-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uqvs1NYp/qGrA4qQTmddItNe7HusWsVUWok3O6bbEHLaEDep0URcbL/7/k/99mcR sRF0Ovr4qLnWrKevh3UdZQ== 0001019056-04-001049.txt : 20040809 0001019056-04-001049.hdr.sgml : 20040809 20040809161814 ACCESSION NUMBER: 0001019056-04-001049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GTSI CORP CENTRAL INDEX KEY: 0000850483 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 541248422 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19394 FILM NUMBER: 04961564 BUSINESS ADDRESS: STREET 1: 3901 STONECROFT BLVD CITY: CHANTILLY STATE: VA ZIP: 20151-0808 BUSINESS PHONE: 703-502-2000 MAIL ADDRESS: STREET 1: 3901 STONECROFT BLVD CITY: CHANTILLY STATE: VA ZIP: 20151-1010 10-Q 1 gtsi_10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 Commission File Number: 0-19394 GTSI CORP. (Exact name of registrant as specified in its charter) Delaware 54-1248422 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3901 Stonecroft Boulevard, Chantilly, VA 20151-1010 (Address of principal executive offices) (Zip Code) 703-502-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Shares Outstanding at July 31, 2004 ------------------------------ ----------------------------------- Common Stock, $0.005 par value 8,637,935 GTSI CORP. AND SUBSIDIARY Form 10-Q for the Quarter Ended June 30, 2004 INDEX
Page ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - Consolidated Condensed Balance Sheets as of June 30, 2004 (Unaudited) and December 31, 2003..............................................1 Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 (Unaudited)..........................................2 Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (Unaudited)..........................................3 Notes to Consolidated Condensed Financial Statements (Unaudited).................................4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................................................8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................15 ITEM 4. CONTROLS AND PROCEDURES.........................................................................16 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................18 SIGNATURES........................................................................................................19
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GTSI CORP. AND SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share data)
June 30, December 31, 2004 2003 (Unaudited) (Audited) ------------ ------------ ASSETS Current assets: Cash $ 27,847 $ 177 Accounts receivable, net 140,117 181,988 Merchandise inventories 86,891 55,987 Other current assets 13,068 15,490 ------------ ------------ Total current assets 267,923 253,642 Property and equipment, net 13,053 10,670 Other assets 2,196 4,449 ------------ ------------ Total assets $ 283,172 $ 268,761 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ -- $ 12,813 Accounts payable 186,619 152,435 Accrued liabilities 10,933 11,168 Deferred revenue 3,649 8,323 Accrued warranty liabilities 4,186 4,555 ------------ ------------ Total current liabilities 205,387 189,294 Other liabilities 1,250 1,522 ------------ ------------ Total liabilities 206,637 190,816 ------------ ------------ Commitments and contingencies Stockholders' equity Preferred Stock - $0.25 par value, 680,850 shares authorized; none issued or outstanding -- -- Common Stock - $0.005 par value 20,000,000 shares authorized; 9,806,084 issued and 8,619,935 outstanding at June 30, 2004; and 9,806,084 issued and 8,505,045 outstanding at December 31, 2003 49 49 Capital in excess of par value 46,716 45,911 Retained earnings 37,196 40,131 Treasury stock, 1,186,149 shares at June 30, 2004 and 1,301,039 shares at December 31, 2003, at cost (7,426) (8,146) ------------ ------------ Total stockholders' equity 76,535 77,945 ------------ ------------ Total liabilities and stockholders' equity $ 283,172 $ 268,761 ============ ============
The accompanying notes are an integral part of these financial statements. - 1 - GTSI CORP. AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS Unaudited (In thousands, except per share data)
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Sales $ 238,990 $ 189,737 $ 417,612 $ 368,595 Cost of sales 217,453 166,981 377,994 329,764 ---------- ---------- ---------- ---------- Gross margin 21,537 22,756 39,618 38,831 Operating expenses 24,622 21,613 46,319 41,315 ---------- ---------- ---------- ---------- (Loss) income from operations (3,085) 1,143 (6,701) (2,484) ---------- ---------- ---------- ---------- Interest and other income 541 814 1,911 1,594 Interest expense (22) (70) (60) (118) ---------- ---------- ---------- ---------- Interest and other income, net 519 744 1,851 1,476 ---------- ---------- ---------- ---------- (Loss) income before income taxes (2,566) 1,887 (4,850) (1,008) Income tax (benefit) provision (1,013) 738 (1,915) (394) ---------- ---------- ---------- ---------- Net (loss) income $ (1,553) $ 1,149 $ (2,935) $ (614) ========== ========== ========== ========== Basic net (loss) income per share $ (0.18) $ 0.14 $ (0.34) $ (0.07) ========== ========== ========== ========== Diluted net (loss) income per share $ (0.18) $ 0.13 $ (0.34) $ (0.07) ========== ========== ========== ========== Basic weighted average shares outstanding 8,573 8,258 8,564 8,410 ========== ========== ========== ========== Diluted weighted average shares outstanding 8,573 8,907 8,564 8,410 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. - 2 - GTSI CORP. AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Unaudited (In thousands) Six months ended June 30, ------------------------ 2004 2003 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,935) $ (614) Adjustments to reconcile net loss to net cash provided by operating activities 46,216 16,146 ---------- ---------- Net cash provided by operating activities 43,281 15,532 CASH FLOWS FROM INVESTING ACTIVITIES: Cost of property and equipment (3,843) (4,831) ---------- ---------- Net cash used in investing activities (3,843) (4,831) CASH FLOWS FROM FINANCING ACTIVITIES: Payments of bank notes, net (12,813) (7,539) Payments to acquire treasury stock -- (3,969) Proceeds from exercises of stock options 615 338 Proceeds from Employee Stock Purchase Plan 430 489 ---------- ---------- Net cash used in financing activities (11,768) (10,681) ---------- ---------- NET INCREASE IN CASH 27,670 20 CASH AT BEGINNING OF PERIOD 177 32 ---------- ---------- CASH AT END OF PERIOD $ 27,847 $ 52 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 38 $ 151 ========== ========== Income taxes $ 1,018 $ 25 ========== ========== The accompanying notes are an integral part of these financial statements. - 3 - GTSI CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited interim consolidated condensed financial statements of GTSI Corp. ("GTSI" or the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q and, therefore, omit or condense certain note disclosures and other information required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should therefore be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2003 included in GTSI's Annual Report on Form 10-K. The consolidated financial statements include the accounts of GTSI and its wholly owned subsidiary. Material intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments, consisting primarily of normal recurring adjustments, necessary for a fair presentation of interim period results have been included. The results of operations for the three and six month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full year, or future periods. Certain prior period amounts have been reclassified to conform to the current period presentation. New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from the other parties. FIN 46 applies to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after December 15, 2003, which was the Company's first quarter of fiscal year 2004. The adoption of FIN 46 did not have a material impact on the Company's consolidated financial statements. - 4 - 2. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method of accounting in accordance with Accounting Principle Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related Interpretations. Accordingly, no compensation cost for stock options granted to employees was reflected in net income, as all options granted had an exercise price equal to the fair market value of the Company's common stock on the date of the grant. The following table illustrates, in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" the effect on net (loss) income and (loss) earnings per share if compensation costs for the Company's stock options had been determined based on the fair value method consistent with the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation" (in thousands, except per share amounts):
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Net (loss) income - as reported $ (1,553) $ 1,149 $ (2,935) $ (614) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (307) (348) (1,137) (758) ---------- ---------- ---------- ---------- Net (loss) income - pro forma $ (1,860) $ 801 $ (4,072) $ (1,372) ========== ========== ========== ========== Net (loss) income per share - as reported (basic) $ (0.18) $ 0.14 $ (0.34) $ (0.07) Net (loss) income per share - as reported (diluted) $ (0.18) $ 0.13 $ (0.34) $ (0.07) Net (loss) income per share - pro forma (basic) $ (0.22) $ 0.10 $ (0.48) $ (0.16) Net (loss) income per share - pro forma (diluted) $ (0.22) $ 0.09 $ (0.48) $ (0.16)
On March 18, 2004, the members of the Company's Board of Directors formally waived the right granted to them by the May 14, 2003 stockholder approval of extending the exercise price for certain options granted to its non-employee directors following cessation from the Company. Therefore, there is no longer any potential compensation expense impact related to the stock option extensions. During the quarter ended June 30, 2004, the company recorded a charge of approximately $480,000 ($290,000, net of taxes) for stock-based compensation to non-employees based on the fair value method. 3. Capitalized Software The Company is implementing an enterprise resource planning ("ERP") system to replace its current fulfillment system. Implementation of the ERP system is designed to improve management information and gain operating efficiencies. As of June 30, 2004, the Company has approximately $7.0 million of costs capitalized related to this project, reported as property and equipment, net, of which approximately $1.2 million and $3.0 million were capitalized in the three and six month periods ended June 30, 2004, respectively. - 5 - 4. Notes Payable to Banks The Company has a $125 million credit facility with a group of banks ("Credit Facility"). The Credit Facility, which matures on February 28, 2005, includes a revolving line of credit ("Revolver") and a provision for inventory financing of vendor products ("Wholesale Financing Facility"). Borrowing under the Revolver is limited to 85% of eligible accounts receivable. The Revolver is secured by substantially all of the Company's assets. Borrowing under the Wholesale Financing Facility is limited to 100% of the value of the inventory. The Wholesale Financing Facility is secured by the underlying inventory. The Credit Facility carries an interest rate indexed to LIBOR plus 1.75 percentage points. The Credit Facility also contains certain covenants as well as provisions specifying compliance with certain quarterly and annual financial ratios. At June 30, 2004, the Company was in compliance with all financial covenants set forth in the Credit Facility and had available credit of $37.3 million. 5. Accrued Warranty Liabilities The Company offers warranties on sales under certain products specific to the terms of the customer agreements. Standard warranties require repair or replacement of defective products reported during the warranty period at no cost to the customer. The Company records an estimate for warranty expenses based on its actual historical return rates and repair costs at the time of sale. Accrued warranty liability as of December 31, 2003 $ 4,555 Warranty activity from January 1, 2004 to June 30, 2004: Charges made against the warranty (1,211) Accruals related to warranty 842 --------- Net change to accrued warranty liability during period (369) --------- Accrued warranty as of June 30, 2004 $ 4,186 ========= - 6 - 6. Earnings Per Share Basic earnings per share are computed by dividing net income or loss by the weighted average shares outstanding during the period. Diluted earnings per share are computed similarly to basic earnings per share except that the weighted average shares outstanding are increased to include equivalents, when their effect is dilutive. The following table sets forth the computations for basic and dilutive earnings per share:
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Basic earnings per share: Numerator: Net (loss) income $ (1,553) $ 1,149 $ (2,935) $ (614) Denominator: Weighted average shares outstanding 8,573 8,258 8,564 8,410 ---------- ---------- ---------- ---------- Basic (loss) earnings per share $ (0.18) $ 0.14 $ (0.34) $ (0.07) ========== ========== ========== ========== Diluted earnings per share: Numerator: Net (loss) income $ (1,553) $ 1,149 $ (2,935) $ (614) Weighted average shares and equivalents: Weighted average shares outstanding 8,573 8,258 8,564 8,410 Effect of dilutive securities: Employee stock options N/A* 649 N/A* N/A* ---------- ---------- ---------- ---------- Denominator: Weighted average shares and equivalents 8,573 8,907 8,564 8,410 ---------- ---------- ---------- ---------- Dilutive (loss) earnings per share $ (0.18) $ 0.13 $ (0.34) $ (0.07) ========== ========== ========== ==========
* For the three month period ended June 30, 2004 there were approximately 774,000 shares and for the six month periods ended June 30, 2004 and 2003, there were approximately 855,000 and 730,000 shares, respectively, of potentially dilutive options that are not included because the net losses for the periods make their impact anti-dilutive. 7. Commitments and Contingencies The Company is occasionally involved in various lawsuits, claims, and administrative proceedings arising in the normal course of business. The Company believes that any liability or loss associated with such matters, individually or in the aggregate, will not have a material adverse effect on the Company's financial condition or results of operations. In November 2003, GTSI was served with a $25 million lawsuit, with treble damages, related to the termination of a former subcontractor. This suit follows the Company's earlier lawsuit against the former subcontractor. Management continues to believe the claim is without merit and intends to vigorously defend this lawsuit, but the ultimate outcome of this matter is uncertain. Management is unable to estimate the amount GTSI may have to pay, if any, related to this matter. No amounts have been accrued as of June 30, 2004. - 7 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, the unaudited consolidated condensed financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q, as well as with the consolidated financial statements and notes in our Annual Report on Form 10-K for the year ended December 31, 2003. We use the terms "GTSI,", "we," "our," and "us" to refer to GTSI Corp. and its subsidiary. Historical results and percentage relationships among any amounts in the interim consolidated condensed financial statements are not necessarily indicative of trends in operating results for any future period. First Half 2004 Overview For the first half of 2004, we experienced a year over year increase in sales of $49.0 million. Despite this increase, we recorded a net loss for the six months ended June 30, 2004 due to declines in gross margins as a percentage of sales. We believe the decrease was largely caused by internal processes and have begun implementing corrective actions to resolve the margin erosion issue. We saw an increase in bookings during the first half of 2004 and an increase in backlog of $48.8 million to $155.0 million as of June 30, 2004. Operating expenses for the period also increased. The $5.0 million increase was directly related to our activities to comply with the Sarbanes-Oxley Act of 2002 Section 404 ("SOX 404") requirements, our new branding campaign, "I Rely on GTSI", increases in employee-related expenses and our continued investment in the implementation of our enterprise resource planning ("ERP") system to replace our current fulfillment system. Company Overview GTSI is a recognized IT solutions leader, providing products and services to federal, state, and local government customers worldwide. For over two decades GTSI has served the public sector by teaming up with global IT leaders such as HP, Panasonic, Microsoft, Sun and Cisco. GTSI seeks to deliver maximum value through its broad range of products, extensive contract portfolio, and ISO 9002-registered logistics. Through its Technology Teams, GTSI delivers "best of breed" products and services to help its customers realize strong value for their IT investments. The Technology Teams consist of technical experts who support a wide range of integrated IT solutions in such areas as high performance computing, advanced networking, mobile and wireless solutions, high availability storage and information assurance. GTSI continues to broaden its leadership in electronic commerce and procurement through its federally focused website, gtsi.com, that provides customized shopping zones to meet customers' personalized needs. GTSI is headquartered in Northern Virginia, outside of Washington, D.C. Federal Government IT spending has grown at a 14% compounded annual rate since 2000, and we believe that government IT spending will continue to be robust in the foreseeable future. Our revenue has grown at a 11% compounded annual rate since 2000. Changes in sales throughout our history have been attributable to increased or decreased unit sales, expansion of our product offerings (e.g., peripherals, personal computers and networking, Unix servers/workstation and internet products), the addition/removal of vendors, and the addition or expiration of sales contract vehicles. A substantial portion of our contracts are fixed-price and indefinite delivery/ indefinite quantity ("IDIQ"). The uncertainties related to future contract performance costs, product life cycles, quantities to be shipped and delivery dates, among other factors, make it difficult to predict the future sales and profits, if any, which may result from such contracts. - 8 - GTSI qualified as a "small business" under several of the GWACs and BPAs it holds based on GTSI's size status at the time of the contracts' original award. As a small business, GTSI enjoys a number of benefits, including being able to compete for small business set-aside contracts, qualifying as a small business subcontractor, bidding pursuant to small purchase procedures directed to non-manufacturer small business, and offering Government agencies an avenue to meet their internal small business purchase goals. A company's size status under a contract is based on the North American Industry Classification System ("NAICS") Code referenced in the subject contract's solicitation. Dependent on the NAICS Code referenced in a solicitation, GTSI may or may not qualify as a small business for new contract awards. Under a Federal Acquisition Regulation ("FAR") Deviation issued by GSA on October 10, 2002, GTSI will be required to recertify its size status on its GSA Schedule Contract no later than 2007. At such time, GTSI may not qualify as a small business for new contract awards under the GSA Schedule. In addition, new legislation or regulations may require GTSI to recertify its size status on its GSA Schedule sooner than 2007. GTSI cannot predict whether it would continue to qualify as a small business at the time of recertification. To mitigate any potential adverse impact, GTSI has developed strategic relationships with small minority-owned businesses that benefit from the small business benefits described above. GTSI acts as both a supplier and prime contractor to these small minority-owned businesses. Legislation is periodically introduced in Congress that may change the federal government's procurement practices, and agencies from time to time may issue new regulations or modify existing regulations that may also change the government's procurement practices. We cannot predict whether any legislative or regulatory proposals will be adopted or, if adopted, the impact on our operating results. Changes in the structure, composition and/or buying patterns of the Government, either alone or in combination with competitive conditions or other factors, could adversely affect our future results. Noncompliance with Government procurement regulations or contract provisions or protest of a GTSI awarded contract could result in termination of Government contracts, substantial monetary fines or damages, suspension or debarment from doing business with the Government and civil or criminal liability. During the term of any suspension or debarment by any Government agency, the contractor could be prohibited from competing for or being awarded any contract by any Government agency. In addition, substantially all of our Government contracts can be terminated at any time at the Government's convenience or upon default. Upon termination of a Government contract for default, the Government may also seek to recover from the defaulting contractor the increased costs of procuring the specified goods and services from a different contractor. The effect of any of these possible Government actions or the adoption of new or modified procurement regulations or practices could adversely affect GTSI. Our business strategy is to continue to focus on higher-end product-based solutions, to broaden our product offering, and to remain a low-cost, and high-reliability provider of commodity products. We also focus on bringing new technologies to government customers. Critical Accounting Estimates Our unaudited consolidated financial statements are based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make significant assumptions. We believe that some of the more critical estimates and related assumptions that affect our financial condition and results of operations are in the areas of revenue recognition, allowance for doubtful accounts, merchandise inventories, long-lived assets, warranties, and stock compensation. For more information on critical accounting estimates, see the MD&A included in our Form 10-K for the year ended December 31, 2003. We have discussed the application of these critical accounting estimates with our Board of Directors and Audit Committee. - 9 - During the six months ended June 30, 2004, we did not change or adopt new accounting policies that had a material effect on our consolidated financial condition and results of operations. Historical Results of Operations The following table illustrates the unaudited percentage of sales represented by items in our consolidated condensed statements of operations for the periods presented.
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 91.0 88.0 90.5 89.5 ---------- ---------- ---------- ---------- Gross margin 9.0 12.0 9.5 10.5 Operating expenses: Selling, general, and administrative 10.0 11.0 10.8 10.8 Depreciation and amortization 0.3 0.4 0.3 0.4 ---------- ---------- ---------- ---------- Total operating expenses 10.3 11.4 11.1 11.2 ---------- ---------- ---------- ---------- (Loss) income from operations (1.3) 0.6 (1.6) (0.7) Interest income, net (0.2) (0.4) (0.4) (0.4) ---------- ---------- ---------- ---------- (Loss) income before taxes (1.1) 1.0 (1.2) (0.3) Income tax (benefit) provision (0.4) 0.4 (0.5) (0.1) ---------- ---------- ---------- ---------- Net (loss) income (0.7)% 0.6% (0.7)% (0.2)% ========== ========== ========== ==========
- 10 - The following tables set forth, for the periods indicated, the approximate sales by product, by contract vehicle and by vendor (in millions), along with related percentages of total sales.
Contract Vehicles Three months ended June 30, Six months ended June 30, ------------------------------------------ ------------------------------------------ 2004 2003 2004 2003 ------------------- ------------------- ------------------- ------------------- GSA Schedules $ 54.8 22.9% $ 53.9 28.4% $ 97.0 23.2% $ 105.8 28.7% IDIQ Contracts 93.1 39.0 83.3 43.9 166.0 39.8 162.2 44.0 Open Market 59.8 25.0 28.5 15.0 95.7 22.9 55.5 15.1 Subcontracts and Other Contracts 31.3 13.1 24.0 12.7 58.9 14.1 45.1 12.2 -------- -------- -------- -------- -------- -------- -------- -------- Total $ 239.0 100.0% $ 189.7 100.0% $ 417.6 100.0% $ 368.6 100.0% ======== ======== ======== ======== ======== ======== ======== ======== Top 5 Vendors Three months ended June 30, Six months ended June 30, ------------------------------------------ ------------------------------------------ 2004 2003 2004 2003 ------------------- ------------------- ------------------- ------------------- Panasonic $ 36.2 15.1% $ 33.6 17.7% $ 70.6 16.9% $ 68.4 18.6% Sun 37.4 15.6 34.8 18.4 57.8 13.9 54.5 14.8 HP 31.5 13.2 28.6 15.1 49.6 11.9 60.9 16.5 Cisco 20.8 8.7 18.1 9.5 43.9 10.5 38.5 10.4 Dell 17.1 7.2 8.7 4.6 27.3 6.5 18.5 5.0 Other 96.0 40.2 65.9 34.7 168.4 40.3 127.8 34.7 -------- -------- -------- -------- -------- -------- -------- -------- Total $ 239.0 100.0% $ 189.7 100.0% $ 417.6 100.0% $ 368.6 100.0% ======== ======== ======== ======== ======== ======== ======== ======== Three months ended June 30, Six months ended June 30, ------------------------------------------ ------------------------------------------ Product Category 2004 2003 2004 2003 ------------------- ------------------- ------------------- ------------------- Hardware $ 186.8 78.2% $ 112.8 59.5% $ 326.7 78.2% $ 241.8 65.6% Software 26.5 11.1 54.8 28.9 46.3 11.1 83.8 22.7 Services* 25.7 10.7 22.1 11.6 44.6 10.7 43.0 11.7 -------- -------- -------- -------- -------- -------- -------- -------- Total $ 239.0 100.0% $ 189.7 100.0% $ 417.6 100.0% $ 368.6 100.0% ======== ======== ======== ======== ======== ======== ======== ========
* For the three months ended June 30, 2004 and 2003, services included approximately $18.9 million and $19.0 million of resold, third-party services and maintenance contracts, respectively. Services also include approximately $6.8 million and $3.1 million of consulting and other services for the three months ended June 30, 2004 and 2003, respectively, that we provided either through our own business resources or through our alliance partners. For the six months ended June 30, 2004 and 2003, services included approximately $36.7 million and $35.4 million of resold, third-party services and maintenance contracts, respectively. Services also include approximately $7.9 million and $7.6 million of consulting and other services for the six months ended June 30, 2004 and 2003, respectively, that we provided either through our own business resources or through our alliance partners. - 11 - Three Months Ended June 30, 2004 Compared With the Three Months Ended June 30, 2003 Sales. Sales consist of revenue from product shipments and services rendered net of allowances for customer returns and credits. Sales for the second quarter of 2004 increased $49.3 million, or 26.0%, compared to the same period in 2003. Sales in every contract category experienced growth during the second quarter of 2004 compared to the same period last year. The increase in sales is attributed to the efforts of our expanded sales force. We have been investing in our sales teams, particularly in our Technology Teams and Integrators Solution Group Team, during recent quarters and we are starting to see the results. Sales under the IDIQ Contracts category increased $9.8 million to $93.1 million while open market sales increased $31.3 million to $59.8 million. Sales in the Subcontracts and Other Contracts category increased $7.3 million to $31.3 million for the quarter ended June 30, 2004. Backlog. We recognize an order as backlog when we receive and accept a written customer purchase order. Our total backlog includes orders that have not shipped ("unshipped backlog") as well as orders that have shipped but cannot be recognized as revenue at the period end. Total backlog increased 46.0% from $106.2 million at June 30, 2003 to $155.0 million at June 30, 2004. Unshipped backlog at June 30, 2004, was approximately $145.3 million compared to $96.2 million at June 30, 2003. Backlogs fluctuate significantly from period to period due to the seasonality of government ordering patterns and fluctuations in inventory availability of various products. Gross Margin. Gross margin is sales less cost of sales, which includes product cost, freight, warranty maintenance cost and certain other expenses related to the cost of acquiring products. Gross margin percentages vary over time and may change significantly depending on the mix of customer's use of available contract vehicles and the mix of product sold. Gross margin percentage in the second quarter of 2004 decreased to 9.0% of total sales from 12.0% of total sales in the same period in 2003 due primarily to pricing decisions made at time of deal quoting. During the second quarter of 2003, GTSI's sales organization was successful in securing an order for software inventory that had been impaired during 2002. As a result, we reversed a $1.4 million impairment charge in the second quarter of 2003. Without this inventory impairment reversal, gross margin would have been $21.3 million, or 11.2% of total sales, during the second quarter of 2003. We believe the decrease in gross margin is chiefly due to internal pricing decisions, not caused by external pressures. Management has developed and is implementing corrective actions designed to resolve the margin erosion issue. We are focused and dedicated to raising GTSI's gross margin percentage in future quarters. Operating Expenses. Total operating expenses for the three months ended June 30, 2004 increased to $24.6 million from $21.6 million in the same period in 2003. This increase is directly related to our aggressive efforts to comply with the SOX 404 requirement, our new ERP system development, our "I Rely on GTSI" marketing campaign and increased employee-related costs. Expressed as a percentage of total sales, total operating expenses decreased from 11.4% to 10.3% during the three months ended June 30, 2004. Six Months Ended June 30, 2004 Compared With the Six Months Ended June 30, 2003 Sales. Sales for the first six months of 2004 were $417.6 million, compared to $368.6 million in the first six months of 2003, or an increase of $49.0 million, or 13.3%. As mentioned above the increase in sales is due to the efforts of the Company's expanded sales force. - 12 - Gross Margin. Gross margin as a percentage of sales declined from 10.5% for the six months ended June 30, 2003 to 9.5% in the current period. This decrease was largely due to pricing decisions made during the second quarter of 2004. Management plans to implement corrective actions to increase gross margin percentages in the future. During the second quarter of 2003, GTSI's sales organization was successful in securing an order for software inventory that had been impaired during 2002. As a result, we reversed a $1.4 million impairment charge in the second quarter of 2003. Without this inventory impairment reversal, gross margin would have been $37.4 million, or 10.1% of total sales, during the second half of 2003. Operating Expenses. Total operating expenses for the six months ended June 30, 2004 increased $5.0 million from the same period in 2003. This increase was directly related to our efforts to comply with the SOX 404 requirement, our new ERP system development, our "I Rely on GTSI" marketing campaign and increased employee-related costs. Total operating expenses remained flat as a percentage of sales at approximately 11% for the six month periods ended June 30, 2004 and 2003. Interest and Other Income. Net interest and other income in the first six months of 2004 increased $0.4 million to $1.9 million compared to $1.5 million in the same period in 2003 due primarily to an increase in interest income from equipment leases during the first quarter of 2004, partially offset by a decrease in lease interest income during the second quarter of 2004. Income Tax. We recorded a tax benefit of $1.9 million for the first six months of 2004 based on our expected annual effective tax rate of approximately 39.5% compared to a tax benefit of $0.4 million in the same period last year. Seasonal Fluctuations and Other Factors GTSI has historically experienced and expects to continue to experience significant seasonal fluctuations in our operations as a result of government buying and funding patterns, which also affect the buying patterns of our prime contractor customers. These buying and funding patterns historically have had a significant positive effect on GTSI's bookings in the third quarter ending September 30 each year (the federal government's fiscal year end), and consequently on sales and net income in the third and fourth quarters of each year. Quarterly financial results are also affected by the timing of the award of and shipments of products under government contracts, price competition in the computer and IT industries, the addition of personnel or other expenses in anticipation of sales growth, product line changes and expansions, and the timing and costs of changes in customer and product mix. In addition, customer order deferrals in anticipation of new product releases by leading hardware and software manufacturers, delays in vendor shipments of new or existing products, a shift in sales mix to more complex requirements contracts with more complex service costs, and vendor delays in the processing of incentives and credits due to us, have occurred (all of which are also likely to occur in the future) and have adversely affected our operating performance in particular periods. The seasonality and the unpredictability of the factors affecting such seasonality make GTSI's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. Our stock price could be adversely affected if any such financial results fail to meet the financial community's expectations. Additionally, legislation is periodically introduced in Congress that may change the federal government's procurement practices, and agencies from time to time may issue new regulations or modify existing regulations that may also change the government's procurement practices. GTSI cannot predict whether any legislative or regulatory proposals will be adopted or, if adopted, the impact upon its operating results. Changes in the structure, composition and/or buying patterns of the Government, either alone or in combination with competitive conditions or other factors, could adversely affect future results. - 13 - New Accounting Pronouncements In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from the other parties. FIN 46 applies to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after December 15, 2003, which was GTSI's first quarter of fiscal year 2004. The adoption of FIN 46 did not have a material impact on our condensed consolidated financial statements. Liquidity and Capital Resources Cash flows for the six months ended June 30, 2004 and 2003 Six Months Ended June 30, -------------------------------- (in millions) 2004 2003 Change -------- -------- -------- Cash provided by operating activities $ 43.3 $ 15.5 $ 27.8 Cash used in investing activities $ (3.8) $ (4.8) $ (1.0) Cash used in financing activities $ (11.8) $ (10.7) $ 1.1 Cash provided by operating activities for the six months ended June 30, 2004 was $43.3 million, an increase of $27.8 million from cash provided for the six months ended June 30, 2003. This increase was primarily due to the increased collections of accounts receivable. Investing activities used cash of approximately $3.8 million during the six months ended June 30, 2004, compared to $4.8 million for the same period in 2003 reflecting our investment in software for a new fulfillment system, intended to improve efficiency throughout GTSI. As of June 30, 2004, we have capitalized approximately $7.0 million under this project and we intend to continue our investment in this project throughout 2004. During the six months ended June 30, 2004, GTSI's financing activities used cash of $11.8 million principally to repay borrowings under our credit facilities. Bank Credit Facility In addition to our cash balance of $27.8 million at June 30, 2004, we have a $125 million credit facility with a group of banks (the "Credit Facility"). The Credit Facility, which matures on February 28, 2005, includes a revolving line of credit (the "Revolver") and a provision for inventory financing of vendor products (the "Wholesale Financing Facility"). Borrowing under the Revolver is limited to 85% of eligible accounts receivable. The Revolver is secured by substantially all of GTSI's assets. Borrowing under the Wholesale Financing Facility is limited to 100% of the value of our inventory. The Wholesale Financing Facility is secured by the underlying inventory. The Credit Facility carries an interest rate indexed to LIBOR plus 1.75 percentage points. The Credit Facility also contains certain covenants as well as provisions specifying compliance with certain quarterly and annual financial ratios. At June 30, 2004, we were in compliance with all financial covenants set forth in the Credit Facility and had additional available credit on the Credit Facility of $37.3 million. We anticipate that we will continue to rely primarily on operating cash flow, bank loans and vendor credit to finance our operating cash needs. We believe that such funds should be sufficient to satisfy our near term anticipated cash requirements for operations. Nonetheless, we may seek additional - 14 - sources of capital, including permanent financing over a longer term at fixed rates, to finance our working capital requirements. GTSI believes that such capital sources will be available to us on acceptable terms, if needed. Sarbanes-Oxley Section 404 GTSI is working to comply with the requirements of Section 404 of SOX 404. Under SOX 404, management is required to attest to the effectiveness of GTSI's internal controls as of December 31, 2004. At this time it is not clear as to the total cost we will incur as a result of this compliance effort. During the first half of 2004, we expensed approximately $0.5 million on activities directly attributed to this effort and incurred other indirect expenses and we expect costs to increase during the third and fourth quarters of 2004. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Except for historical information, all of the statements, expectations, beliefs, anticipations, intentions, and assumptions contained in the foregoing material are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995, as amended) that involve a number of risks and uncertainties. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Private Securities Reform Act of 1995, as amended, and by other applicable securities laws. It is possible that the assumptions made by management -- including, but not limited to, those relating to the cost of and compliance with Sarbanes-Oxley Section 404, favorable gross margins, a favorable mix of contracts, benefits of a more efficient operation, future contract awards, returns on new product programs, profitability, recovery of the costs of inventory, and increased control of operating costs -- may not materialize. Actual results may differ materially from those projected or implied in any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. We undertake no obligation to revise publicly the forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risks factors described in other documents GTSI files from time to time with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and our Annual Report on Form 10-K to be filed subsequent to this Quarterly Report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is hereby incorporated by reference to GTSI's Annual Report on Form 10-K for the year ended December 31, 2003. There have been no material changes in our market risk from that disclosed in our Form 10-K. - 15 - ITEM 4. CONTROLS AND PROCEDURES As of the end of the 90 day period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to date of their evaluation. - 16 - PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company held its annual meeting of stockholders on April 29, 2004. (b) Set forth below are the three matters that were presented to and voted upon by the Company's stockholders, and the results of such stockholders' votes. 1. Election of Directors Votes Nominees Votes For Withheld -------- --------- -------- Daniel R. Young 7,958,415 195,914 M. Dendy Young 7,958,791 195,538 Joseph "Keith" Kellogg, Jr. 7,958,415 195,914 Lawrence J. Schoenberg 7,958,273 196,056 2. The approval of an Amendment to the Company's 1991 Employee Stock Purchase Plan to increase by 850,000 the number of shares of the Company's common stock purchasable thereunder. Votes For Votes Against Abstention Broker Non-Votes --------- ------------- ---------- ---------------- 4,975,735 1,798,243 6,758 1,373,593 3. The approval of the Company's 2004 Long-Term Incentive Plan. Votes For Votes Against Abstention Broker Non-Votes --------- ------------- ---------- ---------------- 5,725,471 1,047,321 7,944 1,373,593 4. The approval of amendments to the Company's 1996 Stock Option Plan to (a) provide for the annual issuance of an option to the Company's Lead Independent Director to purchase up to 2,000 shares of our common stock and (b) subject to the approval of the Compensation Committee (or the Board of Directors), to permit the payment for the common stock to be issued upon exercise of one or more options granted to a non-employee director with common stock held by such director for at least six months. Votes For Votes Against Abstention Broker Non-Votes --------- ------------- ---------- ---------------- 5,858,768 915,397 6,571 1,373,593 - 17 - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The Exhibits set forth in the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q. (b) Reports on Form 8-K: On April 29, 2004, GTSI filed a report on Form 8-K under Item 12 relating to its press release of financial information for the three month period ending March 31, 2004, and monthly sales information. - 18 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on August 9, 2004 on its behalf by the undersigned thereunto duly authorized. GTSI Corp. /s/ DENDY YOUNG ------------------------------------------------- Dendy Young Chairman and Chief Executive Officer /s/ THOMAS A. MUTRYN ------------------------------------------------- Thomas A. Mutryn Senior Vice President and Chief Financial Officer - 19 - EXHIBIT INDEX Exhibit Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation (2) 3.2 Bylaws, as amended (filed herewith) 10.1 Employee Stock Purchase Plan, as amended to date (filed herewith)(1) 10.2 1994 Stock Option Plan, as amended to date (1)(3) 10.3 1997 Non-Officer Stock Option Plan, as amended to date (1)(3) 10.4 1996 Stock Option Plan, as amended to date (filed herewith)(1) 10.5 Employment Agreement dated January 1, 2001 between the Registrant and M. Dendy Young (1)(2) 10.6 Offer letter dated June 28, 2001 between Registrant and Terri Allen(1)(4) 10.7 Non-Qualified Stock Option Agreement effective July 31, 2001 between the Registrant and Terri Allen (1)(3) 10.8 Offer letter dated May 21, 2002 between the Registrant and Dr. Jack Littley III (1)(3) 10.9 Offer letter dated December 31, 2002 between the Registrant and Thomas Mutryn (1)(3) 10.10 Memorandum Regarding Promotion to Senior Vice President dated February 20, 2003 between the Registrant and Dr. John Littley III (1)(3) 10.11 Non-Qualified Stock Option Agreement effective January 28, 2003 between the Registrant and Thomas Mutryn(1)(3) 31.1 Section 302 Certification of Chief Executive Officer (filed herewith) 31.2 Section 302 Certification of Chief Financial Officer (filed herewith) 32 Section 906 Certification of Chief Executive Officer and Chief Financial Officer(filed herewith) (1) Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. (3) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002. (4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001. - 20 - EX-3.2 2 ex3_2.txt EXHIBIT 3.2 Exhibit 3.2 AS AMENDED THROUGH June 22, 2000 GTSI CORP. ------------------------------ (A Delaware Corporation) ------------------------------ BY-LAWS ------------------------------ ARTICLE I --------- Offices SECTION 1. Registered Office. The registered office of the Corporation shall be located in the City of Dover, County of Kent, State of Delaware, and the name of the resident agent in charge thereof shall be The Corporation Trust Company. SECTION 2. Other Offices. The Corporation may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time appoint or the business of the Corporation may require. ARTICLE II ---------- Seal The seal of the Corporation shall, subject to alteration by the Board of Directors, consist of a flat-faced circular die with the word "Delaware," together with the name of the Corporation and the year of incorporation, cut or engraved thereon. ARTICLE III ----------- Meetings of Stockholders SECTION 1. Place of Meeting. Meetings of the stockholders shall be held either within or without the State of Delaware at such place as the Board of Directors may fix. SECTION 2. Annual Meetings. The annual meeting of stockholders shall be held on the third Tuesday of June of each year or such other date as the Board of Directors may set by resolution, at such time as the Board of Directors may fix. SECTION 3. Special Meetings. Special meeting of the stockholders of the Corporation may be called, for any purpose or purposes, only by (i) the Chairman of the Board of Directors, (ii) the President or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized director (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is present to the Board of Directors for adoption), and will be held at such place, on such date, and at such time as the Board of Directors shall fix. SECTION 4. Notice. Written or printed notice of every meeting of stockholders, annual or special, stating the hour, date and place thereof, and the purpose or purposes in general terms for which the meeting is called shall, not less than ten (10) and not more than sixty (60) days before such meeting, be served upon or mailed to each stockholder entitled to vote thereat, at his address as it appears upon the stock records of the Corporation or, if such stockholder shall have filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, then to the address designated in such request. Notice of the hour, date, place and purpose of any meeting of stockholders may be dispensed with if every stockholder entitled to vote thereat shall attend either in person or by proxy and shall not object to the holding of such meeting for lack of proper notice, or if every absent stockholder entitled to such notice shall in writing, filed with the records of the meeting, either before or after the holding thereof, waive such notice. SECTION 5. Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the presence in person or by proxy at any meeting of stockholders of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote thereat, shall be requisite and shall constitute a quorum. If two or more classes of stock are entitled to vote as separate classes upon any question, then, in the case of each such class, a quorum for the consideration of such question shall, except as otherwise provided by law or by the Certificate of Incorporation, consist of a majority in interest of all stock of that class issued, outstanding and entitled to vote. If a majority or, where a larger quorum is required, such quorum, shall not be represented at any meeting of the stockholders regularly called, the holders of a majority of the shares present or represented and entitled to vote thereat shall have power to adjourn the meeting to another time, or to another time and place, without notice other than announcement of adjournment at the meeting, and there may be successive adjournments for like cause and in like manner until the requisite amount of shares entitled to vote at such meeting shall be represented; provided, however, that if the adjournment is for more than thirty (30) days, notice of the hour, date and place of the adjourned meeting shall be given to each stockholder entitled to vote thereat. The Chairman of the meeting shall have the power to adjourn any meeting with respect to any issue or matter, whether or not a quorum is present. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. SECTION 6. Votes, Proxies. At each meeting of stockholders, every stockholder of record at the closing of the transfer books, if closed, or on the date set by the Board of Directors for the determination of stockholders entitled to vote at such meeting, shall have one vote for each share of stock entitled to vote which is registered in his name on the books of the Corporation upon any matter properly brought before the meeting. At each such meeting every stockholder shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three (3) years prior to the meeting in question, unless said instrument provides for a longer period during which it is to remain in force. -2- All elections of directors shall be held by ballot. If the Chairman of the meeting shall so determine, a vote may be taken upon any other matter by ballot and shall be so taken upon the request of any stockholder entitled to vote on such matter. At any meeting at which a quorum is present, a plurality of the votes properly cast for election to fill any vacancy on the Board of Directors shall be sufficient to elect a candidate to fill such vacancy, and a majority of the votes properly cast upon any other question shall decide the question, except in any case where a larger vote is required by law, the Certificate of Incorporation, these By-Laws, or otherwise. SECTION 7. Organization. The Chairman of the Board, if there be one, or in his absence the President, or in the absence of the Chairman and the President, a Vice President, shall call meetings of the stockholders to order and shall act as chairman thereof. The Secretary of the Corporation, if present, shall act as secretary of all meetings of stockholders, and, in his absence, the presiding officer may appoint a secretary. SECTION 8. Nominations and Stockholder Business. Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors, or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 8, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 8. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to this Section 8, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, and such business must be a proper subject for stockholder action under the Delaware General Corporation Law. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 90 days nor more than 180 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. Notwithstanding anything in this Section 8 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement specifying the size of the increased Board of Directors made by the Corporation at least 130 days prior to -3- the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 9 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this section, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this section. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by this section shall be delivered to the secretary at the principal executive offices of the Corporation not earlier than the 180th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Only such persons who are nominated in accordance with the procedures set forth in this section shall be eligible for election as directors at any meeting of stockholders. Only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this section. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this section and, if any proposed nomination or business is not in compliance with this section, to declare that such defective proposal shall be disregarded. For purposes of this section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 9, 13, 14 or 15(d) of the Exchange Act. Notwithstanding the foregoing provisions of this Section 8, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 8. Nothing in this Section 8 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE IV ---------- Directors SECTION 1. Number, Term, Vacancies and Removal. The number of the Corporation's directors, the term of each director and the removal of any director shall be determined as set forth in Article EIGHTH of the Corporation's Certificate of Incorporation. -4- SECTION 2. Meetings. Meetings of the Board of Directors shall be held at such place, within or without the State of Delaware, as may from time to time be fixed by resolution of the Board or by the President and as may be specified in the notice or waiver of notice of any meeting. Meetings may be held at any time upon the call of the Chairman of the Board or the President or any two (2) of the directors in office by oral, telegraphic or written notice, duly served or sent or mailed to each director not less than twenty-four (24) hours before such meeting, except that, if mailed, not less than seventy-two (72) hours before such meeting. Meetings may be held at any time and place without notice if all the directors are present and do not object to the holding of such meeting for lack of proper notice or if those not present shall, in writing or by telegram, waive notice thereof. A regular meeting of the Board may be held without notice immediately following the annual meeting of stockholders at the place where such meeting is held. Regular meetings of the Board may also be held without notice at such time and place as shall from time to time be determined by resolution of the Board. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 3. Quorum. A majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice other than announcement of the adjournment at the meeting, and at such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally noticed. SECTION 4. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the Board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 5. Compensation. Directors shall receive compensation for their services, as such, and for service on any Committee of the Board of Directors, as fixed by resolution of the Board of Directors and for expenses of attendance at each regular or special meeting of the Board or any Committee thereof. Nothing in this Section shall be construed to preclude a director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE V --------- Committees of Directors SECTION 1. Executive Committee. The Board of Directors may appoint an Executive Committee of two (2) or more members, to serve during the pleasure of the Board, to consist of such directors as the Board may from time to time designate. The Board of Directors shall designate the Chairman of the Executive Committee. (a) Procedure. The Executive Committee shall, by a vote of a majority of its members, fix its own times and places of meeting, determine the number of its members constituting a -5- quorum for the transaction of business, and prescribe its own rules of procedure, no change in which shall be made save by a majority vote of its members. (b) Responsibilities. During the intervals between the meetings of the Board of Directors, except as otherwise provided by the Board of Directors in establishing such Committee or otherwise, the Executive Committee shall possess and may exercise all the powers of the Board in the management and direction of the business and affairs of the Corporation; provided, however, that the Executive Committee shall not have the power: (i) to amend or authorize the amendment of the Certificate of Incorporation or these By-Laws; (ii) to issue stock; (iii) to authorize the payment of any dividend; (iv) to adopt an agreement of merger or consolidation of the Corporation or to recommend to the stockholders the sale, lease or exchange of all or substantially all the property and business of the Corporation; or (v) to recommend to the stockholders a dissolution of the Corporation. (c) Reports. The Executive Committee shall keep regular minutes of its proceedings, and all action by the Executive Committee shall be reported promptly to the Board of Directors. Such action shall be subject to review, amendment and repeal by the Board, provided that no rights of third parties shall be adversely affected by such review, amendment or repeal. (d) Appointment of Additional Members. In the absence or disqualification of any member of the Executive Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. SECTION 2. Audit Committee. The Board of Directors may appoint an Audit Committee of two (2) or more members who shall not be officers or employees of the Corporation to serve during the pleasure of the Board. The Board of Directors shall designate the Chairman of the Audit Committee. (a) Procedure. The Audit Committee, by a vote of a majority of its members, shall fix its own times and places of meeting, shall determine the number of its members constituting a quorum for the transaction of business, and shall prescribe its own rules of procedure, no change in which shall be made save by a majority vote of its members. (b) Responsibilities. The Audit Committee shall have the authority and responsibility to: (1) select the Company's independent accountants, review reports from accountants and from the Company's financial officers; (2) review transactions relating to officers and directors; (3) assess the Company's quality of financial reporting and accounting principles as it relates to the financial condition of the Company; (4) monitor compliance with applicable laws and regulations that may significantly impact the Company, including Federal -6- procurement and employment laws; and (5) monitor compliance with the Company's code of ethical conduct. (c) Reports. The Audit Committee shall keep regular minutes of its proceedings, and all action by the Audit Committee shall, from time to time, be reported to the Board of Directors as it shall direct. (d) Appointment of Additional Members. In the absence or disqualification of any member of the Audit Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. SECTION 3. Other Committees. The Board of Directors, by vote of a majority of the directors then in office, may at any time appoint one or more other committees from and outside of its own number. Every such committee must include at least one member of the Board of Directors. The Board may from time to time designate or alter, within the limits permitted by law, the Certificate of Incorporation and this Article, if applicable, the duties, powers and number of members of such other committees or change their membership, and may at any time abolish such other committees or any of them. (a) Procedure. Each committee, appointed pursuant to this Section, shall, by a vote of a majority of its members, fix its own times and places of meeting, determine the number of its members constituting a quorum for the transaction of business, and prescribe its own rules of procedure, no change in which shall be made save by a majority vote of its members. (b) Responsibilities. Each committee, appointed pursuant to this Section, shall exercise the powers assigned to it by the Board of Directors in its discretion. (c) Reports. Each committee appointed pursuant to this Section shall keep regular minutes of proceedings, and all action by each such committee shall, from time to time, be reported to the Board of Directors as it shall direct. (d) Appointment of Additional Members. In the absence or disqualification of any member of each committee, appointed pursuant to this Section, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. SECTION 4. Term of Office. Each member of a committee shall hold office until the first meeting of the Board of Directors following the annual meeting of stockholders (or until such other time as the Board of Directors may determine, either in the vote establishing the committee or at the election of such member or otherwise) and until his successor is elected and qualified, or until he sooner dies, resigns, is removed, is replaced by change of membership or becomes disqualified by ceasing to be a Director (where membership on the Board is required), or until the committee is sooner abolished by the Board of Directors. -7- ARTICLE VI ---------- Officers SECTION 1. Officers. The Board of Directors shall elect a President, a Secretary and a Chief Financial Officer, and, in their discretion, may elect a Chairman of the Board, a Chief Executive Officer, one or more Executive Vice Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and such other officers as deemed necessary or appropriate. The Chief Executive Officer (in addition to and not in lieu of such authority as is held by the Board of Directors) may appoint one or more Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and such other officers as are equal to or subordinate to such positions as he deems necessary or appropriate. Each officer shall hold office for the term provided by the vote of the Board, or, with respect to those officers he has authority to appoint and has in fact appointed, for the term designated by the Chief Executive Officer, except that each officer will be subject to removal from office in the discretion of the Board or the Chief Executive Officer, as the case may be, as provided herein. The powers and duties of more than one office may be exercised and performed by the same person. SECTION 2. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors, at any regular or special meeting. SECTION 3. Chairman of the Board. The Chairman of the Board of Directors, if elected, shall be a member of the Board of Directors and shall preside at its meetings. He shall advise and counsel with the President, and shall perform such duties as from time to time may be assigned to him by the Board of Directors. The Board of Directors may also elect a Vice Chairman of the Board who, if elected, shall be a member of the Board of Directors and may preside at its meetings. Any person occupying the position or having the title of Chairman of the Board or Vice Chairman of the Board shall not, merely in such capacity or because of such title, be either an officer or employee of the Corporation unless the Board duly adopts a resolution with respect to such person subsequent to his/her election to such position specifically designating such position as an officer and/or employee position specifically with respect to such person. SECTION 4. Chief Executive Officer. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, and subject to the control of the Board of Directors, the Chief Executive Officer of the Corporation, if there be such an officer, shall have general supervision, direction and control of the business and officers of the Corporation. Subject to the Board of Directors, the Chief Executive Officer shall be the final arbiter in all differences between the officers of the Corporation and his decision as to any matter affecting the Corporation shall be final and binding as between the officers of the Corporation. The Chief Executive Officer shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. The Chief Executive Officer shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and perform such other duties as may be assigned to him from time to time by the Board of Directors or prescribed by the By-Laws. SECTION 5. President. Subject to the control of the Board of Directors and the Chief Executive Officer of the Corporation, if there be such an officer, the President of the Corporation shall have such general powers and duties of management as may be assigned to him from time to time by the Board of Directors or the Chief Executive Officer of the Corporation or prescribed by the By-Laws. In the absence or disability of the Chief Executive Officer, or if there be none, the President shall perform all the duties of -8- the Chief Executive Officer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer. SECTION 6. Executive Vice Presidents, Vice Presidents and Other Officers. Each Executive Vice President, Vice President, Assistant Vice President, Assistant Secretary and such other officers as may be duly elected or appointed under these By-Laws shall have and exercise such powers and shall perform such duties as from time to time may be assigned to him by the Board of Directors, the Chief Executive Officer or the President. SECTION 7. Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of law and these By-Laws; he shall be custodian of the records and of the corporate seal or seals of the Corporation; he shall see that the corporate seal is affixed to all documents the execution of which, on behalf of the Corporation under its seal, is duly authorized, and, when the seal is so affixed, he may attest the same; he may sign, with the Chief Executive Officer, President, an Executive Vice President or a Vice President, certificates of stock of the Corporation; and, in general, he shall perform all duties incident to the office of secretary of a corporation, and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. Assistant Secretaries. The Assistant Secretaries in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as the Board of Directors shall prescribe or as from time to time may be assigned by the Secretary. SECTION 9. Chief Financial Officer. The Chief Financial Officer of the Corporation shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus, and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors of the By-Laws. SECTION 10. Subordinate Officers. The Board of Directors may appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period, have such authority and perform such duties as the Board of Directors may prescribe. The Board of Directors may, from time to time, authorize any officer to appoint and remove subordinate officers and to prescribe the powers and duties thereof. SECTION 11. Compensation. The Board of Directors shall fix the compensation of all officers of the Corporation. It may authorize any officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the compensation of such subordinate officers, in conjunction with the Chairperson of the Compensation Committee, as the case may be. SECTION 12. Removal. Any officer of the Corporation may be removed, with or without cause, by action of the Board of Directors or the Chief Executive Officer. -9- SECTION 13. Bonds. The Board of Directors may require any officer of the Corporation to give a bond to the Corporation, conditional upon the faithful performance of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. ARTICLE VII ----------- Certificates of Stock SECTION 1. Form and Execution of Certificates. The interest of each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The certificates of stock of each class shall be consecutively numbered and signed by the President, an Executive Vice President or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of the Corporation, and may be countersigned and registered in such manner as the Board of Directors may by resolution prescribe, and shall bear the corporate seal or a printed or engraved facsimile thereof. Where any such certificate is signed by a transfer agent or transfer clerk acting on behalf of the Corporation, the signatures of any such President, Executive Vice President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be facsimiles, engraved or printed. In case any officer or officers, who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates, shall cease to be such officer or officers, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered by the Corporation as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers. In case the corporate seal which has been affixed to, impressed on, or reproduced in any such certificate or certificates shall cease to be the seal of the Corporation before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered by the Corporation as though the seal affixed thereto, impressed thereon or reproduced therein had not ceased to be the seal of the Corporation. Every certificate for shares of stock which are subject to any restriction on transfer pursuant to law, the Certificate of Incorporation, these By-Laws, or any agreement to which the Corporation is a party, shall have the restriction noted conspicuously on the certificate, and shall also set forth, on the face or back, either the full text of the restriction or a statement of the existence of such restriction and (except if such restriction is imposed by law) a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications, and special and relative rights of the shares of each class and series authorized to be issued, or a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the Corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. SECTION 2. Transfer of Shares. The shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by his attorney lawfully constituted, upon surrender for cancellation of certificates for the same number of shares, with an assignment and power of -10- transfer endorsed thereon or attached thereto, duly executed, with such proof or guaranty of the authenticity of the signature as the Corporation or its agents may reasonably require. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by law or by the Certificate of Incorporation. It shall be the duty of each stockholder to notify the Corporation of his post office address. SECTION 3. Closing of Transfer Books. The stock transfer books of the Corporation may, if deemed appropriate by the Board of Directors, be closed for such length of time not exceeding fifty (50) days as the Board may determine, preceding the date of any meeting of stockholders or the date for the payment of any dividend or the date for the allotment of rights or the date when any issuance, change, conversion or exchange of capital stock shall go into effect, during which time no transfer of stock on the books of the Corporation may be made. SECTION 4. Dates of Record. If deemed appropriate, the Board of Directors may fix in advance a date for such length of time not exceeding sixty (60) days (and, in the case of any meeting of stockholders, not less than ten (10) days) as the Board may determine, preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights or the date when any issuance, change, conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting or entitled to receive payment of any such dividend or to any such allotment of rights, or to exercise the rights in respect of any such issuance, change, conversion or exchange of capital stock, as the case may be, and in such case only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any record date fixed as aforesaid. If no such record date is so fixed, the record date shall be determined by applicable law. SECTION 5. Lost or Destroyed Certificates. In case of the loss or destruction of any certificate of stock, a new certificate may be issued under the following conditions: (a) The owner of said certificate shall file with the Secretary or any Assistant Secretary of the Corporation an affidavit giving the facts in relation to the ownership, and in relation to the loss or destruction of said certificate, stating its number and the number of shares represented thereby; such affidavit shall be in such form and contain such statements as shall satisfy the President, any Executive Vice President, Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer, that said certificate has been accidentally destroyed or lost, and that a new certificate ought to be issued in lieu thereof. Upon being so satisfied, any such officer shall require such owner to furnish the Corporation a bond in such penal sum and in such form as he may deem advisable, and with a surety or sureties approved by him, to indemnify and save harmless the Corporation from any claim, loss, damage or liability which may be occasioned by the issuance of a new certificate in lieu thereof. Upon such bond being so filed, a new certificate for the same number of shares shall be issued to the owner of the certificate so lost or destroyed; and the transfer agent and registrar, if any, of stock shall countersign and register such new certificate upon receipt of a written order signed by any such officer, and thereupon the Corporation will save harmless said transfer agent and registrar in the premises. In case of the surrender of the original -11- certificate, in lieu of which a new certificate has been issued, or the surrender of such new certificate, for cancellation, the bond of indemnity given as a condition of the issue of such new certificate may be surrendered; or (b) The Board of Directors of the Corporation may by resolution authorize and direct any transfer agent or registrar of stock of the Corporation to issue and register respectively from time to time without further action or approval by or on behalf of the Corporation new certificates of stock to replace certificates reported lost, stolen or destroyed upon receipt of an affidavit of loss and bond of indemnity in form and amount and with surety satisfactory to such transfer agent or registrar in each instance or upon such terms and conditions as the Board of Directors may determine. ARTICLE VIII ------------ Execution of Documents SECTION 1. Execution of Checks, Notes, etc. All checks and drafts on the Corporation's bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers, or agent or agents, as shall be thereunto authorized from time to time by the Board of Directors, which may in its discretion authorize any such signatures to be facsimile. SECTION 2. Execution of Contracts, Assignments, etc. Unless the Board of Directors shall have otherwise provided generally or in a specific instance, all contracts, agreements, endorsements, assignments, transfers, stock powers, or other instruments shall be signed by the President, any Executive Vice President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer. The Board of Directors may, however, in its discretion, require any or all such instruments to be signed by any two or more of such officers, or may permit any or all of such instruments to be signed by such other officer or officers, agent or agents, as it shall be thereunto authorize from time to time. SECTION 3. Execution of Proxies. The President, any Executive Vice President or any Vice President, and the Secretary, the Treasurer, any Assistant Secretary or any Assistant Treasurer, or any other officer designated by the Board of Directors, may sign on behalf of the Corporation proxies to vote upon shares of stock of other companies standing in the name of the Corporation. ARTICLE IX ---------- Inspection of Books The Board of Directors shall determine from time to time whether, and if allowed, to what extent and at what time and places and under what conditions and regulations, the accounts and books of the Corporation (except such as may by law be specifically open to inspection) or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or of the stockholders of the Corporation. -12- ARTICLE X --------- Fiscal Year The fiscal year of the Corporation shall be determined from time to time by vote of the Board of Directors. ARTICLE XI ---------- Amendments These Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of a majority of all voting power of all of the then outstanding voting stock of the Corporation. The Board of Directors shall also have the power to adopt, amend or repeal the Bylaws. ARTICLE XII ----------- Indemnification SECTION 1. Indemnification. --------------- (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding or investigation, whether civil, criminal, administrative or investigative and whether external or internal to the Corporation (other than a judicial action or suit brought by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer or employee of the Corporation, or that, being or having been such a director, officer, or employee, he or she is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to hereafter as an "Agent"), against expenses (including attorneys' fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, or any appeal therein, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such conduct was unlawful. The termination of any action, suit or proceeding -- whether by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent -- shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed judicial action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was an Agent (as defined above) against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense, settlement or appeal of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have -13- been adjudged to be liable to the Corporation in the performance of his or her duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or other such court shall deem proper. (c) Notwithstanding the other provisions of this Article, to the extent that an Agent has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice or the settlement of an action without admission of liability, in defense of any action, suit or proceeding referred to in this Section or in defense of any claim, issue or matter therein or on appeal from any such action, suit, proceeding, claim or matter, he or she shall be indemnified against all expenses incurred in connection therewith. (d) Any indemnification provided pursuant to this Section 1 shall be paid promptly, and in any event within sixty (60) days of the final disposition of the action, suit or proceeding, upon the written request of the Agent, unless with respect to claims for indemnification under Paragraphs (a) or (b) of this Section, a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors that such Agent acted in a manner set forth in such Paragraphs as to justify the Corporation's not indemnifying the Agent. SECTION 2. Authorization. Any indemnification under Section 1 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 of this Article. Such determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. SECTION 3. Expense Advance. Costs, charges and expenses (including attorneys' fees) incurred by or on behalf of a director or officer in defending any action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, and in any event within sixty (60) days of the receipt by the Corporation of a demand therefor, upon receipt of an undertaking by or on behalf of such director or officer to repay the amount of all such advances if it shall be ultimately determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by employees and agents of the Corporation who are not officers, directors or employees may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. SECTION 4. Nonexclusivity. The rights provided by this Article shall not be deemed exclusive of, and shall not affect, any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Article shall be deemed to be provided by a contract between the Corporation and the Agent who serves in such capacity at any time while these By-Laws and other relevant provisions of the Delaware General Corporation Law and other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing. -14- SECTION 5. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. The Corporation may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. SECTION 6. "The Corporation." For the purposes of this Article, references to "the Corporation" include any constituent corporation absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, as well as the resulting or surviving corporation, so that any person who is or was a director, officer, employee or trustee of such a constituent corporation or who, being or having been such a director, officer, employee or trustee, is or was serving at the request of such constituent corporation as director, officer, employee, or trustee of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as such person would have stood with respect to such a constituent corporation if its separate existence had continued. SECTION 7. "Other Enterprises." For purposes of this Article, references to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service of an Agent which imposes duties on, or involves services by, such Agent with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. SECTION 8. Benefit. The rights provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Such rights shall be enforceable by the Agent in any court of competent jurisdiction, if the board or independent legal counsel denies Agent's claim, in whole or in part, or if no disposition of such claim is made within the respective time periods provided by this Article. Agent's costs and expenses incurred in connection with successfully establishing, in whole or in part, his or her right to such indemnification or advancements in any such proceeding shall also be indemnified by the Corporation. If this Article or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit, appeal, proceeding or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated, or by any other applicable law. SECTION 9. Amendment. Notwithstanding any other provision of these By-Laws, this Article XII may be altered, amended or repealed by the Board of Directors only pursuant to the affirmative vote of 80 percent or more of all members of the board in office at the time of such alteration, amendment or repeal. -15- EX-10.1 3 ex10_1.txt EXHIBIT 10.1 Exhibit 10.1 June 2004 (includes Plan Amendment on March 25, 1999, GTSI Name Change Amendment of May 16, 2000, and Plan Amendment on April 29, 2004) GTSI CORP. EMPLOYEE STOCK PURCHASE PLAN The following constitutes the provisions of the Employee Stock Purchase Plan (the "Plan") of GTSI Corp. (the "Company"). 1. Purpose. The purpose of the Plan is to provide employees of the Company and its subsidiaries with an opportunity to purchase Common Stock of the Company through payroll deductions. It is the intention of the Company that the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "Compensation," unless otherwise determined by the Board of Directors, means total cash compensation from employment reportable on Form W-2 including, without limitation, regular straight-time gross earnings, overtime pay, shift premium, incentive compensation, bonuses, commissions and automobile allowances. (b) "Employee" means any person, including an officer, who is customarily employed for more than 20 hours per week and five months or more per calendar year by the Company or its subsidiaries. For purposes of the Plan, the employment relationship shall be treated as continuing intact while he person is on military leave, sick leave or other leave of absence approved by the Company; provided that where the period of leave exceeds 90 days and the person's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. (c) "Subsidiary" means any corporation described in Section 424 of the Code in which the Company owns, directly or indirectly, 50% or more of the voting shares. (d) "Offering date" means the first business day of an offering period of the Plan. (e) "Termination date" means the last business day of an offering period of the Plan. 3. Eligibility. (a) General Rule. An Employee, as defined in Section 2, shall be eligible to participate in the Plan (subject to the limitations imposed by Section 423(b) of the Code) on the first day of the month following the commencement of his or her employment by the Company or its Subsidiaries. (b) Exceptions. Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan if: (i) immediately after the grant such Employee (or any other person whose stock ownership would be attributed to such Employee pursuant to Section 424(d) of the Code) would own shares and/or hold outstanding options to purchase shares possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary; or (ii) such option would permit the Employee's rights to purchase stock under all employee stock purchase plans (within the meaning of Section 423 of the Code and any successor provision) of the Company and its Subsidiaries to accrue (i.e., become exercisable) at a rate which exceeds $25,000 of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offerings. The Plan shall be implemented by two offerings during each twelve-month period during the term of the Plan commencing on January 1, 1992. Each offering shall be of six months duration. Offering I shall commence on January 1 and end on June 30 of each year of the Plan; Offering II shall commence on July 1 and end on December 31 of each year of the Plan. Participation in one offering under the Plan shall neither limit nor require participation in any other offering. 5. Participation. An eligible Employee may become a participant in one or more offerings under the Plan by completing and signing a subscription agreement authorizing payroll deductions on a form provided by the Company (the "Subscription Agreement") and by filing it with the Company's payroll office not less than 15 days prior to the first offering date with respect to which it is to be effective, unless a later time for filing the Subscription Agreement has been set by the Company with respect to a given offering. An Employee's authorization and participation in the Plan shall become effective on the first offering date following the timely filing of his Subscription Agreement and shall remain effective until revoked by the participant by the filing of a notice of cancellation of option and withdrawal from the Plan as described in Section 10(a) hereof or until changed by the filing of a Payroll Deduction Authorization Change or Withdrawal form providing for a change in the participant's payroll deduction rate. An Employee who becomes eligible to participate in the Plan after the commencement of an offering period may not become a participant in the Plan until the commencement of the next offering. 6. Payroll Deductions. (a) At the time a participant files his or her Subscription Agreement, he or she shall elect to have payroll deductions made on each Payday during the next offering period at a percentage rate equal to a whole number and not exceeding 15%, or such other maximum rate as may be determined from time to time by the Company's Board of Directors (herein sometimes referred to as the "Board") subject to the provisions of Section 19 hereof, of the Compensation which he or she receives on each Payday during the offering period, and the aggregate of such payroll deductions during the offering period shall not exceed a total of 15%, or such other percentage determined by the Board, of the participant's Compensation during such offering period. (b) Payroll deductions for a participant shall commence on the first payday following the date when a participant's payroll deduction authorization becomes effective and shall automatically continue from offering period to offering period until terminated by the participant in accordance with the terms hereof. (c) All payroll deductions authorized by a participant shall be credited to the participant's individual account under the Plan. A participant may not make any additional payments into such account. (d) A participant may terminate his participation in the Plan at any time prior to the termination of the offering period as provided in Section 10, but may not change the rate of his payroll deductions with respect to an offering period during such offering period. 7. Grant of Option. (a) On each offering date with respect to which a participant's payroll deduction authorization is effective, each participant in the Plan shall automatically be granted an option to purchase (at the option price as provided in Section 7(b) hereof) up to the number of whole shares of the Company's Common Stock arrived at by dividing (i) an amount equal to 5% of such participant's Compensation for the 12 calendar months prior to the offering date, by (ii) 85% of the fair market value of a share of the Company's Common Stock at the offering date, subject to the limitations set forth in Sections 3(b) and 12 hereof. If a participant has been employed for less than 12 calendar months immediately prior to the offering date, then for purposes of this Section 7(a) such participant's Compensation for the 12 calendar months prior to the offering date shall be deemed equal to the amount determined by annualizing the Compensation paid to such participant prior to such offering date based on the actual number of whole months that he or she has been an Employee during such 12-month period. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 7(c) hereof. (b) The option price per share of the shares to be sold during each offering shall be the lower of (i) 85% of the fair market value of a share of the Common Stock of the Company at the offering date or (ii) 85% of the fair market value of a share of the Common Stock of the Company at the termination date. (c) The fair market value of the Company's Common Stock shall be determined by the Company's Board of Directors, acting in its sole discretion, and based upon such factors as the Board determines relevant; provided, however, if there is a public market for the Common Stock, the fair market value of a share of Common Stock on a given date shall be the mean of the closing bid and asked prices for the Common Stock on such date, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation ("NASDAQ") System), or, in the event the Common Stock is listed on a national securities exchange or on the NASDAQ National Market System, the fair market value per share shall be the closing price on such exchange or on the NASDAQ National Market System, as reported in The Wall Street Journal. 8. Exercise of Option. Unless a participant cancels his or her option and withdraws from the Plan as provided in Section 10, his option for the purchase of shares shall be exercised automatically at the termination date of the offering period, and the accumulated payroll deductions credited to a participant's account on the termination date will be applied to purchase whole shares of the Company's Common Stock (up to the maximum number subject to option as determined in Section 7(a) hereof) at the applicable option price. Any amount credited to a participant's account and not applied to the purchase of Common Stock by reason of the limitation on the number of shares subject to option shall be refunded promptly to such participant after the termination date, provided that any amount remaining in a participant's account and representing a fractional share shall be carried over and applied to the purchase of shares in the subsequent offering period if the participant participates in the subsequent offering. During his or her lifetime, a participant's option to purchase shares hereunder is exercisable only by such participant. 9. Delivery. After the six (6) month anniversary of the end of each offering period, the Company as promptly as practicable will arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal; Termination of Employment. (a) A participant may terminate his or her participation in the Plan and withdraw all, but not less than all, the payroll deductions credited to his or her account under the Plan at any time prior to a termination date by giving written notice of withdrawal to the Company on a Payroll Deduction Authorization Change or Withdrawal form provided for such purpose. All of the participant's payroll deductions credited to his or her account shall be paid to him or her promptly after receipt of his or her notice of withdrawal, and his or her option for the current period shall be automatically cancelled, and no further payroll deductions for the purchase of shares shall be made except pursuant to a new Subscription Agreement filed in accordance with Section 5 hereof. (b) Upon termination of a participant's employment for any reason, including retirement or death, as soon as practicable after such termination, the payroll deductions credited to his or her account shall be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option shall be automatically cancelled. (c) In the event an Employee fails to remain in the continuous employ of the Company or its Subsidiaries for more than 20 hours per week during the offering period in which the Employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his or her account will be returned to him or her and his or her option will be cancelled. (d) A participant's withdrawal from an offering shall not have any effect upon his or her eligibility to participate in a subsequent offering or in any similar plan which may hereafter be adopted by the Company. 11. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan. 12. Stock. (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be Seven Hundred Fifty Thousand (750,000) shares, subject to adjustment upon changes in capitalization of the Company as provided in Section 18. The shares to be sold to participants in the Plan will be authorized but unissued shares. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) hereof at the offering date exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform and equitable a manner as is practicable. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each participant affected thereby and shall reduce the rate of payroll deductions, if necessary. (b) A participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall, as specified in the participant's Subscription Agreement, be registered in the name of the participant or in the name of the participant and his or her spouse. 13. Administration. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board, as necessary to comply with Rule 16b-3 under the Securities Exchange Act of 1934. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan; provided, however, that to the extent necessary to comply with Rule 16b-3 no discretion concerning decisions regarding the Plan shall be afforded to a person who is not a "disinterested person" as that term is defined and interpreted under Rule 16b-3. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 14. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the termination date of an offering period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the termination date of an offering period. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a valid designation of a beneficiary who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant; or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant; or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, pursuant to a qualified domestic relations order as defined by the Code, or as provided in Section 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10 hereof. 16. Use of Funds. All payroll deductions received or held by the Company on behalf of a participant under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each participant in the Plan. Individual statements of account will be given to participating Employees semi-annually as promptly as practicable following the termination date of an offering period, which statements shall set forth the amounts of payroll deductions, the per share option price, the number of shares purchased and the remaining cash balance, if any, in a participant's account. 18. Adjustments Upon Changes in Capitalization. (a) Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option or which has been returned to the Plan upon the cancellation of an option, as well as the option price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, stock dividend, spin-off, reorganization, recapitalization, merger, consolidation, exchange of shares or the like. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to option. (b) In the event of the proposed dissolution or liquidation of the Company, or in the event of a proposed sale of all or substantially all of the assets of the Company, or the merger or consolidation of the Company with or into another corporation, the Board shall (i) make provision for the assumption of all outstanding options by the successor corporation or (ii) declare that any option shall terminate as of a date fixed by the Board which is at least 30 days after the notice thereof and unless a participant terminates his participation in the Plan prior to such date, his option for the purchase of shares will be exercised automatically on such date and the accumulated payroll deductions credited to a participant's account on such date will be applied to purchase whole shares of the Company's Common Stock (up to the maximum number subject to option as determined in accordance with Section 7(a) hereof) at the applicable option price. (c) No fractional shares of Common Stock shall be issuable on account of any adjustment described herein, and the aggregate number of shares into which shares then covered by an option, when changed as the result of such adjustment, shall be reduced to the largest number of whole shares resulting from such adjustment, unless the Board, in its sole discretion, shall determine to issue scrip certificates in respect to any fractional shares, which scrip certificates, in such event, shall be in a form and have such terms and conditions as the Board in its discretion shall prescribe. 19. Amendment or Termination. The Board of Directors of the Company may at any time terminate or amend the Plan in such respects as the Board may deem advisable. No such termination will affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant without the prior written consent of such participant, nor may an amendment be made without prior approval of the stockholders of the Company if such amendment would: (a) Increase the number of shares that may be issued under the Plan; (b) Materially modify the requirements as to eligibility for participation in the Plan; or (c) Materially increase the benefits which accrue to participants under the Plan. 20. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by vote of a majority of the outstanding shares of the Company entitled to vote on the adoption of the Plan. The Plan shall continue in effect until November 1, 2011 unless sooner terminated under Sections 19 or 22 of the Plan. 21. Notices. All notices or other communications by a participant to the Company in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Stockholder Approval. Notwithstanding anything to the contrary herein, the continuance of the Plan and the effectiveness of any option granted hereunder shall be subject to approval by the affirmative vote of the holders of a majority of the outstanding shares of stock of the Company present or represented and entitled to vote thereon at a meeting, within 12 months before or after the date the Plan is adopted by the Board. No options granted before such stockholder approval has been obtained shall be exercisable unless such stockholder approval is obtained. If the Plan is not approved by the stockholders of the Company within the above-referenced 12-month period, the Plan and any options granted thereunder shall terminate and all payroll deductions credited to a participant's account shall be promptly returned to him or her. 23. No Enlargement of Employee Rights. The Plan is purely voluntary on the part of the Company, and the continuance of the Plan shall not be deemed to constitute a contract between the Company and any Employee, or to be consideration for or a condition of the employment of any Employee. Nothing contained in this Plan shall be deemed to give any Employee the right to be retained in the employ of the Company, its parent, subsidiary or a successor corporation, or to interfere with the right of the Company or any such corporations to discharge or retire any Employee thereof at any time. No Employee shall have any right to or interest in options authorized hereunder prior to the grant of an option to such Employee, and upon such grant he shall have only such rights and interests as are expressly provided herein, subject, however, to all applicable provisions of the Company's Certificate of Incorporation, as the same may be amended from time to time. 24. Information to Participants. The Company shall provide without charge to each participant in the Plan copies of such annual and periodic reports as are provided by the Company to its stockholders generally. 25. Governing Law. To the extent that Federal laws do not otherwise control, the Plan and all determinations made or actions taken pursuant hereto shall be governed by the laws of the state of Delaware, without regard to the conflicts of laws rules thereof, and construed accordingly. 26. Tax Withholding. If, at any time, the Company or any Subsidiary is required, under applicable laws and regulations, to withhold, or to make any deduction of, any taxes or take any other action in connection with any exercise of an option made hereunder or transfer of shares of Common Stock, the Company or such Subsidiary shall have the right to deduct from all amounts paid in cash any taxes required by law to be withheld therefrom, and in the case of shares of Common Stock, the participant or his or her estate or beneficiary shall be required to pay the Company or such Subsidiary the amount of taxes required to be withheld, or, in lieu thereof, the Company or such Subsidiary shall have the right to retain, or sell without notice, a sufficient number of shares of Common Stock to cover the amount required to be withheld, or to make other arrangements with respect to withholding as it shall deem appropriate. 27. Securities Law Compliance. No shares of Common Stock may be issued upon the exercise of any option under the Plan until all requirements of applicable Federal, state, foreign or other securities laws, with respect to the purchase, sale and issuance of shares of Common Stock shall have been satisfied. If any action must be taken because of such requirements, then the purchase, sale and issuance of shares shall be postponed until such action can reasonably be taken. Upon demand by the Company, an Employee shall deliver to the Company a representation in writing that the purchase of shares pursuant to the exercise of an option hereunder is being made for investment only and not for resale or with a view to distribution, or such other information, representations or undertakings as the Company may reasonably require in order to comply with any registration requirements or exemptions therefrom of applicable securities laws. The Company may require any securities so issued to bear a legend, may give its transfer agent instructions, and may take such other steps as in its judgment are reasonably required to prevent any such violation of applicable securities laws. [End] CERTIFICATE OF SECRETARY THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Corporate Secretary of GTSI Corp., and that the foregoing plan is a true and complete copy of the Employee Stock Purchase Plan of the Company as authorized, adopted and approved by the Company's Board of Directors on November 7, 1991 as amended by resolutions of the Board of Directors through April, 29, 2004. IN WITNESS WHEREOF, this 3rd day of May, 2004. /s/ CHARLES DE LEON ------------------------------------ Charles De Leon, Corporate Secretary EX-10.4 4 ex10_4.txt EXHIBIT 10.4 Exhibit 10.4 AS AMENDED THROUGH April 29, 2004 GTSI CORP. 1996 STOCK OPTION PLAN 1. Establishment and Purposes of the Plan. GTSI Corp. hereby establishes this 1996 Stock Option Plan to promote the interests of the Company and its stockholders by (i) helping to attract and retain the services of non-employee directors and selected key employees of the Company who are in a position to make a material contribution to the successful operation of the Company's business, (ii) motivating such persons, by means of performance-related incentives, to achieve the Company's business goals and (iii) enabling such persons to participate in the long-term growth and financial success of the Company by providing them with an opportunity to purchase stock of the Company. 2. Definitions. The following definitions shall apply throughout the Plan: a. "Affiliate" shall mean any entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Company. b. "Board of Directors" shall mean the Board of Directors of the Company. c. "Code" shall mean the Internal Revenue Code of 1986, as amended. References in the Plan to any section of the Code shall be deemed to include any amendment or successor provisions to such section and any regulations issued under such section. d. "Common Stock" shall mean the common stock, par value $0.005 per share, of the Company. e. "Company" shall mean GTSI Corp., a Delaware Corporation and any "subsidiary" corporation, whether now or hereafter existing, as defined in Sections 424(f) and (g) of the Code, or any entity in which GTSI owns at least a 35% interest. f. "Committee" shall mean the Committee appointed by the Board of Directors in accordance with Section 4(a) of the Plan or, if no Committee shall be appointed or in office, the Board of Directors. g. "Continuous Employment" shall mean the absence of any interruption or termination of employment by the Company. Continuous Employment shall not be considered interrupted in the case of sick leave, military leave or any other leave of absence approved by the Committee or in the case of transfers between locations of the Company. h. "Disinterested Person" shall mean an administrator of the Plan who satisfies the requirements, if any, imposed on administrators of plans in order for the grant of Options to be exempt under any version of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, that is relied on by the Company.. i. "Employee" shall mean any employee of the Company, including officers and directors who are also employees. j. "Fair Market Value" shall mean, with respect to Shares, the fair market value per Share on the date an option is granted and, so long as the Shares are quoted on the National Association of Securities Dealers Automated Quotations ("Nasdaq") System), the Fair Market Value per Share shall be the closing price on the Nasdaq Stock Market as of the date of grant of the Option, as reported in The Wall Street Journal or, if there are no sales on such date, on the immediately preceding day on which there were reported sales. k. "Incentive Stock Option" shall mean an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. l. "Non-Employee Director" shall mean any director of the Company who is not an Employee of the Company. m. "Non-Statutory Stock Option" shall mean an Option which is not an Incentive Stock Option. n. "Option" shall mean a stock option to purchase Common Stock granted to an Optionee pursuant to the Plan. o. "Option Agreement" means a written agreement substantially in one of the forms attached hereto as Exhibit A, or such other form or forms as the Committee (subject to the terms and conditions of the Plan) may from time to time approve, evidencing and reflecting the terms of an Option. p. "Optioned Stock" shall mean the Common Stock subject to an Option granted pursuant to the Plan. q. "Optionee" shall mean any Employee or Non-Employee Director who is granted an Option. r. "Plan" shall mean this GTSI Corp. 1996 Stock Option Plan. s. "Shares" shall mean shares of the Common Stock or any shares into which such Shares may be converted in accordance with Section 11 of the Plan 3. Shares Reserved. The maximum aggregate number of Shares reserved for issuance pursuant to the Plan shall be 3,500,000 Shares or the number of shares of stock to which such Shares shall be adjusted as provided in Section 11 of the Plan. Such number - 2 - of Shares may be set aside out of authorized but unissued Shares not reserved for any other purpose, or out of issued Shares acquired for and held in the treasury of the Company from time to time. Shares subject to, but not sold or issued under, any Option terminating, expiring or canceled for any reason prior to its exercise in full, shall again become available for Options thereafter granted under the Plan, and the same shall not be deemed an increase in the number of Shares reserved for issuance under the Plan. 4. Administration of the Plan. a. The Plan shall be administered by a Committee designated by the Board of Directors to administer the Plan and comprised of not less than two directors, each of whom is a Disinterested Person. In addition, each director designated by the Board of Directors to administer the Plan shall be an "outside director" as defined in the Treasury regulations issued pursuant to Section 162(m) of the Code. Members of the Committee shall serve for such period of time as the Board of Directors may determine or until their resignation, retirement, removal or death, if sooner. From time to time the Board of Directors may increase the size of the Committee and appoint additional members thereto, remove members (with or without cause) and appoint new members in substitution therefore or fill vacancies however caused. b. Subject to the provisions of the Plan, the Committee shall have the authority, in its discretion: (i) to grant Incentive Stock Options, in accordance with Section 422 of the Code, or Non-Statutory Stock Options; (ii) to determine, upon review of relevant information, the Fair Market Value per Share; (iii) to determine the exercise price of the Options to be granted to Employees in accordance with Section 7(c) of the Plan; (iv) to determine the Employees to whom, and the time or times at which, Options shall be granted, and the number of Shares subject to each Option; (v) to prescribe, amend and rescind rules and regulations relating to the Plan subject to the limitations set forth in Section 13 of the Plan; (vi) to determine the terms and provisions of each Option granted to Optionees under the Plan and each Option Agreement (which need not be identical with the terms of other Options and Option Agreements) and, with the consent of the Optionee, to modify or amend an outstanding Option or Option Agreement; (vii) to accelerate the exercise date of any Option; (viii) to determine whether any Optionee will be required to execute a stock repurchase agreement or other agreement as a condition to the exercise of an Option, and to determine the terms and provisions of any such agreement (which need not be identical with the terms of any other such agreement) and, with the consent of the Optionee, to amend any such agreement; (ix) to interpret the Plan or any agreement entered into with respect to the grant or exercise of Options; (x) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted or to take such other actions as may be necessary or appropriate with respect to the Company's rights - 3 - pursuant to Options or agreements relating to the grant or exercise thereof; and (xi) to make such other determinations and establish such other procedures as it deems necessary or advisable for the administration of the Plan. Notwithstanding anything else herein, the Committee shall not have the authority to adjust or amend the exercise price of any Options previously awarded to any Optionee, whether through amendment, cancellation, replacement grant or other means. c. All decisions, determinations and interpretations of the Committee shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. d. The Committee shall keep minutes of its meetings and of the actions taken by it without a meeting. A majority of the Committee shall constitute a quorum, and the actions of a majority at a meeting, including a telephone meeting, at which a quorum is present, or acts approved in writing by a majority of the members of the Committee without a meeting, shall constitute acts of the Committee. e. The Company shall pay all original issue and transfer taxes with respect to the grant of Options and/or the issue and transfer of Shares pursuant to the exercise thereof, and all other fees and expenses necessarily incurred by the Company in connection therewith; provided, however, that the person exercising an Option shall be responsible for all payroll, withholding, income and other taxes incurred by such person in respect of the exercise of an Option or transfer of Shares. 5. Eligibility. Non-Statutory Stock Options may be granted under the Plan to Employees and Non-Employee Directors; Incentive Stock Options may be granted under the Plan only to Employees. An Employee or Non-Employee Director who has been granted an Option may, if he or she is otherwise eligible, be granted additional Options. 6. Non-Employee Directors. Notwithstanding the powers set forth in Section 4(b) of the Plan, the Committee shall have no power to determine eligibility for grants of Non-Statutory Stock Options or to increase the number of Shares for which Non-Statutory Stock Options may be granted or the timing or exercise price of Non-Statutory Stock Options granted to any Non-Employee Director. All Non-Employee Directors of the Company are granted automatically a Non-Statutory Stock Option to purchase up to 10,000 Shares, and a Non-Employee Director elected to serve as Chairman of the Board is granted automatically a Non-Statutory Stock Option to purchase up to an additional 10,000 Shares: (1) as of the date such person is elected (or reelected) to serve as a Non-Employee Director and/or as Chairman, respectively, and (2) as of the first and second anniversary of such election (or reelection) provided that the Optionee is serving as of such first or second anniversary during the respective directorship term as a Non-Employee Director. Any such Shares shall vest and become exercisable, cumulatively, in 12 equal monthly installments commencing on - 4 - the last business day of the month of grant; provided that if an Optionee ceases to serve as a Non-Employee Director during any month, the Option shall cease to vest and become exercisable with respect to any subsequent month(s). If the election of a Non-Employee Director or Chairman occurs prior to an annual stockholders' meeting, the Non-Employee Director shall receive a pro rata option grant (or, in the case of Chairman, an additional pro rata option grant) in connection with his or her election, and the related Shares shall vest and become exercisable, cumulatively, in equal monthly installments. The Non-Employee Director appointed by the Board as the Lead Independent Director shall be granted automatically a Non-Statutory Stock Option to purchase up to 2,000 Shares as of the date such person is appointed or reappointed to serve as Lead Independent Director. Any such Non-Statutory Options shall vest and become exercisable cumulatively, in 12 equal monthly installments commencing on the last business day of the month of grant; provided that if the Optionee ceases to serve as a Lead Independent Director during any month, the option shall cease to vest and become exercisable with respect to any subsequent month(s). All other terms and conditions in this Plan regarding Options granted automatically to Non-Employee Directors shall also apply to the above-referenced Options to be granted to the Lead Independent Director. If an Optionee ceases to serve as a Non-Employee Director for any reason, he or she may thereafter exercise his or her Option, to the extent he or she was entitled to do so at the date of such cessation, at any time before the earlier of (a) the fifth anniversary of the cessation date and (b) the date on which the respective Option would have expired if the Optionee had not ceased to serve as a Non-Employee Director. The post cessation exercise period of an Option granted to a Non-Employee Director, as set forth in the immediately preceding sentence, shall apply to Options previously granted automatically to the Non-Employee Directors hereunder and to Options granted automatically to Non-Employee Directors hereunder in the future. To the extent that an Optionee who is a former Non-Employee Director does not exercise his or her Options (which he or she was entitled to exercise) within the applicable time period specified herein, the Option shall terminate. The consideration to be paid for the Shares to be issued upon exercise of an option by a Non-Employee Director shall consist of (a) cash or check or (b) subject to approval by the Committee, cash, check, broker's commitment to pay, or Common Stock held by the Optionee for at least six months, or some combination thereof. 7. Terms and Conditions of Options. Options granted pursuant to the Plan by the Committee shall be either Incentive Stock Options or Non-Statutory Stock Options and shall be evidenced by an Option Agreement providing, in addition to such other terms as the Committee may deem advisable, the following terms and conditions: a. Time of Granting Options. The date of grant of an Option shall, except in the case of Non-Employee Directors, be the date on which the Committee makes the determination granting such Option. Notice of the determination shall be given to each Optionee within a reasonable time after the date of such grant. - 5 - b. Number of Shares. Each Option Agreement shall state the number of Shares to which it pertains and whether such Option is intended to constitute an Incentive Stock Option or a Non-Statutory Stock Option. The maximum number of Shares which may be subject to Options granted under the Plan during any calendar year to any Optionee is 100,000 Shares. If an Option held by an Employee of the Company is canceled, the canceled Option shall continue to be counted against the maximum number of Shares for which Options may be granted to such Employee and any replacement Option granted to such Employee shall also count against such limit. c. Exercise Price. The exercise price per Share for the Shares to be issued pursuant to the exercise of an Option shall be such price as is determined by the Committee; provided, however, that with respect to both Non-Statutory Stock Options and Incentive Stock Options such price shall in no event be less than 100% of the Fair Market Value per Share on the date of grant, except that the Committee may specifically provide that the exercise price of an Option may be higher or lower in the case of an Option granted to employees of a company acquired by the Company in assumption and substitution of options held by such employees at the time such company is acquired. In the case of an Incentive Stock Option granted to an Employee who, at the time the Incentive Stock Option is granted, owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) stock possessing more than 10% of the combined voting power of all classes of stock of the Company, the exercise price per Share shall be no less than 110% of the Fair Market Value per Share on the date of grant. d. Medium and Time of Payment. Except in the case of Non-Employee Directors, which shall be governed by Section 6, the consideration to be paid for the Shares to be issued upon exercise of an Option and to be paid to satisfy any withholding tax obligation incident thereto, including the method of payment, shall be determined by the Committee and, subject to approval by the Committee, may consist entirely or in any combination of cash, check, a commitment to pay by a broker or Shares held by the Optionee or issuable upon exercise of the Option, or such other consideration and method of payment permitted under any laws to which the Company is subject. In the case of an Incentive Stock Option, such provision shall be determined on the date of the grant. e. Term of Options. The term of an Incentive Stock Option may be up to 10 years from the date of grant thereof; provided, however, that the term of an Incentive Stock Option granted to an Employee who, at the time the Incentive Stock Option is granted, owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, shall be five years from the date of grant thereof or such shorter term as may be provided in the Option. - 6 - The term of a Non-Statutory Stock Option, in the case of an Employee, may be up to 10 years from the date such Employee first becomes vested in any portion of an Option award; and in the case of Non-Employee Director, shall be 10 years from the date of grant thereof. The term of any Option, other than an Option awarded to a Non-Employee Director, may be less than the maximum term provided for herein as specified by the Committee upon grant of the Option and as set forth therein. f. Maximum Amount of Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined at the time an Incentive Stock Option is granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year under all incentive stock option plans of the Company exceeds $100,000, the Options in excess of such limit shall be treated as Non-Statutory Stock Options. 8. Exercise of Option. a. In General. Any Option granted hereunder to an Employee shall be exercisable at such times and under such conditions as may be determined by the Committee and as shall be permissible under the terms of the Plan, including any performance criteria with respect to the Company and/or the Optionee as may be determined by the Committee. Any Option granted hereunder to a Non-Employee Director shall be exercisable at such times and under such conditions as set forth in Section 6 of the Plan. An Option may be exercised in accordance with the provisions of the Plan as to all or any portion of the Shares then exercisable under an Option from time to time during the term of the Option. However, an Option may not be exercised for a fraction of a Share. b. Procedure. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company at its principal business office in accordance with the terms of the Option Agreement by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company, accompanied by any other agreements required by the terms of the Plan and/or Option Agreement or as required by the Committee and payment by the Optionee of all payroll, withholding or income taxes incurred in connection with such Option exercise (or arrangements for the collection or payment of such tax satisfactory to the Committee are made). Full payment may consist of such consideration and method of payment allowable under Section 7(d) of the Plan. c. Decrease in Available Shares. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. d. Exercise of Stockholder Rights. Until the Option is properly exercised in accordance with the terms of this section, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect - 7 - to the Optioned Stock. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Option is exercised, except as provided in Section 11 of the Plan. e. Termination of Eligibility. If an Optionee ceases to serve as an Employee for any reason other than death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code) and thereby terminates his or her Continuous Status as an Employee he or she may, but only within one month, or such other period of time not exceeding three months in the case of an Incentive Stock Option (or in the case of an Optionee subject to Rule 16b-3 of the Securities Exchange Act of 1934, as amended, the greater of six months from the date of the Option award or three months from the date of termination of employment) or six months in the case of a Non-Statutory Stock Option, in each case as is determined by the Committee, following the date he or she ceases his or her Continuous Status as an Employee (subject to any earlier termination of the Option as provided by its terms), exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. To the extent that he or she was not entitled to exercise the Option at the date of such termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. Notwithstanding anything to the contrary herein, the Committee may at any time and from time to time prior to the termination of a Non-Statutory Stock Option, with the consent of the Optionee, extend the period of time during which the Optionee may exercise his or her Non-Statutory Stock Option following the date he or she ceases his or her Continuous Status as an Employee; provided, however, that the maximum period of time during which a Non-Statutory Stock Option shall be exercisable following the date on which an Optionee terminates his or her Continuous Status as an Employee shall not exceed an aggregate of six months, that the Non-Statutory Stock Option shall not be, or as a result of such extension become, exercisable after the expiration of the term of such Option as set forth in the Option Agreement and, notwithstanding any extension of time during which the Non-Statutory Stock Option may be exercised, that such Option, unless otherwise amended by the Committee, shall only be exercisable to the extent the Optionee was entitled to exercise it on the date he or she ceased his or her Continuous Status as an Employee. f. Death or Disability Of Optionee. If an Optionee's Continuous Status as an Employee ceases due to death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code) of the Optionee, the Option may be exercised within six months (or such other period of time not exceeding one year as is determined by the Committee) following the date of death or termination of employment due to permanent or total disability (subject to any earlier termination of the Option as provided by its terms), by the Optionee in the case of permanent or total disability, or in the case of death by the Optionee's estate or by a person who acquired the right to exercise the Option - 8 - by bequest or inheritance, but in any case (unless otherwise determined by the Committee) only to the extent the Optionee was entitled to exercise the Option at the date of his or her termination of employment by death or permanent and total disability. To the extent that he or she was not entitled to exercise such Option at the date of his or her termination of employment by death or permanent and total disability, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate. g. Expiration of Option. Notwithstanding any provision in the Plan, including but not limited to the provisions set forth in Sections 8(e) and 8(f), an Option may not be exercised, under any circumstances, after the expiration of its term. h. Conditions on Exercise and Issuance. As soon as practicable after any proper exercise of an Option in accordance with the provisions of the Plan, the Company shall deliver to the Optionee at the principal executive office of the Company or such other place as shall be mutually agreed upon between the Company and the Optionee, a certificate or certificates representing the Shares for which the Option shall have been exercised. The time of issuance and delivery of the certificate or certificates representing the Shares for which the Option shall have been exercised may be postponed by the Company for such period as may be required by the Company, with reasonable diligence, to comply with any law or regulation applicable to the issuance or delivery of such Shares. Options granted under the Plan are conditioned upon the Company obtaining any required permit or order from appropriate governmental agencies, authorizing the Company to issue such Options and Shares issuable upon exercise thereof. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, applicable state law, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and may be further subject to the approval of counsel for the Company with respect to such compliance. i. Withholding or Deduction for Taxes. The grant of Options hereunder and the issuance of Shares pursuant to the exercise thereof is conditioned upon the Company's reservation of the right to withhold, in accordance with any applicable law, from any compensation or other amounts payable to the Optionee any taxes required to be withheld under Federal, state or local law as a result of the grant or exercise of such Option or the sale of the Shares issued upon exercise thereof. To the extent that compensation and other amounts, if any, payable to the Optionee are insufficient to pay any taxes required to be so withheld, the Company may, in its sole discretion, require the Optionee, as a condition of the exercise of an Option, to pay in cash to the - 9 - Company an amount sufficient to cover such tax liability or otherwise to make adequate provision for the delivery to the Company of cash necessary to satisfy the Company's withholding obligations under Federal and state law. 9. Non-transferability of Options. Options granted under the Plan may not be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any manner, either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent or distribution or, if permitted of Options granted under Rule 16b-3, transfers between spouses incident to a divorce. 10. Holding Period. In the case of officers and directors of the Company, at least six months must elapse from the date of grant of the Option to the date of disposition of the underlying Shares. 11. Adjustment Upon Change in Corporate Structure. a. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the exercise or purchase price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split or combination or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company (other than stock awards to Employees or directors); provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been effected without the receipt of consideration. Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to the Plan or an Option. b. In the event of the proposed dissolution or liquidation of the Company, or in the event of a proposed sale of all or substantially all of the assets of the Company (other than in the ordinary course of business), or the merger or consolidation of the Company with or into another corporation, as a result of which the Company is not the surviving and controlling corporation, the Board of Directors shall (i) make provision for the assumption of all outstanding options by the successor corporation or (ii) declare that any Option shall terminate as of a date fixed by the Board of Directors which is at least 30 days after the notice thereof to the Optionee and shall give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable provided such exercise does not violate Section 8(e) of the Plan. - 10 - c. No fractional shares of Common Stock shall be issuable on account of any action aforesaid, and the aggregate number of shares into which Shares then covered by the Option, when changed as the result of such action, shall be reduced to the largest number of whole shares resulting from such action, unless the Board of Directors, in its sole discretion, shall determine to issue scrip certificates in respect to any fractional shares, which scrip certificates, in such event shall be in a form and have such terms and conditions as the Board of Directors in its discretion shall prescribe. 12. Stockholder Approval. Effectiveness of the Plan shall be subject to approval by the stockholders of the Company within 12 months before or after the date the Plan is adopted; provided, however, that Options may be granted pursuant to the Plan subject to subsequent approval of the Plan by such stockholders. Stockholder approval shall be obtained by the affirmative votes of the holders of a majority of voting Shares present or represented and entitled to vote at a meeting of stockholders duly held in accordance with the laws of the state of Delaware. 13. Amendment and Termination of the Plan. a. Amendment and Termination. Except as provided in Section 13(b) of the Plan, the Committee may amend or terminate the Plan from time to time in such respects as the Committee may deem advisable and shall make any amendments which may be required so that Options intended to be Incentive Stock Options shall at all times continue to be Incentive Stock Options for the purpose of Section 422 of the Code; provided, however, that without approval of the holders of a majority of the voting Shares present or represented and entitled to vote at a valid meeting of stockholders, no such revision or amendment shall be made that affects the ability of Options thereafter granted under the Plan to satisfy Rule 16b-3. b. Effect of Amendment or Termination. Except as otherwise provided in Section 11 of the Plan, any amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if the Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Company, which agreement must be in writing and signed by the Optionee and the Company. Notwithstanding anything to the contrary herein, this 1996 Stock Option Plan shall not adversely affect, unless mutually agreed in writing by the Company and an Optionee, the terms and provisions of any Option granted prior to the date the Plan was approved by stockholders as provided in Section 12 of the Plan. 14. Indemnification. No member of the Committee or of the Board of Directors shall be liable for any act or action taken, whether of commission or omission, except in circumstances involving willful misconduct, or for any act or action taken, whether of commission or omission, by any other member or by any officer, agent, - 11 - or Employee. In addition to such other rights of indemnification they may have as members of the Board of Directors, or as members of the Committee, the Committee shall be indemnified by the Company against reasonable expenses, including attorneys' fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken, by commission or omission, in connection with the Plan or any Option taken thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for willful misconduct in the performance of his or her duties; provided that within 60 days after institution of any such action, suit or proceeding, a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. 15. General Provisions. a. Other Plans. Nothing contained in the Plan shall prohibit the Company from establishing additional incentive compensation arrangements. b. No Enlargement of Rights. Neither the Plan, nor the granting of Shares, nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain an Employee or a Non-Employee Director for any period of time, or at any particular rate of compensation. Nothing in the Plan shall be deemed to limit or affect the right of the Company or any such corporations to discharge any Employee thereof at any time for any reason or no reason. Nothing in the Plan shall in any way limit or affect the right of the Board of Directors or the stockholders of the Company to remove any Non-Employee Director or otherwise terminate his or her service as a director of the Company. No Employee or Non-Employee Director shall have any right to or interest in Options authorized hereunder prior to the grant thereof to such eligible person, and upon such grant he or she shall have only such rights and interests as are expressly provided herein and in the related Option Agreement, subject, however, to all applicable provisions of the Company's Certificate of Incorporation, as the same may be amended from time to time. c. Notice. Any notice to be given to the Company pursuant to the provisions of the Plan shall be addressed to the Company in care of its Secretary (or such other person as the Company may designate from time to time) at its principal office, and any notice to be given to an Optionee whom an Option is granted hereunder shall be delivered personally or addressed to him or her at the address given beneath his or her signature on his or her Stock Option Agreement, or at such other address as such Optionee or his or her transferee (upon the transfer of the Optioned Stock) may hereafter designate in writing to - 12 - the Company. Any such notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified, and actually received by the Company. It shall be the obligation of each Optionee holding Shares purchased upon exercise of an Option to provide the Secretary of the Company, by letter mailed as provided hereinabove, with written notice of his or her direct mailing address. d. Applicable Law. To the extent that Federal laws do not otherwise control, the Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws rules thereof. e. Incentive Stock Options. The Company shall not be liable to an Optionee or other person if it is determined for any reason by the Internal Revenue Service or any court having jurisdiction that any Incentive Stock Options are not incentive stock options as defined in Section 422 of the Code. f. Information to Optionees. The Company shall provide without charge to each Optionee copies of such annual and periodic reports as are provided by the Company to its stockholders generally. g. Availability of Plan. A copy of the Plan shall be delivered to the Secretary of the Company and shall be shown by him or her to any eligible person making reasonable inquiry concerning it. h. Severability. In the event that any provision of the Plan is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability shall not be construed as rendering any other provisions contained herein as invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid or unenforceable provision was not contained herein. 16. Effective Date and Term of Plan. The Plan shall become effective upon stockholder approval as provided in Section 12 of the Plan. The Plan shall continue in effect for a term of ten years unless sooner terminated under Section 13 of the Plan. - 13 - Certificate of Corporate Secretary THIS IS TO CERTIFY: That I am the duly elected, qualified and acting Corporate Secretary of GTSI Corp., and that the foregoing plan is a true and correct copy of the Company's 1996 Stock Option Plan, as adopted by the Company's stockholders on May 7, 1996, and as amended through April 29, 2004. IN WITNESS WHEREOF, this 3rd day of May, 2004. /s/ CHARLES DE LEON --------------------------------------- Charles De Leon, Corporate Secretary - 14 - EX-31 5 ex31_1.txt EXHIBIT 31.1 Exhibit 31.1 Written Certification of Chief Executive Officer I, Dendy Young, certify that: 1. I have reviewed this quarterly report on Form 10-Q of GTSI Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ DENDY YOUNG - ------------------------------------ Dendy Young Chairman and Chief Executive Officer EX-31 6 ex31_2.txt EXHIBIT 31.2 Exhibit 31.2 Written Certification Of Chief Financial Officer I, Thomas A. Mutryn, certify that: 1. I have reviewed this quarterly report on Form 10-Q of GTSI Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ THOMAS A. MUTRYN - ------------------------------------------------- Thomas A. Mutryn Chief Financial Officer and Senior Vice President EX-32 7 ex_32.txt EXHIBIT 32 Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Written Statement of Chief Executive Officer and Chief Financial Officer The undersigned, Dendy Young, Chairman and Chief Executive Officer of GTSI Corp. (the "Company"), and Thomas A. Mutryn, Chief Financial Officer and Senior Vice President of the Company, certify that the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 filed by GTSI Corp. with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of GTSI Corp. Date: August 9, 2004 /s/ DENDY YOUNG ------------------------------------------------- Dendy Young Chairman and Chief Executive Officer /s/ THOMAS A. MUTRYN ------------------------------------------------- Thomas A. Mutryn Chief Financial Officer and Senior Vice President -----END PRIVACY-ENHANCED MESSAGE-----