acquired approximated $1,500.
Consolidated proforma net income and earnings per share, for both acquisitions,
would not have been materially different from the Company's reported amounts for
fiscal 1996.
NOTE 4 -- RECEIVABLES
<TABLE>
<CAPTION>
Receivables consist of the following:
May 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Amounts billed to clients............ $16,260 $10,687
Contracts in process................. 9,147 4,860
------- -------
25,407 15,547
Receivable valuation allowances and
reserves for possible losses....... (1,870) (1,837)
------- -------
$23,537 $13,710
======= =======
</TABLE>
Contracts in process represent unbilled professional fees and unreimbursed
project costs such as out-of-pocket expense, materials and subcontractor costs.
None of the amounts above are expected to be collected in excess of one year
from the balance sheet date. Amounts billed to clients are unsecured and
generally due within 30 days. Clients are generally billed in arrears on a
monthly basis. Contracts in process at May 31, 1996, include $8,084 for work
performed during May 1996 that was not billed until June 1996.
- --------------------------------------------------------------------------------
Page 9
<PAGE>
NOTE 5 -- MARKETABLE SECURITIES AND LONG-TERM INVESTMENTS
Marketable securities, included in current assets and classified as available-
for-sale, are reported at fair value. At May 31, 1996 and 1995, the gross
unrealized holding gain of $10 and $4 and gross unrealized holding loss of $994
and $1,313, respectively, are presented net and after-taxes in a separate
component of stockholders' equity.
Municipal bonds included in long-term investments are presented at cost, net of
accumulated amortization at May 31, 1996 and 1995 of $764 and $811,
respectively, and had a market value at May 31, 1996 and 1995 of $17,267 and
$21,493, respectively. The long term investments as of May 31, 1996 are expected
to mature as follows: $8,830 in fiscal 1997; $6,890 in fiscal 1998; and $1,200
in fiscal 1999.
NOTE 6 -- COMPUTERS, FURNITURE AND EQUIPMENT
Computers, furniture and equipment consist of the following:
<TABLE>
<CAPTION>
May 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Computers.......................................................................................... $ 8,802 $ 6,204
Furniture and equipment............................................................................ 2,134 1,507
------- -------
10,936 7,711
Accumulated depreciation........................................................................... (6,493) (4,628)
------- -------
$ 4,443 $ 3,083
======= =======
</TABLE>
Depreciation expense was $2,239, $1,705 and $1,327 for the years ended May 31,
1996, 1995 and 1994, respectively.
NOTE 7 -- INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
For the year ended May 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................................................................ $ 1,054 $(1,104) $ 1,303
State.............................................................................................. 473 (508) 114
Foreign............................................................................................ 220 -- --
Deferred:
Federal............................................................................................ 310 2,017 (2,081)
State.............................................................................................. 137 928 (182)
------- ------- -------
$ 2,194 $ 1,333 $ (846)
======= ======= =======
</TABLE>
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<PAGE>
Total income tax provision (benefit) differs from the amount computed by
applying the federal income tax rate of 34 percent to income before income taxes
for the following reasons:
<TABLE>
<CAPTION>
For the year ended May 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income taxes, at statutory rate.... $2,301 $ 1,598 $ (276)
State income taxes, net of federal benefit. 328 248 (45)
Foreign income taxes, net of
federal benefit........................... 33 -- --
Nontaxable investment income............... (468) (509) (598)
Other...................................... -- (4) 73
------ ------- -------
$2,194 $ 1,333 $ (846)
====== ======= =======
The tax effect of the principal temporary
differences are as follows:
For the year ended May 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred compensation and bonuses.......... $ (568) $ 111 $ (442)
Stock options exercised.................... 4 1 231
Receivable valuation allowances and
reserves for possible losses.............. (21) 112 (261)
Depreciation............................... (147) (95) (188)
Legal and other accruals................... 188 2,307 (1,687)
Prepaid expenses........................... 724 509 84
Capitalized software development costs..... 323 -- --
Other...................................... (56) -- --
------ ------ -------
$ 447 $2,945 $(2,263)
====== ====== =======
The net deferred tax asset is comprised of:
May 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Deferred compensation and bonuses.......... $1,008 $ 440
1990 stock options awarded................. 15 19
Receivable valuation allowances and
reserves for possible losses.............. 597 576
Depreciation............................... 394 246
Legal and other accruals................... 814 1,002
Prepaid expenses........................... (1,372) (648)
Capitalized software development costs..... (323) --
Other...................................... (282) (337)
------ ------
851 1,298
Unrealized holding loss.................... 343 459
------ ------
$1,194 $1,757
====== ======
</TABLE>
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<PAGE>
NOTE 8 -- LINE OF CREDIT
The Company has available a $5.0 million unsecured line of credit which expires
in September 1996. The borrowing rate is at either the bank's reference rate or
at the Eurodollar rate plus 0.75 percent and is based upon the amount borrowed.
The unused line fee is 0.25 percent of the unused portion of the commitment.
There was no borrowing under the line of credit during fiscal 1996.
NOTE 9 -- EXECUTIVE DEFERRED COMPENSATION PLAN
Effective July 1, 1995, the Company instituted a nonqualified executive deferred
compensation plan. All Company executives (defined as Vice Presidents and above)
are eligible to participate in this voluntary program which permits participants
to annually elect to defer receipt of a portion of their compensation. The plan
allows participants to reduce their current taxable income and also generate
tax-deferred investment earnings. Investment earnings (or losses) are credited
to participants' accounts based on investment allocation decisions determined by
participants. Deferred contributions and investment earnings are payable to
participants upon various specified events, including retirement, disability or
termination. The accompanying balance sheet includes the deferred compensation
liability, including investment earnings thereon, owed to participants. The
accompanying balance sheet also includes the investments, classified as trading
securities, purchased by the Company with the deferred funds. These investments
remain assets of the Company and are available to the general creditors of the
Company in the event of the Company's insolvency.
NOTE 10 -- EMPLOYEE STOCK PURCHASE PLAN
Effective November 1, 1995 the Company instituted the Technology Solutions
Company 1995 Employee Stock Purchase Plan ("The Plan"). The Plan qualifies as an
"employee stock purchase plan" under section 423 of the Internal Revenue Code of
1986, as amended. The Plan is administered by the Compensation Committee of the
Board of Directors. The Plan permits eligible employees to purchase an aggregate
of 750,000 shares of TSC Common Stock. Shares are purchased for the benefit of
the participants at the end of each three month purchase period. The first
purchase period of the Plan began on November 1, 1995 and ended on January 31,
1996. During the fiscal year ended May 31, 1996, 39,046 shares of common stock
were purchased under this plan.
NOTE 11 -- STOCKHOLDERS' EQUITY
During fiscal 1996, the Company acquired 67,055 treasury shares at a cost of
$1,072. During fiscal 1995, the Company repurchased 1,350,000 shares of its
common stock at a cost of $5,338. At May 31, 1996, after the fiscal 1996
issuance of 1,598,609 treasury shares as a result of the exercise of stock
options, and 39,046 treasury shares from the Employee Stock Purchase Plan, the
Company had 3,014,045 shares of Treasury stock carried at $15,835. Also, at May
31, 1996, the Company had authority to purchase an additional 1,282,945 shares
under the Company's stock repurchase program.
- --------------------------------------------------------------------------------
Page 12
<PAGE>
On June 19, 1996, the Board of Directors declared a three-for-two common stock
split (to be effected as a stock dividend) for stockholders of record at July 1,
1996, to be effective July 30, 1996. The financial statements and relevant share
and per share data included herein have been adjusted to reflect the stock
split.
NOTE 12 -- STOCK OPTIONS
The Company's Original Option Plan ("1989 Plan") authorized the grant of
nonqualified employee stock options at prices not less than the fair market
value at the date of grant. A maximum of 6,693,338 shares of common stock may be
issued under the 1989 Plan. Options granted under this plan expire no more than
20 years from date of grant.
The Company's 1992 Stock Incentive Plan ("1992 Plan") authorized the grant of a
variety of stock options and other awards, if authorized by the Company's Board
of Directors, at prices not less than the fair market value at the date of
grant. A maximum of 4,852,500 shares of common stock may be issued under the
1992 Plan. Options granted under this plan expire no more than 20 years from
date of grant.
Options granted under these two plans are generally exercisable beginning one
year after date of grant and are fully exercisable in three to four years from
date of grant. Options available for grant are 1,872,290 and 2,917,145 as of May
31, 1996 and 1995, respectively.
Following is a summary of employee stock option activity:
<TABLE>
<CAPTION>
Number of Shares Price Range
Under Option Per Share
----------------- --------------
<S> <C> <C>
Outstanding at May 31, 1993..... 5,306,258 $0.28 to 8.00
Awarded....................... 2,073,891 4.33 to 6.00
Exercised..................... (527,526) 0.28 to 5.33
Canceled...................... (1,682,541) 5.33 to 7.00
----------
Outstanding at May 31, 1994..... 5,170,082 0.28 to 8.00
Awarded....................... 1,369,275 3.79 to 5.96
Exercised..................... (41,076) 0.28 to 5.33
Canceled...................... (1,467,767) 3.79 to 6.00
----------
Outstanding at May 31, 1995..... 5,030,514 0.28 to 8.00
Awarded....................... 1,230,675 6.33 to 23.58
Exercised..................... (1,580,609) 0.74 to 8.00
Canceled...................... (185,820) 3.79 to 6.42
----------
Outstanding at May 31, 1996..... 4,494,760 0.28 to 23.58
==========
Exercisable at May 31, 1996.. 2,047,340 0.28 to 23.58
==========
</TABLE>
- --------------------------------------------------------------------------------
Page 13
<PAGE>
On December 16, 1993, the Company's stockholders approved the 1993 Outside
Directors Stock Option Plan, as amended (the "Outside Directors Plan"), which
provides for the granting of options to purchase 324,000 shares of common stock
at the fair market value at the date of grant. Options granted under this plan
are fully exercisable in three years from the date of grant. Options available
for grant are 156,000 and 228,000 at May 31, 1996 and 1995, respectively.
Following is a summary of the Outside Directors Plan activity:
<TABLE>
<CAPTION>
Number of Shares Price Range
Under Option Per Share
---------------- -------------
<S> <C> <C>
Outstanding at May 31, 1993..... 108,000 $9.75
Canceled...................... (12,000) 9.75
-------
Outstanding at May 31, 1994..... 96,000 9.75
No activity................... -- --
-------
Outstanding at May 31, 1995..... 96,000 9.75
Awarded....................... 72,000 13.00
Exercised..................... (18,000) 9.75
-------
Outstanding at May 31, 1996..... 150,000 9.75 to 13.00
=======
Exercisable at May 31, 1996..... 87,996 9.75 to 13.00
=======
</TABLE>
NOTE 13 -- MAJOR CLIENTS
Revenues from clients that individually accounted for 10 percent or more of
revenues collectively, represented in the aggregate approximately 21 percent, 43
percent and 43 percent of revenues for the years ended May 31, 1996, 1995 and
1994, respectively.
In fiscal 1996 one client accounted for 21 percent of revenues. In fiscal 1995,
two clients accounted for 24 percent and 18 percent of revenues, respectively.
In fiscal 1994, three clients accounted for 16 percent, 16 percent, and 11
percent of revenues, respectively.
NOTE 14 -- LEASES
Operating leases
The Company leases various office facilities under operating leases expiring at
various dates through July 31, 2004. Additionally, the Company leases various
apartments and office equipment under operating leases expiring at various dates
through December 1996. Rental expense for all operating leases approximated
$1,442, $948, and $870 for the years ended May 31, 1996, 1995, and 1994,
respectively.
- --------------------------------------------------------------------------------
Page 14
<PAGE>
Future minimum rental commitments under noncancelable operating leases with
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1997............ $1,011
1998............ 934
1999............ 874
2000............ 870
2001............ 753
Thereafter...... 1,368
------
$5,810
======
</TABLE>
Capital Leases
The Company leases certain portable computers and other equipment under lease
terms of three years or less. The related assets, which are included in
computers, furniture, and equipment, are recorded as follows:
<TABLE>
<CAPTION>
May 31,
-----------------
1996 1995
-------- -------
<S> <C> <C>
Gross portable computers............. $ 3,765 $1,942
Other capitalized equipment.......... 102 --
Accumulated depreciation............. (1,635) (489)
------- ------
$ 2,232 $1,453
======= ======
</TABLE>
The future minimum payments under these capital leases are approximately $1,600
and $700 for fiscal years 1997 and 1998, respectively. The entire lease
obligation related to these capital leases is classified in current liabilities.
Amortization of approximately $1,100, $400 and $50 in fiscal years 1996, 1995
and 1994, respectively, related to these capital leases is included in
depreciation expense.
NOTE 15 -- CONTINGENCIES
During July 1992, the Company and certain officers and directors of the Company
were served with putative class action lawsuits which were subsequently
consolidated into one complaint alleging, among other things, a violation of
Rule 10b-5 of the Securities and Exchange Act arising out of the Company's
write-offs and increases in reserves for certain receivables in the fourth
quarter of fiscal 1992. On June 2, 1995, the Company entered into an agreement
to settle the litigation on a class-wide basis. The agreement was approved by
U.S. District Judge Blanche Manning on November 15, 1995.
In September 1993, then Company director and vice-chairman Melvyn E. Bergstein
filed a complaint in the Circuit Court of Cook County, Chancery Division,
alleging, among other things, he was wrongfully terminated as an employee. As a
result of this alleged wrongful termination, Mr. Bergstein claimed that
restrictive covenants in his employment agreement were invalid, and that he had
incurred damages as a result of the alleged wrongful termination. On March 12,
1996 the Company and the individual defendants entered into a settlement
agreement with Messers.
- --------------------------------------------------------------------------------
Page 15
<PAGE>
Bergstein, Moffitt, and Mikolajczyk. In accordance with the settlement
agreement, all claims, counterclaims and third party claims were dismissed with
prejudice on March 14, 1996.
The Company is party to various claims and legal actions which have not been
finally adjudicated. In the opinion of management, based on the advice of legal
counsel, all such matters are without merit or are of such kind that the
prospect of dispositions having a material adverse effect upon the financial
condition of the Company are remote.
<TABLE>
<CAPTION>
NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION
For the year ended May 31,
---------------------------
1996 1995 1994
------ ---------- -------
<S> <C> <C> <C>
Cash paid (received) during the year for
income taxes (refunds)................................ $ 545 $(2,172) $2,294
Schedule of noncash investing and financing activities:
Settlement of loan to former Company executives
with Company common stock........................ $ -- $ -- $5,000
</TABLE>
On December 1, 1993, the Company made a loan of $5,000 to former executives
pursuant to a loan agreement executed in conjunction with their consulting and
separation agreements with the Company. This loan was secured by shares of TSC
stock which were later surrendered to the Company in settlement of the loan.
- --------------------------------------------------------------------------------
Page 16
<PAGE>
<TABLE>
<CAPTION>
NOTE 17 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
August 31, November 30, February 29, May 31,
Quarter Ended 1995 1995/(B)/ 1996/(C)/ 1996
- -------------------------------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Revenues $20,732 $23,300 $25,466 $28,101
Operating income (loss) 1,241 (560) 552 3,631
Net income 1,155 43 768 2,608
Earnings per share/(A)/ $ 0.08 $ 0.01 $ 0.05 $ 0.16
August 31, November 30, February 28, May 31,
Quarter Ended 1994 1994 1995/(D)/ 1995
- -------------------------------- ---------- ------------ ------------ -------
Revenues $13,436 $15,557 $17,215 $19,609
Operating income (loss) 576 1,128 (362) 1,428
Net income 746 1,107 202 1,312
Earnings per share/(A)/ $ 0.05 $ 0.08 $ 0.02 $ 0.09
August 31, November 30, February 28, May 31,
Quarter Ended 1993 1993 1994 1994 /(E)/
- -------------------------------- ---------- ------------ ------------ ----------
Revenues $13,763 $14,405 $11,861 $13,128
Operating income (loss) 2,187 435 876 (6,640)
Net income (loss) 1,777 841 944 (3,527)
Earnings (loss) per share/(A)/ $ 0.10 $ 0.05 $ 0.06 $ (0.23)
</TABLE>
- ---------------------------------
/(A)/ All earnings per share data have been restated to reflect the three-for-
two stock split that was effective on July 30, 1996.
/(B)/ Includes a charge of $2.3 million related to shareholder litigation
settlement.
/(C)/ Includes a charge of $0.9 million related to Company founders litigation
settlement.
/(D)/ Includes a charge of $1.6 million related to agreements with former
company executives.
/(E)/ Includes a charge of $6.6 million which consists of $3.2 million in
estimated future litigation costs, $1.4 million in separation costs of
former executives, $1.1 million in estimated project completion costs, and
$0.9 million in other costs.
- --------------------------------------------------------------------------------
Page 17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Technology Solutions Company
In our opinion, the accompanying consolidated financial statements appearing
on pages 3 to 17 of the 1996 Financial Report present fairly, in all material
respects, the financial position of Technology Solutions Company and its
subsidiaries (referred to as TSC or the Company in the accompanying consolidated
financial statements) at May 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
June 26, 1996
Chicago, Illinois
- --------------------------------------------------------------------------------
Page 18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1996 COMPARED WITH FISCAL 1995
Consolidated revenues for the Company, substantially all of which represent
professional fees, for the year ended May 31, 1996, were $97.6 million compared
with $65.8 million in fiscal 1995. The principal source of the increase was a 42
percent increase in billable hours, as well as a 2 percent increase in average
hourly billing rates. The increase in billable hours is attributable to the high
growth in the overall information technology professional services market
combined with the Company's fiscal 1996 increase in consulting staff and
marketing efforts. The increase in average hourly billing rates is primarily due
to the impact of fiscal 1996 hiring and the resulting change in the mix of
personnel to include a greater percentage of more senior personnel.
During fiscal 1996 total Company headcount increased 47 percent from 423 at May
31, 1995, to 622 at May 31, 1996. The total number of project managers at May
31, 1996 was 72 compared to 38 at May 31, 1995.
Project personnel costs (primarily professional salaries and benefits) increased
to $46.7 million in fiscal 1996 from $29.2 million in fiscal 1995. Project
personnel costs as a percentage of professional fees were approximately 48
percent and 44 percent in fiscal 1996 and fiscal 1995, respectively. Unassigned
labor costs increased during fiscal 1996 primarily due to the aggressive
recruitment and training programs combined with the timing of the assignment of
new staff to client engagements. The Company increases its personnel resources
in advance of commencing billable project work resulting in a time lag between
incurrence of personnel costs and revenue generated by these personnel.
TSC charges most of its project expenses directly to the client. Other project
expenses consist of nonbillable expenses directly incurred for client projects
and business development efforts including recruiting fees, personnel training,
travel, and provisions for valuation allowances and reserves for potential
losses on continuing projects. Other project expenses for fiscal 1996 were $13.0
million, as compared to $9.0 million for fiscal 1995. This increase is primarily
related to an increase in hiring, training and related expenses of $1.7 million
and an increase in non-billable travel expenses of $3.3 million in fiscal 1996
as compared to fiscal 1995. The increase in nonbillable travel expenses is
primarily due to travel expenses associated with increased headcount and
business development travel, as well as travel related to training activities in
fiscal 1996 as compared to fiscal 1995.
Management and administrative support costs increased to $22.6 million in fiscal
1996 from $18.5 million in fiscal 1995. The increase of $4.1 million in fiscal
1996 as compared to fiscal 1995 is primarily related to increased regional
practice area management costs (salaries, travel and hiring costs) of $2.1
million and increased marketing costs of $1.4 million. During fiscal 1995, the
Company established three new practice areas, enhanced its marketing
capabilities and has, in fiscal 1996, added several new regional practice area
management Vice Presidents. In addition, charges for legal expenses increased
$1.5 million in fiscal 1996 as compared to fiscal 1995. Also included in fiscal
1996 costs is $0.9 million in management and administrative costs from the
Company's new Mexican subsidiary. Expense accrued for the employee retention
program was
- --------------------------------------------------------------------------------
Page 19
<PAGE>
$2.9 million and $4.4 million for fiscal 1996 and 1995, respectively. The 1996
amount represents the final charge related to the retention program. The final
annual payment for the retention program was made in March 1996.
Fiscal 1996 results reflect one-time pre-tax charges for the final settlements
relating to outstanding securities litigation and litigation involving Company
founders of $2.3 million and $0.9 million, respectively. The securities
litigation settlement called for a final payment of $4.6 million, of which $2.3
million was covered by insurance and the remaining $2.3 million was charged to
fiscal 1996 operations upon receipts of final approval of the settlements.
During fiscal 1995 the Company entered into agreements with former company
executives resulting in a fiscal 1995 pretax charge of $1.6 million ($0.9
million after tax). The $1.6 million represented the settlement of a commission
arrangement, certain other issues and the surrender of options to acquire
1,207,500 shares of company stock.
Incentive compensation of $6.6 million was accrued for fiscal 1996 as compared
to $4.7 million in fiscal 1995. The increase is largely due to the increased
number of project managers and consultant staff in fiscal 1996 as compared to
fiscal 1995.
The Company's business is subject to certain variability due to the availability
of consulting staff, timing of client decisions and duration of project
consulting engagements. This variability can have a significant impact on
quarterly operating income on a period-to-period basis.
Investment income for fiscal 1996 and fiscal 1995 was $1.9 million.
The Company's effective tax rate differs from the statutory rate primarily due
to the significant amount of federally nontaxable investment income.
FISCAL 1995 COMPARED WITH FISCAL 1994
Revenues for the year ended May 31, 1995, were $65.8 million compared with $53.2
million in fiscal 1994. The principal source of the increase was a 27 percent
increase in billable hours, partially offset by a 2 percent decrease in average
hourly billing rates. This slight decrease in average hourly billing rates is
primarily due to the impact of fiscal 1995 hiring and the resulting change in
the mix of personnel to include a slightly greater percentage of less senior
personnel.
During fiscal 1995 total Company headcount increased 54 percent from 274 at
May 31, 1994, to 423 at May 31, 1995. The total number of project managers at
May 31, 1995, was 38 compared to 30 at May 31, 1994.
Project personnel costs increased to $29.2 million in fiscal 1995 from $24.5
million in fiscal 1994. Included in fiscal 1994 project personnel costs were
$0.9 million related to costs to complete a client project with no additional
revenue expected. Excluding the $0.9 million charge in fiscal 1994, project
personnel costs as a percentage of professional fees were approximately 44
percent and 45 percent in fiscal 1995 and 1994, respectively.
- --------------------------------------------------------------------------------
Page 20
<PAGE>
Other project expenses for fiscal 1995 were $9.0 million, as compared to $5.1
million for fiscal 1994. Contributing to this increase was a charge of $2.1
million in fiscal 1995 as compared to $1.1 million in fiscal 1994 for receivable
valuation allowances and reserves for potential losses on continuing projects.
In addition, hiring, training and related costs increased $1.7 million and
nonbillable travel costs increased $0.7 million in fiscal 1995 as compared to
fiscal 1994, reflecting the increased headcount in fiscal 1995.
Management and administrative support costs decreased to $18.5 million in fiscal
1995 from $22.3 million in fiscal 1994. In fiscal 1994 management and
administrative costs included additional reserves for estimated legal defense
expenses ($3.2 million), expenses incurred for the separation of former
executives ($3.1 million), estimated project completion costs ($1.1 million),
and other adjustments ($0.9 million). In addition, fiscal 1994 charges include
$1.3 million in expense accrued for the employee retention program that was
instituted during the fourth quarter of fiscal 1994. In fiscal 1995 management
and administrative costs include a full year charge of $4.4 million in expense
accrued for the employee retention program. In addition, management and
administrative labor increased $0.6 million in fiscal 1995 as compared to fiscal
1994, principally due to increased staffing.
During fiscal 1995 the Company entered into agreements with former company
executives resulting in a fiscal 1995 pretax charge of $1.6 ($0.9 million after
tax). The $1.6 million represented the settlement of a commission arrangement,
certain other issues and the surrender of 1,207,500 options to acquire company
stock.
Incentive compensation of $4.7 million was accrued for fiscal 1995 as compared
to $3.7 million in fiscal 1994. The increase is largely due to the increased
number of project managers and consultant staff in fiscal 1995 as compared to
fiscal 1994.
Investment income for fiscal 1995 of $1.9 million decreased from $2.3 million in
fiscal 1994, primarily due to lower cash and cash equivalent balances in fiscal
1995.
The Company's effective tax rate differs from the statutory rate primarily due
to the significant amount of federally nontaxable investment income.
The common equivalent shares increased during fiscal 1995 by approximately
587,810 shares. Of this increase, approximately 2,607,101 shares was
attributable to shares issuable upon the exercise of options, which shares were
antidilutive in fiscal 1994 and therefore were excluded from total common and
common equivalent shares outstanding for that year. Including such options,
common and common equivalent shares decreased from 18,131,762 in fiscal 1994
to 16,112,471 in fiscal 1995, due to treasury stock purchases and terminated
employee stock option forfeitures and surrenders partially offset by stock
options granted.
LIQUIDITY AND CAPITAL RESOURCES
The increase in cash and investments from May 31, 1995 is primarily due to $13.4
million provided by financing activities and $2.7 million from the executive
deferred compensation program (see Note 9 -- Executive Deferred Compensation
Plan), partially offset by $5.0 million
- --------------------------------------------------------------------------------
Page 21
<PAGE>
used in operating activities, $3.1 million used in the acquisition of net assets
and other intangibles from the purchase of two businesses and $3.7 million used
for capital expenditures. The $13.4 million from financing activities is largely
attributable to the exercise of options with respect to 1.6 million shares of
the Company's common stock during the fiscal year.
The Company used a net of $5.0 million in cash for operations primarily due to
increased sales in the fourth quarter of fiscal 1996 as compared to fiscal 1995
and the resulting increase in receivables. Cash generated by operations has
still been substantial and more than adequate for the Company's cash needs. In
addition, the Company's significant amount of cash, cash equivalents and
marketable securities has provided ample liquidity to handle the Company's
operating cash requirements during temporary shortfalls in cash from timing
issues. At the end of fiscal 1996 the Company had no material commitments for
capital expenditures.
TSC's net working capital increased to $41.2 million on May 31, 1996, from $24.3
million on May 31, 1995. This increase is primarily due to increased receivables
of $9.8 million and increased cash and cash equivalents of $5.4 million.
Net receivables were $23.5 million and $13.7 million at May 31, 1996 and 1995,
respectively. The increase in receivables is primarily the result of the
increase in revenues. Receivables are net of $1.9 million and $1.8 million in
allowance for doubtful receivables at May 31, 1996 and 1995, respectively.
It is currently anticipated that cash and marketable securities will be used
for general corporate purposes, including capital expenditures, treasury stock
purchases and expansion of TSC's business as opportunities arise, including the
possibility of additional acquisitions. TSC has no specific plans with respect
to additional acquisitions and none have been identified, but TSC might consider
additional acquisition prospects if they were attractive to TSC and
complementary to its existing business. There can be no assurance, however,
that TSC will successfully identify, complete, or integrate any additional
acquisitions.
The Company's unused source of liquidity at the end of fiscal 1996 consisted of
a $5.0 million unsecured revolving credit facility (the "Facility"), with Bank
of America Illinois, which expires on September 6, 1996. At the Company's
election, loans made under the Facility bear interest at either the Bank of
America Illinois reference rate or at the Eurodollar rate plus 0.75 percent. The
Facility requires, among other things, the Company to maintain certain financial
ratios. At May 31, 1996, the Company was in compliance with these financial
ratio requirements. As of May 31, 1996, no borrowings were made under the
Facility. The Company intends to renew the Facility upon its expiration.
All share and per share data have been adjusted to reflect the effect of the
Company's three-for-two stock split effective July 30, 1996.
- --------------------------------------------------------------------------------
Page 22
<PAGE>
ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY
AFFECT FUTURE RESULTS
In the next few years, the Company expects growth in both revenues and profits
to continue at rates higher than the estimated industry growth rate of 16-20
percent (source: Dataquest), although not at the exceptional rates posted in
fiscal 1996. This lower growth rate should enable the Company to improve its
profit margins which have not been at targeted levels during the last two years
due to the impact of the employee retention program instituted in the third
quarter of fiscal 1994, the significant increase in sales and marketing expenses
and the impact of recruiting and assimilating into the organization the large
number of people hired in the last two years.
The Company faces a number of risks in continuing to expand, even at growth
rates lower than the 48 percent experienced in fiscal 1996. The major risks
are those of staffing and the delivery of a quality product that meets client
specification. TSC has a reputation for delivering its consulting assignments
on time and in accordance with the contracted specifications. TSC's projects
provide significant business benefits to the client. In order to meet its client
commitments, the Company must be able to recruit the consulting and project
management personnel required. Each year, it must also be able to train and
assimilate the large number of people that are required to support this growth
rate. Additionally, there must be a continuing stream of new projects so that
staff completing a given client assignment can be reassigned to new projects.
Additionally, the recruiting and staff assignment process must be geographically
focused.
Because of the project based nature of the Company's work and the fact that many
of the projects undertaken by the Company are large projects, there is the risk
of a material impact on operating results because of the unanticipated
suspension or cancellation of a large project. The suspension or cancellation
of a project could result in a drop in revenues, the need to reassign staff, a
potential dispute with a client regarding monies owed for consulting work and
expenses, and a lessening of TSC's reputation. TSC operates in a rapidly
changing and highly competitive market. Additional risks not discussed herein
may emerge from time to time. The Company cannot predict such risks or assess
the impact, if any, such risks may have on its business. Consequently, the
Company's various forward-looking statements, made, or to be made, should not
be relied upon as a prediction of actual results.
- --------------------------------------------------------------------------------
Page 23
<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR FINANCIAL SUMMARY
Year Ended May 31 1996 1995 1994 1993 1992
(In thousands, except share and per share data)
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Professional fees $ 97,004 $ 65,704 $ 52,521 $ 62,030 $ 68,464
Software and hardware products 595 113 636 445 2,523
----------- ----------- ----------- ----------- -----------
97,599 65,817 53,157 62,475 70,987
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Project personnel 46,744 29,204 24,509 26,071 28,586
Other project expenses 13,010 8,991 5,137 6,083 8,603
Cost of products sold 476 110 618 557 667
Nonrecurring manufacturing practice costs -- -- -- 9,222 2,640
Nonrecurring other costs -- -- -- 805 --
Management and administrative support 22,605 18,501 22,297 11,761 9,543
Shareholder litigation settlement 2,345 -- -- -- --
Company founders litigation settlement 944 -- -- -- --
Former company executive settlements -- 1,590 -- -- --
Incentive compensation 6,611 4,651 3,738 969 2,321
----------- ----------- ----------- ----------- -----------
92,735 63,047 56,299 55,468 52,360
----------- ----------- ----------- ----------- -----------
Operating income (loss) 4,864 2,770 (3,142) 7,007 18,627
----------- ----------- ----------- ----------- -----------
Investment income 1,904 1,930 2,331 1,958 1,277
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 6,768 4,700 (811) 8,965 19,904
Income tax provision (benefit) 2,194 1,333 (846) 3,259 7,845
----------- ----------- ----------- ----------- -----------
Net income $ 4,574 $ 3,367 $ 35 $ 5,706 $ 12,059
=========== =========== =========== =========== ===========
Earnings per common share* $0.30 $0.24 $0.00 $0.31 $0.67
=========== =========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding 16,142,027 16,112,471 15,524,661 19,267,083 18,151,034
=========== =========== =========== =========== ===========
FINANCIAL POSITION
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 89,437 $ 65,222 $ 69,340 $ 76,048 $ 75,570
Fixed assets, net 4,443 3,083 2,687 3,001 3,922
Working capital 41,176 24,349 26,598 41,603 64,035
Non-current liabilities -- -- -- -- --
Stockholders' equity 70,029 51,726 54,100 68,049 68,172
- ------------------
* All share and per share data have been restated to reflect the three-for-two stock split that was effective on July 30, 1996.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 24
<PAGE>
SELECTED INFORMATION ON TSC STOCK
The Company's Common Stock is listed on The Nasdaq Stock Market(SM) under the
symbol "TSCC." As of August 9, 1996, there were approximately 307 holders of
record of the Company's Common Stock. The number of holders of Common Stock does
not include beneficial owners of Common Stock whose shares are held in the name
of banks, brokers, nominees or other fiduciaries.
The following table sets forth the range of high and low trade prices on The
Nasdaq Stock Market(SM) for the Company's Common Stock for each quarter in
fiscal 1995 and fiscal 1996.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ------- -------
<S> <C> <C>
August 31, 1994 $ 4.917 $ 3.167
November 30, 1994 $ 5.583 $ 4.083
February 28, 1995 $ 6.333 $ 4.833
May 31, 1995 $ 6.833 $ 5.667
August 31, 1995 $11.250 $ 6.083
November 30, 1995 $12.583 $ 9.833
February 29, 1996 $16.250 $10.917
May 31, 1996 $24.000 $15.333
</TABLE>
On August 9, 1996, the last reported sale price on The Nasdaq Stock Market(SM)
for the Company's Common Stock was $26.750.
The market price of TSC's Common Stock has been, and may continue to be,
extremely volatile. Factors, such as significant announcements by TSC and its
competitors, quarterly fluctuations in TSC's operating results and general
conditions in TSC's and its clients' markets may have a significant impact on
the market price of TSC's Common Stock. Since inception, TSC has experienced
significant fluctuations in quarterly operating results. In addition, in recent
years the stock markets have experienced extreme price and volume fluctuations.
These fluctuations have had a substantial effect on the market prices for many
high technology companies, often unrelated to the operating performance of the
specific companies.
The Company has never paid dividends on its Common Stock and currently intends
to retain all earnings, if any, for use in the expansion of its business and
other corporate purposes. Therefore, the Company does not anticipate paying any
dividends on its Common Stock in the foreseeable future. The declaration and
payment of dividends by the Company are subject to the discretion of the Board
of Directors. Any determination as to the payment of dividends in the future
will depend upon results of operations, capital requirements, restrictions in
loan agreements, if any, and such other factors as the Board of Directors may
deem relevant at the time.
All per share data have been adjusted to reflect the effect of the Company's
three-for-two stock split effective July 30, 1996.
- --------------------------------------------------------------------------------
Page 25
<PAGE>
OTHER INFORMATION
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services
East Hartford, CT
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Chicago, IL
STOCKHOLDER AND 10-K INFORMATION
Financial inquiries should be directed to Martin T. Johnson, Senior Vice
President and Chief Financial Officer, Technology Solutions Company, 205 North
Michigan Avenue, Suite 1500, Chicago, Illinois 60601. Telephone (312) 228-4500.
A complimentary copy of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission will be provided upon request.
ANNUAL MEETING
The annual stockholders meeting has been scheduled for September 26, 1996 in
Chicago, Illinois, for stockholders of record on August 9, 1996.
- --------------------------------------------------------------------------------
Page 26
<PAGE>
PROXY
TECHNOLOGY SOLUTIONS COMPANY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 26, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Technology Solutions Company (the
"Company") does hereby acknowledge receipt of Notice of said Annual Meeting and
the accompanying Proxy Statement, and does hereby constitute and appoint William
H. Waltrip and John T. Kohler or either of them, with full power of
substitution, to vote all shares of stock of the Company that the undersigned is
entitled to vote, as fully as the undersigned could do if personally present, at
the Annual Meeting of Stockholders of the Company to be held on September 26,
1996 at 10:00 a.m., Local Time, at the offices of Bank of America Illinois, 231
S. LaSalle Street, Chicago, Illinois, and at any adjournment thereof, as
indicated on the reverse side.
(Please date and sign on reverse side)
FOLD AND DETACH HERE
<PAGE>
This Proxy when properly executed will be voted in the manner directed by the
undersigned stockholder. If no direction is made, the Proxy will be voted for
the two nominees listed in Proposal 1, for approval of the Technology Solutions
Company 1996 Stock Incentive Plan and for the proposal to ratify the appointment
of Price Waterhouse LLP. Please mark Box [_] or [X].
<TABLE>
<CAPTION>
<S> <C>
1. The election of Class II Directors: INSTRUCTIONS: To withhold authority to vote for any individual nominee,
FOR all WITHHOLD strike that nominee's name from the names listed below.
nominees AUTHORITY
listed for all nominees Michael J. Murray and Stephen B. Oresman
listed
[_] [_]
2. To approve the Technology Solutions Company 1996
Stock Incentive Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Proposal to ratify the appointment of Price 4. As such proxies may in their discretion determine
Waterhouse LLP as independent accountants for the upon such other matters as may properly come
Company for the fiscal year ending May 31, 1997. before the meeting.
FOR AGAINST ABSTAIN
[_] [_] [_]
</TABLE>
THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN AND, IN THE
ABSENCE OF SUCH INSTRUCTIONS, SHALL BE VOTED FOR THE NOMINEES LISTED ABOVE AND
IN FAVOR OF PROPOSALS 2 AND 3. IF OTHER BUSINESS IS PRESENTED AT SAID MEETING,
THIS PROXY SHALL BE VOTED ON THOSE MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT
OF THE NAMED PROXIES.
You are urged to mark, sign, date and return your proxy without delay in the
return envelope provided for that purpose, which requires no postage if mailed
in the United States.
When signing the proxy, please take care to have the signature conform to the
stockholder's name as it appears on this side of the proxy. If shares are
registered in the names of two or more persons, each person should sign.
Executors, administrators, trustees and guardians should so indicate when
signing. Corporations and partnerships should sign in their full corporate or
partnership names by a duly authorized person.
Dated:________________________________ 1996
- -------------------------------------------
Signature
- -------------------------------------------
Signature if held jointly
= FOLD AND DETACH HERE =
