-----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, LkoII3R8EZffGEzqwZu7iKwuXM0KejX5BskEmR7jlLg2V1MetkRa5weDSRl7yKRQ HNwictwOtWgL3z19+R053g== 0001145443-03-000482.txt : 20030331 0001145443-03-000482.hdr.sgml : 20030331 20030331142935 ACCESSION NUMBER: 0001145443-03-000482 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19394 FILM NUMBER: 03629235 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-K 1 d12322.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ---------------------- Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2002 Commission File No. 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 Number) 3901 Stonecroft Boulevard, Chantilly, Virginia 20151-1010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 502-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.005 par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Act). |X| The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock on June 30, 2002, as reported on The Nasdaq Stock Market, was $65,486,113. The number of shares outstanding of the registrant's Common Stock on March 21, 2003, was 8,416,538. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement to be delivered to stockholders in connection with their Annual Meeting of Stockholders scheduled to be held on May 14, 2003 are incorporated by reference into Part III of this Form 10-K. PART I Item 1. BUSINESS. Company Overview GTSI Corp., a Delaware Corporation ("GTSI" or the "Company"), is a recognized information technology solutions leader, providing products and services to U.S. Federal ("Government"), state and local government customers worldwide. Founded in 1983, GTSI has 20 years of government-focused experience, making it one of the most experienced, stable information technology ("IT") solutions providers to federal, state and local agencies. GTSI's complete product and solution offering, technical expertise, logistics strengths, extensive contracts portfolio, sales knowledge, customer relationships, and proven performance record make GTSI equally valuable to government customers and technology partners. GTSI offers its customers a convenient and cost-effective centralized source for computer, workstation, software, networking and other IT solutions through GTSI's broad selection of popular products and services at competitive prices. The Company specializes in understanding both the various IT needs and the procurement processes of government customers. GTSI sells to most departments and agencies of the Government, state and local governments and systems integrators and prime contractors selling to the government market. In 2002, GTSI's sales directly to Government agencies, to prime contractors for resale to Government agencies and to state and local government agencies accounted for 76%, 21% and 3% of sales, respectively. GTSI currently offers access to approximately 350,000 IT products from approximately 3,400 vendors, including HP (Hewlett-Packard), Microsoft, Panasonic, Sun Microsystems, and Cisco Systems. The Company believes it provides its vendor partners with a low-cost marketing and distribution channel to the many end-users constituting the government market, while substantially insulating these partners from the complex government procurement rules and regulations. GTSI fulfills most customer orders from its state-of-the-art 200,000 square-foot distribution center located in Chantilly, Virginia. In addition to the normal distribution functions, activities at the center include stocking of popular items for fast delivery, customizing equipment through the integration of various hardware and software components, and providing specialized services such as source acceptance inspections and documentation. The Company's distribution and integration operations are ISO 9002 certified. "GTSI" is a registered service mark of GTSI Corp. All other trademarks and service marks are proprietary to their respective owners. Business Strategy GTSI is committed to, and focused on, the government customer. The Company's business strategy is to continue to grow GTSI's higher-end enterprise solutions and to broaden its product offerings, while remaining a low-cost, reliable provider of commodity products. The Company's strategy is to increase revenue and market share, while improving operating and net margin percentage. Federal Government IT spending has grown at a 14% compounded annual rate since 2000, and the Company believes that government IT spending will continue to be robust in the foreseeable future. The Company plans to increase its work force and broaden its product and service offering to take advantage of this growing market. GTSI has undertaken a number of initiatives consistent with this revenue and earnings growth strategy. 2 Focus on the Growing Government IT Market. Because of its historical focus on the government market, GTSI has developed the expertise and established the partner and customer relationships necessary to be a leader in this market. As a result, GTSI's marketing and sales force is effective at reaching and servicing the government market, which consists of procurement and contracting officers, information resource managers, CIOs (Chief Information Officer) and government IT executives, systems integrators, value-added resellers, prime contractors and a wide array of end-users. The Company continues to increase its sales organization to widen customer coverage and broaden our product, solutions and services offerings. In addition, by concentrating on the government market, the Company has avoided the higher credit risk of commercial customers. Execute New Government Contracts and Utilize Flexible Contract Vehicles. GTSI pursues Government contracts ranging in size from as small as a few hundred dollars to as large as hundreds of millions of dollars in sales. The Company holds a wide range of Government contracts, including multimillion dollar, multiyear contracts with the Department of Defense ("DoD") and certain civilian agencies, as well as several multiple award schedules and blanket purchasing agreements with a variety of DoD and civilian agencies. GTSI also serves as a subcontractor providing products and services to companies holding Government contracts. The Company intends to continue to identify and pursue those contract vehicles that best leverage GTSI's broad product selection, services, distribution capabilities and partner relationships. Provide a High-Quality Centralized Source for Procuring IT Products and Services. In addition to offering a full line of computer hardware, software and peripheral products, GTSI offers its customers pre- and post-sale technical support and assistance in the selection, configuration, installation and maintenance of the products and systems that GTSI sells. Furthermore, by offering a wide range of IT products through a variety of procurement mechanisms, GTSI offers its customers the convenience, flexibility and cost savings of purchasing from a centralized source. GTSI believes that its convenient "one-stop shop" is an important factor in its success in the government market. In its interaction with its many customers, GTSI employees focus on providing high quality customer service associated with the order, delivery, installation and repair of its products and services. Establish and Maintain Strong Partner Relationships. To provide a centralized source of products and solutions for its customers, GTSI maintains strong relationships with leading hardware, software and service partners. GTSI offers its partners a wide range of marketing and sales services, which provide them with access to the millions of end-users constituting the government market. In addition, the Company insulates its partners from the procurement regulatory complexities, costs and complicated billing requirements associated with the government market. Improve Internal Efficiencies. GTSI has undertaken a variety of activities aimed at improving financial performance. The Company believes that improved product pricing, supply chain management, quality and expense control will lead to improved operating and net margins. In addition, efforts to increase employee productivity, including training and improved technology, should improve profitability. Customers The Company's customers are primarily federal, state and local government agencies and prime contractors to the Government, including systems integrators. In 2002, the Company sold products or services to most agencies and major departments of the Government, to many state governments and to hundreds of prime contractors. In 2002, the Company had sales to a single system integrator which was a prime contractor to the Government in excess of 9% of the Company's net sales for 2002. In addition, aggregate 2002 sales to the Government's Departments of the Army, Navy and Air Force were 16.3%, 7.1% and 10.6%, respectively, of GTSI's 2002 sales. 3 The Company's sales are highly dependent on the Government's demand for IT products. Although the Company does not believe that the loss of any single customer would have a materially adverse effect on it, a material decline in its overall sales to the Government as a whole or to certain key agencies thereof could have such an effect. Furthermore, changes in the structure, composition or buying patterns of the Government could affect the Company's future operating results. The Government Procurement Process The Company achieves its sales primarily through contracts with the Government and through open market sales. Company contracts with the government include a General Services Administration ("GSA") Schedule contract, indefinite delivery/indefinite quantity contracts ("IDIQ"), Blanket Purchase Agreements ("BPAs"), state and local contracts and open market procurements GTSI pursues formal Government bids for IDIQ contracts and for BPAs. Substantially all of these bids are awarded on a "best value" to the Government basis (which, depending on the bid, can be a combination of price, technical expertise, past performance on other Government contracts and other factors). GTSI seeks to use its partner contacts, purchasing power, distribution strength and procurement expertise to compete successfully for the business. These major procurements may equal millions of dollars in total revenues, span many years, and provide a purchasing vehicle for many agencies. In some cases, various government agencies levy a fee on purchases made by departments outside of the agency that awarded the contract. These fees are collected by the Company and, as under the GSA Schedule contract, remitted to the respective agency on a contract specified payment schedule. GSA Schedule Contracts In 2002, GTSI held a GSA designated Schedule 70 contract for the sale of IT products and services. Schedule 70 contracts are multi-award schedule contracts managed by the GSA IT Acquisition Center. In March 2002, the Government formally exercised its first of three five-year options to extend GTSI's GSA Schedule 70 contract through 2007. GSA Schedule contracts provide all Government agencies, certain international organizations and authorized prime contractors with an efficient and cost-effective means for buying commercial products. GSA Schedule Purchasers may place unlimited orders for products under GSA Schedule contracts. Products offered under the Schedule 70 contract include workstations, desktops, laptops, notebooks, servers, laser printers, color printers, scanners, monitors, modems, hard drives, memory, networking products, facsimile products, internet and extranet products, video teleconferencing, maintenance, training and services. Products may be added to the Schedule 70 contract during the term under certain circumstances. GSA Schedule contracts include a GSA administrative fee calculated on the product price. This fee is collected by the Company and is remitted on a quarterly basis. GTSI's GSA Schedule 70 contract contains price reduction clauses requiring that GTSI pass on to Government customers certain reduced prices GTSI may receive from its partners during a contract's term, but prohibits GTSI from passing on partner price increases for a period of one year. To mitigate the potential adverse impact of any such price increase, the Company requires substantially all partners acting as suppliers to GTSI under its GSA Schedule contracts to provide GTSI with supply and price protection. IDIQ Contracts In 2002, GTSI held six IDIQ contracts. IDIQ contracts offer greater flexibility than GSA Schedule contracts as they allow products to be added expeditiously and allow contractors more pricing flexibility. IDIQ contracts are pre-competed; therefore, orders placed under these contracts are not subject to protest unless the order is beyond the scope of the contract. There are three types of IDIQ contracts, government- 4 wide acquisition contracts ("GWACs"), multi-agency contracts ("MAC"), and single agency contracts. A GWAC is a task-order or delivery-order contract for information technology established by a single federal agency for Government-wide use upon approval by OMB (Office of Management and Budget), while MACs are task-order or delivery-order contracts that accept orders from other agencies under the authority of the Economy Act. Four of GTSI's six IDIQ contracts are GWACs. They include GTSI's three contracts with the National Air and Space Administration called Scientific Engineering Workstation Procurement (SEWP) III contracts. Each of GTSI's SEWP III contracts relates to a specific category of IT products (e.g., Mechanical CAD, High End Network Devices and Mass Storage Devices). GTSI also holds a contract with the National Institute of Health called the Electronic Computer Superstore (ECS) III contract. GWACs allow all federal agencies to utilize the contracts. GTSI's Maxi-Minis and Databases contract ("MMAD") with the Army is a MAC, and GTSI's Procurement of Computer Hardware and Software-2 contract ("PCHS-2") with the Veterans Administration ("VA") is a single agency contract that is limited to the VA. GTSI's SEWP III contracts expire on July 30, 2006. The ECS III contract expires on November 26, 2012. The MMAD contract expires on May 25, 2003 and has three one-year extension options. The PCHS-2 contract expires on April 2, 2003 and has four one-year extension options. Products offered under these contracts include workstations, desktops, laptops, notebooks, servers, printers, scanners, monitors, modems, hard drives, memory, networking products, facsimile products, internet and intranet products, video teleconferencing, maintenance, training and services. Products may be added to the contracts under certain circumstances. The Products are sold under the contracts at a fixed price; however, the government typically negotiates a lower price for large quantity or high value orders. In addition, these contracts include an administrative fee calculated on the product price. The Company collects this fee and remits it on a quarterly basis to the contract's administering agency. Blanket Purchase Agreements Individual GSA ordering agencies may enter into GSA-authorized BPAs with GSA Schedule contract holders. BPAs are similar to second-tier contracts under a contractor's GSA Schedule contract. BPAs enable agencies to obtain better pricing based on volume ordering and they decrease an agency's administrative costs by streamlining the ordering process. GTSI maintains several Federal Schedule Supply BPAs that are authorized under our GSA Schedule 70 contract. GSA authorized BPAs incorporate many terms and conditions of the GSA Schedule contracts and incorporate many products offered on GSA Schedule contracts, often at lower prices than available on the GSA Schedules. GTSI normally enters into separate agreements with partners to offer reduced BPA prices to the Government. GTSI's BPAs are agency specific and allow GTSI to focus specific partner relationships on specific customers. GTSI maintains BPAs with several Government agencies including the Federal Railroad Administration, State Department, Treasury Department, Environmental Protection Agency, U.S. Courts, Army, Navy, Marine Corps and Air Force. State and Local Contracts Most purchases in the state and local government market are made through individual competitive procurements, although many state and local governments issue invitations for bid for statewide computer term contracts. State and local procurements typically require formal responses from a prospective bidder. Each state maintains a separate code of procurement regulations that must be understood and complied 5 with to market and sell successfully to that state. GTSI currently maintains several state and local IT contracts, regularly submits oral and written bids to state and local governments and is on a number of state and local government bid lists. A recent trend in state and local procurement is the emergence of multi-state contracts. Multi-state contracts enable individual states to utilize the buying power of multiple states, which results in lowers costs based upon volume purchasing. In addition, GSA is expected to allow state and local government agencies to utilize GSA Schedules by the end of March 2003. Open Market GTSI also sells many IT products through open market procurements. These procurements are separate and apart from GSA Schedules, IDIQs and BPAs. Open Market procurements include simplified acquisition procedures, requests for quotes, invitations for bids and requests for proposals. The Company is on most Government bid lists relevant to its product offerings and responds with proposals to hundreds of such bid solicitations each year. The Company also sells to Government prime contractors, including systems integrators, through open market procurements. Government Market Considerations A substantial portion of the Company's contracts are fixed-price and IDIQ. The uncertainties related to future contract performance costs, product life cycles, quantities to be shipped and delivery dates, among other factors, make it difficult to predict the future sales and profits, if any that may result from such contracts. GTSI qualified as a "small business" under several of the GWACs and BPAs it held in 2002 based upon GTSI's size status at the time of the contracts' original award. As a small business, GTSI enjoyed 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. Further, legislative or regulatory action may occur that will 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. Noncompliance with Government procurement regulations or contract provisions could result in termination of Government contracts, substantial monetary fines or damages, suspension or debarment from doing business with the Government and 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 the Company's Government contracts are terminable 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 6 contractor. The effect of any of these possible Government actions or the adoption of new or modified procurement regulations or practices could adversely affect the Company. The Company has historically experienced and expects to continue to experience significant seasonal fluctuations in its operations as a result of Government buying and funding patterns. Although these patterns have historically led to sales being concentrated in the Company's third and fourth quarters, the seasonality and the unpredictability of the factors affecting such seasonality make GTSI's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. While government sales are weaker in the first and second quarter and stronger in the third and fourth quarter, GTSI's operating expenses are more level throughout the year. As such, first and second quarter earnings are typically well below those of the third and fourth quarters. Products, Solutions and Services GTSI is the leading, dedicated Business-to-Government provider of IT solutions. The Company continuously monitors sales of existing and emerging technologies to ensure that it offers its customers state-of-the-art technology products and solutions. A pioneer in government-focused electronic commerce, GTSI also offers simplified buying through its website, www.gtsi.com. Hardware. GTSI has strong strategic relationships with established global market leaders, including HP, Panasonic, IBM, EMC, Xerox, SONY, Sun Microsystems, Apple and Cisco. In addition to reselling platform solutions, peripherals resold by the Company include disk drives, CD-ROM and DVD drives, printers, monitors, modems and related products. GTSI's networking products, including LANs, WANs, MANs (metropolitan area network) and PANs (personal area network), are supplemented by the Company's services, which include assisting customers in selecting, configuring, installing and maintaining networks. Software. The Company remarkets computer software solutions from substantially every leading Windows-based software publisher, as well as leading UNIX, Linux and Apple products. The Company's software partners include Microsoft, Symantec, IBM/Lotus, Art Technology Group, Veritas, MicroStrategy, Adobe and Citrix. Solutions. The Company has 11 technology and solutions teams, each including technical, business development and management professionals dedicated to selling and supporting systems and solutions in a specific technology area (such as enterprise storage, mobile and wireless, and web portal and internet technology) or for a particular partner product line (such as Sun Microsystems, HP and Microsoft). Services. GTSI provides professional management of the creation and delivery of services to our customers. GTSI's Services Solutions capitalize on core business capabilities through managed fulfillment and support services, implementation of technical product services, and technology consulting services, either through our own business processes or through partners. To this end, GTSI has identified four quadrants where it will focus its development efforts: Support Services, Implementation Services, Consulting Services and Managed Services. Partner Relationships To offer its customers a centralized source for their IT needs, the Company establishes and maintains relationships with key partners and offers them a number of advantages, including: o Access to the government market through a significant number of diverse contract vehicles and a large and experienced sales organization; 7 o Lower costs to comply with procurement regulations involved in selling directly to the government market; o Lower operating costs related to reduction or elimination of selling, marketing and various administrative programs; and o Participation in value-added services, including numerous government-specific marketing programs and end-user technical support. The terms of the Company's agreements with its partners vary widely, but typically permit the Company to purchase product for resale to at least the government market. Virtually none of the Company's partner agreements requires the Company to purchase any specified quantities of product. The Company typically requires partners acting as suppliers to GTSI under its term Government contracts to provide GTSI with supply and price protection for the duration of such contracts. Other than supply agreements under term Government contracts, the Company's partner agreements are typically terminable by the partner on short notice, at will or immediately upon default by GTSI and may contain limitations on partner liability. These partner agreements also generally permit GTSI to return previous product purchases at no charge within certain time limits for a restocking fee or in exchange for other products of such partner. The Company also purchases some products from independent distributors. Partners provide the Company with various forms of marketing and sales assistance, including sales incentives and market development funds. Partners provide sell-through and other sales incentives in connection with certain product promotions. Additionally, key partners participate with the Company in cooperative advertising and sales events and typically provide funding which partially offsets the costs of such efforts. The Company needs to continue to obtain products at competitive prices from leading partners to provide a centralized source of price-competitive products for its customers and to be awarded government contracts. GTSI believes its relationships with its key partners to be good. The Company, however, could be adversely affected if one or more key partners determined to sell directly to the Government, to sell their products to GTSI's competitors on more favorable terms than to GTSI, to allow additional resellers to represent their products, or to restrict or terminate GTSI's rights to sell their products. Marketing and Sales The Company's marketing personnel develop and manage the Company's marketing, branding and positioning activities on a worldwide basis. These activities communicate the Company's capabilities and value proposition in an effort to acquire new customers and improve retention of existing customers. Most marketing activities are funded by the Company's partners. Each marketing activity is integrated to provide comprehensive awareness, brand consistency and maximize return on investment. The Company's marketing activities include sponsorship of major trade shows and customer events, advertising in government-focused publications and broadcast media, direct marketing of catalogs and brochures, management of a commerce web site located at gtsi.com, e-mail marketing, outbound telemarketing, field sales campaigns and various sales-related incentive programs. GTSI recognizes that the size and diversity of the government market make it imperative for GTSI to identify and understand the needs of customers. Through years of intensive effort, GTSI has compiled and continuously updates one of the most comprehensive databases of federal, state and local government IT decision-makers. The Company conducts frequent customer surveys to assess the opinions and interests of our customer base. The Company maintains a database that contains an extensive list of agency procurement and contracting officers, information resource managers, senior policy makers, 8 technology influencers, end-users, systems integrators, VARs and prime contractors. GTSI uses this database, among other things, for targeting its marketing efforts and data mining for various market research purposes. The Company's sales organization is focused on expanding sales coverage by increasing the number of customer accounts and by offering additional products and services to existing accounts. The customer sales teams work closely with the Company's technology teams to best meet the needs of the government customer. Service and Warranty For certain products that it sells, GTSI provides post-sale field service through subcontractors and, to a limited extent, through the Company's in-house technical staff. The Company typically warrants products sold to the Government and certain other customers for the same term as the manufacturer's warranty period although many IDIQ contracts include provisions for warranties that extend beyond those offered by the manufacturer. The Company also sells extended warranties on many of its government contracts. Product repaired while under the manufacturer's warranty is at the manufacturer's expense; product repaired after expiration of the manufacturer's and GTSI's warranty, if longer, is at the customer's expense. GTSI outsources to third parties a significant portion of its extended warranty obligations. Competition The government IT market is competitive and subject to rapid change. GTSI competes with certain leading hardware manufacturers, which sell to the government market directly and through representatives other than the Company, and with a number of systems integrators, government and commercial resellers and commercial computer retail chains, distributors and other resellers (including companies qualifying as minority-owned, disadvantaged or small businesses under applicable Government regulations). A number of GTSI's existing and potential competitors have greater financial, sales, marketing and technological resources than the Company. The Company believes that the principal competitive factors in the government IT market are price, expertise in the applicable government procurement processes, breadth of product line, customer and partner relationships, the technical and other skills of marketing and sales personnel, distribution capability, available inventory and customer service and support. The Company believes that it competes favorably on each of these factors. GTSI also believes that it has a competitive advantage over certain of its competitors because of its procurement expertise and its ability to offer a centralized source for purchases of a wide variety of leading computer products from numerous manufacturers. Employees At March 4, 2003, the Company had 693 employees, including 461 in sales, marketing and contract management; 125 in operations; and 107 in executive, finance, information technology, human resources and legal. None of the Company's employees is represented by a labor union, and the Company has experienced no material labor-related work stoppages. 9 Item 2. PROPERTIES. The Company's executive offices are located in an approximately 100,500 square-foot facility in Chantilly, Virginia under a lease expiring in November 2008, with one five-year option. In December 2002, GTSI expanded its office space by leasing approximately 34,000 square feet of office space in Chantilly, Virginia under a lease expiring in November 2005, with one two-year option and one one-year option. GTSI's warehousing and distribution operations are also located in Chantilly, Virginia in a separate 200,000 square-foot facility under a lease expiring in December 2006. The Company also has a branch sales office occupying 139 square meters in Mannheim, Germany. The Company also subleases a 10,000 square-foot distribution center in Chattanooga, Tennessee under a sublease which expires on March 31, 2003, with a one-year option. Item 3. LEGAL PROCEDURES. The Company is occasionally a defendant in litigation incidental to its business. The Company believes that the litigation currently pending will not individually or in the aggregate have a material adverse effect on the Company's financial condition or results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of stockholders during the fourth quarter of 2002. 10 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Stock Data. The Company's common stock trades on The Nasdaq Stock Market under the symbol "GTSI." As of December 31, 2002, there were 274 record holders of the Company's common stock. As of March 21, 2003, there were 303 record holders and approximately 3,600 beneficial holders of the Company's common stock. The following table sets forth, for the periods indicated, the high and low closing prices for the Company's common stock based on information updated by the Nasdaq Stock Market. -------------------------- 2002 2001 --------------------------------------- Quarter High Low High Low --------------------------------------- First 9.49 6.90 6.25 3.34 --------------------------------------- Second 9.47 7.65 7.06 5.09 --------------------------------------- Third 11.55 7.75 7.10 5.70 --------------------------------------- Fourth 14.89 8.52 9.47 6.00 --------------------------------------- The Company has never paid cash dividends and the Company does not anticipate paying cash dividends on its common stock in the foreseeable future. Furthermore, financial covenants in the Company's bank credit agreement restrict the Company's ability to pay cash dividends. Additional Investor Relations Information. All of the Company's current required filings with the Securities and Exchange Commission, as well as press releases and other investor relations' information, may be found at http://www.gtsi.com on the internet's world wide web. Such information may also be obtained by request to the Company addressed to: Investor Relations, GTSI Corp., 3901 Stonecroft Boulevard, Chantilly, Virginia 20151-1010. Transfer Agent. The Company's transfer agent is Wachovia Bank, N.A., Shareholder Services Group, 1525 West W.T. Harris Blvd., 3C3, Charlotte, NC 28262-1153; telephone 1-800-829-8432. Annual Meeting. The Annual Meeting of Stockholders is scheduled to be held at 9:00 a.m. on Wednesday, May 14, 2003, at the Company's headquarters located at 3901 Stonecroft Boulevard in Chantilly, Virginia. Item 6. SELECTED FINANCIAL DATA. The selected financial data for the three years ended December 31, 2002, 2001, and 2000 are derived from, and are qualified in their entirety by reference to, the Company's audited Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. The December 31, 2002 Consolidated Financial Statements of the Company have been audited by Ernst & Young LLP, independent auditors, as indicated in their report, which is also included elsewhere in this Form 10-K. The December 31, 2001, 2000, 1999 and 1998 Consolidated Financial Statements of the Company have been audited by Arthur Andersen LLP, independent accountants. The selected financial data for all other periods are 11 derived from the Company's audited consolidated financial statements, which are not included in this Form 10-K.
(In thousands, except per share amounts) Twelve months ended December 31, 2002 2001 2000 1999 1998 --------- --------- --------- --------- --------- Income Statement Data: Sales $ 934,730 $ 783,496 $ 677,754 $ 660,570 $ 593,571 Cost of sales 857,105 718,370 617,621 610,463 541,934 --------- --------- --------- --------- --------- Gross margin 77,625 65,126 60,133 50,107 51,637 --------- --------- --------- --------- --------- Operating expense: Selling, general and administrative 62,956 57,002 49,382 44,931 44,660 Depreciation and amortization 3,543 4,407 3,934 3,584 3,661 --------- --------- --------- --------- --------- Total operating expenses 66,499 61,409 53,316 48,515 48,321 --------- --------- --------- --------- --------- Income from operations 11,126 3,717 6,817 1,592 3,316 Interest (income) expense, net (4,520) (3,707) (2,259) (1,090) 977 --------- --------- --------- --------- --------- Income before taxes 15,646 7,424 9,076 2,682 2,339 Income tax provision (benefit) 6,113 2,938 (2,008) -- -- --------- --------- --------- --------- --------- Net income before cumulative effect of SAB No. 101 adoption 9,533 4,486 11,084 2,682 2,339 Cumulative effect of SAB 101 adoption -- -- 467 -- -- --------- --------- --------- --------- --------- Net income $ 9,533 $ 4,486 $ 10,617 $ 2,682 $ 2,339 ========= ========= ========= ========= ========= Net income per common share Basic: Basic net income per share before cumulative effect of SAB No. 101 adoption $ 1.15 $ 0.55 $ 1.23 $ 0.29 $ 0.27 Cumulative effect per share of SAB No. 101 adoption -- -- (0.05) -- -- --------- --------- --------- --------- --------- Basic net income per share $ 1.15 $ 0.55 $ 1.18 $ 0.29 $ 0.27 ========= ========= ========= ========= ========= Diluted: Diluted net income per share before cumulative effect of SAB No. 101 adoption $ 1.04 $ 0.50 $ 1.20 $ 0.29 $ 0.26 Cumulative effect per share of SAB No. 101 adoption -- -- (0.05) -- -- --------- --------- --------- --------- --------- Diluted net income per share $ 1.04 $ 0.50 $ 1.15 $ 0.29 $ 0.26 ========= ========= ========= ========= ========= Weighted average common shares outstanding Basic 8,302 8,144 9,021 9,271 8,700 ========= ========= ========= ========= ========= Diluted 9,156 9,049 9,225 9,314 8,909 ========= ========= ========= ========= ========= (In thousands) December 31, 2002 2001 2000 1999 1998 --------- --------- --------- --------- --------- Balance Sheet Data: Working capital $ 62,836 $ 34,968 $ 43,659 $ 44,350 $ 42,206 Total assets 224,918 252,452 227,065 186,333 161,090 Notes payable to banks 7,539 20,186 11,925 9,479 14,889 Total liabilities 149,427 189,387 168,586 133,137 105,766 Stockholders' equity 75,491 63,065 58,480 53,196 55,324
12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, the Consolidated Financial Statements and Notes. Historical results and percentage relationships among any amounts in the Consolidated Financial Statements are not necessarily indicative of trends in operating results for any future period. Overview GTSI is a recognized information technology (IT) solutions leader, providing products and services to federal, state and local government customers worldwide. For 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 9000-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 that analyze, design, install and support a wide range of integrated IT solutions in such areas as high performance computing, advanced networking, mobile and wireless solutions, web portals, 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 Chantilly, Virginia. Changes in sales throughout the Company's history have been attributable to increased or decreased unit sales, to expansion of the Company's product offerings (e.g., peripherals, networking, Unix servers/workstation and internet products), to the addition/removal of vendors (e.g., the addition of Cisco, EMC, Tachyon, RIM, and the removal of Nexar and Everex), and to the addition or expiration of sales contract vehicles (e.g., the addition of the SEWP III, ADMC, IT2 and the MMAD Contracts, and the expiration of the SEWP II, PC-3, SII PC/LAN, and Portables 3 Contracts). The Company's financial results have fluctuated seasonally, and may continue to do so in the future, because of the Government's buying patterns which have historically favorably affected the last two calendar quarters and adversely affected the first two calendar quarters. The Company's business strategy is to continue to focus on higher-end product-based solutions, to broaden its product offering, and to remain a low-cost, and high-reliability provider of commodity products. The Company also focuses on bringing new technologies to government customers. 13 Results of Operations The following table sets forth, for the years indicated, the percentages that selected items within the income statement bear to sales and the annual percentage changes in the dollar amounts of such items.
Percentage of Sales Percentage Change ------------------------ --------------------------- Years Ended December 31, Years Ended December 31, ------------------------ --------------------------- 2002 2001 2000 2001 to 2002 2000 to 2001 ------ ------ ------ ------------ ------------ Income Statement Data: Sales 100.0% 100.0% 100.0% 19.3% 15.6% Cost of sales 91.7% 91.7% 91.1% 19.3% 16.3% ------ ------ ----- Gross margin 8.3% 8.3% 8.9% 19.2% 8.3% Operating expense: Selling, general and administrative 6.7% 7.2% 7.3% 10.4% 15.4% Depreciation and amortization 0.4% 0.6% 0.6% -19.6% 12.0% ------ ------ ----- Total operating expenses 7.1% 7.8% 7.9% 8.3% 15.2% ------ ------ ----- Income from operations 1.2% 0.5% 1.0% 199.3% -45.5% Interest (income) expense, net -0.5% -0.5% -0.3% 21.9% 64.1% ------ ------ ----- Income before taxes 1.7% 1.0% 1.3% 110.7% -18.2% Income tax provision (benefit) 0.7% 0.4% -0.3% 108.1% -246.3% ------ ------ ----- Net income before cumulative effect of SAB 101 adoption 1.0% 0.6% 1.6% 112.5% -59.5% Cumulative effect of SAB 101 adoption 0.0% 0.0% 0.0% 0.0% -100.0% ------ ------ ----- Net income 1.0% 0.6% 1.6% 112.5% -57.7% ====== ====== =====
The following tables set forth, for the periods indicated, the approximate sales by product, by contract vehicle and by vendor, along with related percentages of total sales. Product Category --------------- --------------- --------------- (Dollars in millions) 2002 2001 2000 --------------- --------------- --------------- Hardware $673.7 72.1% $570.3 72.8% $507.0 74.8% Software 196.4 21.0% 158.3 20.2% 131.5 19.4% Services 64.6 6.9% 54.9 7.0% 39.3 5.8% ------ ---- ------ ---- ------ ---- Total $934.7 100% $783.5 100% $677.8 100% ====== ==== ====== ==== ====== ==== Contract Vehicles --------------- --------------- --------------- (Dollars in millions) 2002 2001 2000 --------------- --------------- --------------- GSA Schedules $276.0 30.4% $238.4 30.4% $230.6 34.0% IDIQ Contracts 388.7 45.4% 355.5 45.4% 327.1 48.2% Open Market 107.0 17.0% 133.3 17.0% 79.7 11.8% Subcontracts and Other Contracts 163.0 7.2% 56.3 7.2% 40.4 6.0% ------ ---- ------ ---- ------ ---- Total $934.7 100% $783.5 100% $677.8 100% ====== ==== ====== ==== ====== ==== 14 Top 5 Vendors --------------- --------------- --------------- (Dollars in millions) 2002 2001 2000 --------------- --------------- --------------- HP $167.7 17.9% $188.5 24.1% $201.3 29.7% Panasonic 123.5 13.2% 92.4 11.8% 93.3 13.7% Cisco 114.9 12.3% 80.4 10.3% 37.2 5.5% Sun 110.6 11.8% 63.0 8.0% 53.4 7.9% Microsoft 95.6 10.2% 88.0 11.2% 63.7 9.4% Other 322.4 34.6% 271.2 34.6% 228.9 33.8% ------ ---- ------ ---- ------ ---- Total $934.7 100% $783.5 100% $677.8 100% ====== ==== ====== ==== ====== ==== During 2002 HP and Compaq finalized their merger. Thus, in the vendor tables above we have combined HP and Compaq in all periods shown for comparison purposes. 2002 Compared with 2001 Sales. Sales consist of revenues from products delivered and services rendered, net of allowances for customer returns and credits. Net sales in 2002 increased $151.2 million, or 19.3% over 2001. Sales increased in most product and contract categories. The largest increase was an approximately $106.7 million increase in sales made under the Subcontracts and Other Contracts category. This increase is primarily due to increase in volume on subcontracts with prime contractors, specifically on the FBI's Trilogy contract. Increased sales under a distribution agreement with a major vendor also contributed to the increase in Subcontracts and Other Contracts category. The $33.2 million increase in sales in the IDIQ Contracts category is primarily related to increased sales under established contract vehicles. IDIQ Contracts sales were also helped by sales from a new contract awarded to the Company in 2002. The GSA Schedule category increased $37.6 million due primarily to the Government converting some of the Company's legacy IDIQ contracts to BPA contracts at contract renewal. This caused a shift in sales from the IDIQ category to the BPA Contracts category during 2002. The Company was also awarded several new BPA contracts during 2002 that also contributed to the increase in BPA Contract sales. Open Market sales decreased $26.3 million primarily due to the Company's customers taking advantage of the Company's expanding and mature contract portfolio. Backlog. The Company recognizes an order in its backlog at the time it receives and accepts a written customer purchase order. The Company's 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 at December 31, 2002, was approximately $91.3 million compared to $76.6 million at December 31, 2001. Unshipped Backlog at December 31, 2002, was approximately $82.6 million compared to $67.3 million at December 31, 2001. Backlogs fluctuate significantly from quarter to quarter because of the seasonality of Government ordering patterns and fluctuations in inventory availability of various products. Gross Margin. Gross margin increased $12.5 million, or 19.2%, to $77.6 million from $65.1 million in 2001 due primarily to the 19.3% increase in sales for the year. Gross margin as a percentage of sales remained flat at 8.3% in 2002 and 2001. Operating Expenses. Net operating expenses for the year ended December 31, 2002 increased $5.1 million to $66.5 million for 2002 as compared to $61.4 million for 2001. The increase in operating expenses is due primarily to an increase in commission expense as a result of increased sales; an increase in other performance based incentives; and an increase in sales and technology team personnel expense. Expressed as a percentage of total sales, net operating expenses decreased to 7.1% from 7.8% in 15 the previous year. Operating expenses reflect the favorable impact of vendor sales support funds. Before the application of these funds, operating expenses were $79.2 million, or 8.5% of sales, as compared to $70.0 million, or 8.9% of sales, for 2001. During the fourth quarter of 2002, the Company determined that it was remote that certain accrued obligations would need to be paid. Accordingly, the associated obligation of $1.4 million has been reversed and as a result operating expenses have been reduced. Interest and Other Income, Net. Net interest and other income is the amount of interest income, prompt payment discounts, and other income partially offset by interest expense on borrowings. Net interest and other income increased by approximately $813,000, from $3.7 million to $4.5 million, or 21.9%, in 2002 compared to 2001. Interest income increased by $316,000 and interest expense decreased $116,000 over 2001. The increase in interest income is primarily due to a $1.4 million increase in prompt payment discounts partially offset by a $749,000 decrease in interest income from lease receivables. Other income increased $381,000 due primarily to a $500,000 gain on the sale of equipment leases in the first quarter of 2002. Income Taxes. The Company's effective tax rate in 2002 was 39.1% resulting in a tax provision of $6.1 million in 2002. The Company anticipates that its ongoing effective tax rate to remain approximately 39%. 2001 Compared with 2000 Sales. Sales consist of revenues from products delivered and services rendered, net of allowances for customer returns and credits. Net sales in 2001 increased $105.7 million, or 15.6% over 2000. Sales increased in all product categories and contract vehicles. The largest increase was an approximately $53.6 million, or 67.3%, increase in sales sold under open market conditions. Indefinite delivery/indefinite quantity ("IDIQ") contracts increased $28.4 million, or 8.7%. The Other Contract sales category showed an increase of $15.9 million, or 39.4% and sales under the Company's GSA schedules increased $7.8 million, or 3.4%. Sales sold under Open Market contracts were up $53.6 million due to several large orders with Civilian and State and Local customers and prime contractors and the wider product breadth offered under open market conditions. IDIQ contract sales were up $28.7 million led by increased sales on the Scientific and Engineering Workstation Procurement ("SEWP") contract due to the wide product offering and the ability of all Government agencies to purchase under this contract. Sales on the Army PC-3 and Portable 3 vehicles were down $46.1 million combined year over year due to the expiration of the Portable 3 vehicle and the Army switching its buying patterns to the new Army Desktop and Mobile Commuting ("ADMC") vehicle which the Company treats as a GSA schedule type contract. Sales on Other Contracts were up $15.9 million led by strong sales to new prime contractor of $29.7 million offset by decreased sales in the Company's Panasonic distribution business of $11.0 million. The increase of $7.7 million in the Company's GSA schedules is due to sales on the newly awarded Army ADMC BPA and Federal Reserve Bank BPAs. Net sales directly off the GSA Schedule fell $17.6 million due to less reliance on the GSA schedule as a result of a broader contract base which gave the Company and its customers greater flexibility. Backlog. The Company recognizes an order in its backlog at the time it receives and accepts a written customer purchase order. The Company's Total Backlog includes orders that have not shipped 16 ("Unshipped Backlog") as well as orders that have shipped but cannot be recognized as revenue at the period end. Total Backlog at December 31, 2001, was approximately $76.6 million compared to $71.0 million at December 31, 2000. Unshipped Backlog at December 31, 2001, was approximately $67.3 million compared to $62.7 million at December 31, 2000. Backlogs fluctuate significantly from quarter to quarter because of the seasonality of Government ordering patterns and fluctuations in inventory availability of various products. Gross Margin. Gross margin increased $5.0 million, or 8.3%, to $65.1 million from $60.1 million in 2000. Gross margin as a percentage of sales decreased to 8.3% in 2001, as compared to a gross margin of 8.9% in 2000. Gross margin as a percentage of sales was lower in 2001 versus 2000 due to a shift from higher margin customer-specific IDIQ contracts to lower margin GSA contract vehicles, government-wide acquisition contracts ("GWACs"), and other lower margin contracts. Margins were also affected by a shift in contract vehicles from sole-source and dual award IDIQ vehicles to vehicles where multiple vendors are on contract, increasing competition. Warranty administration, inventory management, and freight costs as a percentage of sales were substantially unchanged for the year ending December 31, 2001, compared with the previous year. Operating Expenses. Total operating expenses for 2001 increased $8.1 million, or 15.2%, to $61.4 million from $53.3 million in 2000, however they decreased as a percentage of sales to 7.8% from 7.9%. This increase in operating expense primarily reflects the Company's implementation of its plan to hire additional sales personnel intended to achieve increased sales in 2001 and beyond. Interest and Other Income, Net. Net interest income is the amount of interest income and prompt payment discounts partially offset by interest expense on borrowings. Net interest income increased by $1.4 million, from $2.3 million to $3.7 million, or 64.1%, in 2001 compared to 2000. Interest income increased by $1.3 million and interest expense decreased $153,000 over 2000. The increase in interest income is primarily due to a $1.6 million increase in interest income from lease receivables partially offset by a $280,000 decrease in other interest income. Income Taxes. The Company's effective tax rate in 2001 was 39.6% resulting in a tax provision of $2.9 million in 2001. The Company anticipates that its ongoing effective tax rate will be approximately 40%. Critical Accounting Policies We have included below our policies that are both important to our financial condition and operating results, and require management's most subjective and complex judgments in determining the underlying estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, as they require assumptions that are inherently uncertain. Cash and Cash Equivalents. The Company considers all investments with maturity of three months or less on their acquisition date to be cash equivalents. Revenue Recognition. We recognize revenue from hardware product sales when the title to the products sold passes to the customer, with provisions established for estimated product returns. Based on our standard shipping terms, title generally passes upon the customer's receipt of the products. We recognize revenues under sales type lease arrangements in accordance with the provisions of Statement of Financial Accounting Standards "SFAS" No. 13, "Accounting for Leases." We recognize revenue from software products in accordance with the provisions of American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition." Revenue from software product sales is recognized when persuasive evidence of an arrangement exists, the software has been delivered, 17 the fee is fixed or determinable and collection is probable. We recognize net revenues from sales of third party software maintenance contracts at the time of the sale. Allowance for Doubtful Accounts. We continuously monitor collections and payments from our customers and maintain an allowance for doubtful accounts based upon our historical experiences and any specific customer collection issues that we have identified. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past. Sales of Lease Receivables. We periodically sell lease receivables to unrelated financing companies. We account for our sales of lease receivables in accordance with SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement No. 125." Inventories. We value our inventory at the lower of average cost or market value of the inventory. Whenever possible, we order inventory only as needed. However, we do maintain inventory related to certain products or vendors. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based on assumptions about future demand and market conditions. Our estimates of future product demand may prove to be inaccurate, in which case we may have understated or overstated the provision required for excess or obsolete inventory. In the future, if our inventory is determined to be overvalued, we will be required to recognize such costs in our cost of goods sold at the time of such determination. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results. Long-Lived Assets. Long-lived assets, consisting primarily of property and equipment and capitalized software, are currently reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be addressed pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or disposal of Long-Lived Assets." We determine impairment by comparing the carrying value of these long-lived assets to a probability weighted estimated undiscounted future cash flows expected to result from the use of these assets and their eventual disposition. The cash flow projections used to make this assessment is consistent with the cash flow projections we use internally to assist us in making key decisions. If we determine that an impairment exists, a loss would be recognized based on the amount by which the carrying value exceeds the fair value of the assets, which is generally determined by using quoted market prices or valuation techniques such as the discounted present value of expected future cash flows, appraisals, or other pricing models as appropriate. Warranties. We offer warranties on sales under certain products specific to the terms of the customer agreements. Our standard warranties require us to repair or replace defective products reported to us during such warranty period at no cost to the customer. We record an estimate for warranty related costs at the time of sale based on our actual historical return rates and repair costs at the time of sale. While our warranty costs have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same warranty return rates or repair costs that we have in the past. A significant increase in product return rates, or a significant increase in the costs to repair products sold, could have a material adverse impact on our operating results for the period or periods in which such events occur. 18 New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board (FASB) approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. The amortization of existing goodwill will cease on December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill and certain intangibles for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of these standards did not have a material effect on the company's consolidated financial statements or its results of operations. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this Statement is to develop consistent accounting for asset retirement obligations and related costs in the financial statements and provide more information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will be required to implement SFAS No. 143 on January 1, 2003. The Company does not believe that adoption of this standard will have a material effect on its consolidated financial statements or its results of operations. In July of 2002, the FASB issued SFAS No., 146 "Accounting for Costs Associated with Exit or Disposal Activities." This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between Statement No. 146 and Issue 94-3 relates to Statement 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. Statement No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion in this Statement is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard is not expected to have a material impact on the consolidated financial statements of the Company. In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 elaborates on the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 31, 2002. The Company does not expect adoption of FIN 45 to have a material effect on its financial condition, results of operations of liquidity. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of Accounting 19 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 immediately to variable interest entities created after January 31, 2003. The Company is currently in the process of evaluating what impact, if any, FIN 46 will have on its financial condition, results of operations or liquidity. Effect of Inflation The Company believes that inflation has not had a material effect on its operations. If, however, inflation increases in the future it could temporarily adversely affect the profitability of GTSI's sales under its Government fixed-price contracts, which generally preclude the Company from passing on inflation-related or other increases in product costs to Government customers during the term of a pre-existing contract. The Company mitigates this risk in part by often obtaining agreements from certain of its suppliers prohibiting them from increasing their prices to GTSI during the term of fixed-price contracts. Seasonal Fluctuations and Other Risk Factors The Company has historically experienced and expects to continue to experience significant seasonal fluctuations in its operations as a result of Government buying and funding patterns, which also affect the buying patterns of GTSI's prime contractor customers. These buying and funding patterns historically have had a significant positive effect on GTSI's bookings in the third quarter ending September 30 each year (the Government's fiscal year end), and consequently on sales and net income in the third and fourth quarters of each year. Quarterly financial results are also affected by the timing of the award and shipments of products under government contracts, price competition in the industry, 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 manufacturers, delays in vendor shipments of new or existing products, a shift in sales mix to more complex requirements contracts with more complex service costs, and vendor delays in the processing of incentives and credits due GTSI, have occurred (all of which are also likely to occur in the future) and have adversely affected the Company's operating performance in particular periods. The seasonality and the unpredictability of the factors affecting such seasonality make GTSI's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. The Company's stock price could be adversely affected if any such financial results fail to meet the financial community's expectations. Additionally, legislation is periodically introduced in Congress that may change the Government's procurement practices. GTSI cannot predict whether any legislative or any regulatory proposals will be adopted or, if adopted, the impact upon its operating results. Changes in the structure, composition and/or buying patterns of the Government, either alone or in combination with competitive conditions or other factors, could adversely affect future results. In December 1999, the Company purchased $1.7 million of business intelligence software. Contractually, the Company has the right to sell this business intelligence software to various Government agencies through June 30, 2003. Through December 31, 2002, the Company had sold approximately $300,000 of this product. Based on its sales history and the continued challenges with selling this product, the Company's management believes that the remaining $1.4 million of the business intelligence software inventory was impaired and as a result wrote off the remaining unsold balance in 2002. 20 Liquidity and Capital Resources During 2002, the Company's operating activities provided approximately $13.5 million of cash, compared to $3.2 million used by operations in 2001. Sources of cash provided by operating activities in 2002 include a reduction in lease receivables of $28.9 million and merchandise inventories of $5.4 million, and an increase in accrued liabilities and warranty liabilities of $2.4 million offset by reductions in accounts payable of $28.9 million and an increase in other assets of $5.9 million. Accounts receivable are substantially unchanged year-over-year, however trade accounts receivable increased $5.7 million due to increased sales. The increase in trade accounts receivable was partially offset by a decrease of $4.5 in various receivables due from vendors. The cash generated from lease receivables resulted from the sale of equipment leases during the first quarter of 2002. The increase in other assets was primarily due to a strategic prepaid inventory arrangement for $5.9 million at December 31, 2002. The decrease in accounts payable was primarily due to management taking advantage of strategic inventory pre-buys and prompt payment discounts during 2002. Investing activities used cash of approximately $3.9 million in 2002 primarily for the Company's investment in software for a new fulfillment system, designed to improve efficiency throughout the Company. The Company is internally developing software to replace its current fulfillment system. As of December 31, 2002, the Company has capitalized approximately $4.6 million dollars under this project. The Company's financing activities used approximately $9.8 million of cash during 2002 due to payments under its line-of-credit of $12.6 million and $797,000 used to repurchase the common stock of the Company partially offset by $3.7 million in proceeds from stock options exercised. The Company has a revolving line of credit (the "Revolver") with a group of banks, which allows for borrowings up to $50.0 million during its highest seasonal period. Additionally, the Company has a separate facility with a bank for inventory financing of vendor products (the "Wholesale Financing Facility"), which allows for borrowings up to $60.0 million during its highest seasonal period. Combined the Revolver and the Wholesale Financing Facility (the "Credit Facilities") allow the Company to borrow from $55.0 million to $110.0 million depending on the seasonal period. The seasonal structure of the Credit Facilities coincides with the seasonality of the Company's business and allows the Company to minimize banking fees. The interest rate under the Credit Facilities is a rate indexed to the London Interbank Offered Rate (LIBOR). As of December 31, 2002, 2001, and 2000, the Company's interest rate on the Revolver was 3.13%, 3.68%, and 8.40%, respectively. Amounts due to the banks of $7.5 million as of December 31, 2002 are classified as current liabilities down from $20.2 million as of December 31, 2001. The available portion of the Credit Facility was approximately $42.5 million at December 31, 2002, up from $29.8 million at December 31, 2001. Borrowing is limited to 85% of eligible accounts receivable. The Credit Facility is secured by substantially all of the Company's operating assets. Current obligations are first funded and then all cash receipts are automatically applied to reduce outstanding borrowings. The Credit Facility also contains certain covenants that include restrictions on the payment of dividends and the purchase of the Company's Common Stock, as well as provisions specifying compliance with certain quarterly and annual financial ratios. At December 31, 2002, the Company was in compliance with all financial covenants set forth in the credit facility. 21 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company has a $50.0 million Credit Facility indexed at LIBOR plus 1.75%. This variable rate Credit Facility subjects the Company to potential cash flow exposure resulting from changes in interest rates. For example, a one percent increase in interest rates would increase annual interest expense by approximately $75,000, based on debt levels at December 31, 2002. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Except for historical information, all of the statements, expectations 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 favorable gross margins, a favorable mix of contracts, benefits of a more efficient operation, future contract awards, returns on new product programs, profitability, 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. The Company undertakes 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 risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on the Form 10-Q to be filed by the Company subsequent to this Annual Report on Form 10-K and any Current Reports on Form 8-K filed by the Company. 22 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements and Schedule of GTSI Corp. and Subsidiary are filed as part of this Form 10-K. Supplemental unaudited quarterly financial data is included in Note 11 of Notes to Consolidated Financial Statements.
Index to Financial Statements and Schedule Page Financial Statements: Report of Independent Public Accountants 24-25 Consolidated Balance Sheets as of December 31, 2002 and 2001 26 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 27 Consolidated Statements of Changes in Stockholders' Equity for the years ended 28 December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 29 2001 and 2000 Notes to Consolidated Financial Statements 30-46 Schedule: Schedule II - Valuation and Qualifying Accounts 46
Schedules not listed above have been omitted because they are not applicable or the information required to be set forth therein is included in the financial statements or notes thereto. 23 Report of Independent Auditors To the Board of Directors and Stockholders of GTSI Corp.: We have audited the accompanying consolidated balance sheet of GTSI Corp. and subsidiary as of December 31, 2002 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 8. These financial statements and the schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audit. The consolidated financial statements and schedule of GTSI Corp. and subsidiary as of December 31, 2001 and for each of the two years in the period ended December 31, 2001 were audited by auditors who have ceased operations and whose report dated February 14, 2002 expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of GTSI Corp. and subsidiary as of December 31, 2002 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP McLean, Virginia January 30, 2003 24 Report of Independent Public Accountants To GTSI Corp.: We have audited the accompanying consolidated balance sheet of GTSI Corp. and subsidiary (GTSI Corp., formerly Government Technology Services, Inc., a Delaware corporation) as of December 31, 2001, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ending December 31, 2001 and 2000. These financial statements are the responsibility of GTSI Corp.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GTSI Corp. and subsidiary as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the years ending December 31, 2001 and 2000, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /S/ ARTHUR ANDERSEN LLP Vienna, Virginia February 14, 2002 This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with the GTSI Corp. filing on Form 10-K for the year ended December 31, 2001. Arthur Andersen LLP has not reissued this audit report in connection with this filing on Form 10-K. (See Exhibit 23.2 for further discussion). 25 GTSI CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
December 31, (In thousands, except share amounts) 2002 2001 --------- --------- ASSETS Current assets: Cash $ 32 $ 114 Accounts receivable, net 139,164 138,385 Leases receivable, current, net 308 11,781 Merchandise inventories 56,039 61,434 Other current assets 15,080 10,238 --------- --------- Total current assets 210,623 221,952 Property and equipment, net 11,707 11,974 Leases receivable, net of current portion, net -- 17,378 Other assets 2,588 1,148 --------- --------- Total assets $ 224,918 $ 252,452 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks $ 7,539 $ 20,186 Accounts payable 122,432 151,379 Accrued liabilities 13,412 8,977 Accrued warranty liabilities 4,404 6,442 --------- --------- Total current liabilities 147,787 186,984 Other liabilities 1,640 2,403 --------- --------- Total liabilities 149,427 189,387 --------- --------- 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 8,609,938 outstanding at December 31, 2002; and 20,000,000 shares authorized, 9,806,084 issued and 8,162,612 outstanding at December 31, 2001 49 49 Capital in excess of par value 44,439 43,434 Retained earnings 36,952 27,419 Treasury stock, 1,196,146 shares at December 31, 2002 and 1,643,472 shares at December 31, 2001, at cost (5,949) (7,837) --------- --------- Total stockholders' equity 75,491 63,065 --------- --------- Total liabilities and stockholders' equity $ 224,918 $ 252,452 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 26 GTSI CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, (In thousands, except per share amounts) 2002 2001 2000 --------- --------- --------- Sales $ 934,730 $ 783,496 $ 677,754 Cost of sales 857,105 718,370 617,621 --------- --------- --------- Gross margin 77,625 65,126 60,133 Operating expenses 66,499 61,409 53,316 --------- --------- --------- Income from operations 11,126 3,717 6,817 Interest and other income 5,198 4,501 3,206 Interest expense (678) (794) (947) --------- --------- --------- Interest and other income, net 4,520 3,707 2,259 --------- --------- --------- Income before income taxes 15,646 7,424 9,076 Income tax provision (benefit) 6,113 2,938 (2,008) --------- --------- --------- Net income before cumulative effect of SAB No. 101 adoption 9,533 4,486 11,084 Cumulative effect of SAB No. 101 adoption -- -- (467) --------- --------- --------- Net income $ 9,533 $ 4,486 $ 10,617 ========= ========= ========= Net income per common share Basic Basic net income per share before cumulative effect of SAB No. 101 adoption $ 1.15 $ 0.55 $ 1.23 Cumulative effect per share of SAB No. 101 adoption -- -- (0.05) --------- --------- --------- Basic net income per share $ 1.15 $ 0.55 $ 1.18 ========= ========= ========= Diluted Diluted net income per share before cumulative effect of SAB No. 101 adoption $ 1.04 $ 0.50 $ 1.20 Cumulative effect per share of SAB No. 101 adoption -- -- (0.05) --------- --------- --------- Diluted net income per share $ 1.04 $ 0.50 $ 1.15 ========= ========= ========= Weighted average common shares outstanding Basic 8,302 8,144 9,021 ========= ========= ========= Diluted 9,156 9,049 9,225 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 27 GTSI CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2002, 2001, and 2000 ------------------------------------------------------------------------------------ Preferred Stock Common Stock --------------------------------- Capital in Total Shares Shares Excess of Earnings Treasury Stockholders' (In thousands) Issued Amount Issued Amount Par Retained Stock Equity ------------------------------------------------------------------------------------ Balance, December 31, 1999 -- $ -- 9,806 $ 49 $ 43,687 $ 12,316 $ (2,856) $ 53,196 Stock options exercised -- -- -- -- (81) -- 616 535 Employee stock purchase plan -- -- -- -- (122) -- 300 178 Common stock repurchase -- -- -- -- -- -- (6,046) (6,046) Net income -- -- -- -- -- 10,617 -- 10,617 ------------------------------------------------------------------------------------ Balance, December 31, 2000 -- $ -- 9,806 $ 49 $ 43,484 $ 22,933 $ (7,986) $ 58,480 ==================================================================================== Stock options exercised -- -- -- -- 49 -- 2,425 2,474 Employee stock purchase plan -- -- -- -- (99) -- 571 472 Common stock repurchase -- -- -- -- -- -- (2,847) (2,847) Net income -- -- -- -- -- 4,486 -- 4,486 ------------------------------------------------------------------------------------ Balance, December 31, 2001 -- $ -- 9,806 $ 49 $ 43,434 $ 27,419 $ (7,837) $ 63,065 ==================================================================================== Stock options exercised -- -- -- -- 885 -- 2,298 3,183 Employee stock purchase plan -- -- -- -- 120 -- 387 507 Common stock repurchase -- -- -- -- -- -- (797) (797) Net income -- -- -- -- -- 9,533 -- 9,533 ------------------------------------------------------------------------------------ Balance, December 31, 2002 -- $ -- 9,806 $ 49 $ 44,439 $ 36,952 $ (5,949) $ 75,491 ====================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 28 GTSI CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (In thousands) 2002 2001 2000 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,533 $ 4,486 $ 10,617 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Cumulative effect of SAB No. 101 adoption -- -- 467 Depreciation and amortization 3,543 4,407 3,934 Loss on disposal of property and equipment 593 26 134 Deferred taxes (421) 1,573 (4,334) (Decrease) increase in cash due to changes in assets and liabilities: Accounts receivable (779) (6,605) (12,404) Leases receivable 28,851 (20,391) (8,768) Merchandise inventories 5,395 (7,864) (6,751) Other assets (5,860) 7,079 (8,809) Accounts payable (28,946) 17,308 30,200 Accrued liabilities and warranty liabilities 2,397 (3,525) 4,276 Other liabilities (763) 258 (974) -------- -------- -------- Net cash provided by (used in) operating activities: 13,543 (3,248) 7,588 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (3,871) (3,577) (4,271) -------- -------- -------- Net cash used in investing activities: (3,871) (3,577) (4,271) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (payment of) bank notes, net (12,647) 8,261 2,446 Payment of notes payable -- (1,500) (500) Purchase of treasury stock (797) (2,847) (6,046) Proceeds from employee stock purchase plan 507 472 178 Proceeds from exercises of stock options 3,183 2,474 535 -------- -------- -------- Net cash (used in) provided by financing activities: (9,754) 6,860 (3,387) -------- -------- -------- Net increase (decrease) in cash (82) 35 (70) Cash at beginning of year 114 79 149 -------- -------- -------- Cash at end of year $ 32 $ 114 $ 79 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 770 $ 907 $ 1,429 Income taxes $ 4,347 $ 2,509 $ --
The accompanying notes are an integral part of these consolidated financial statements. 29 GTSI CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GTSI Corp. ("GTSI", or the "Company", formerly named Government Technology Services, Inc.) operates in a single business segment and resells hardware, software and peripherals to agencies of federal, state and local governments (the "Government"). Business activities also include sales to systems integrators, prime contractors and other companies reselling information technology to various government agencies. In August 1994, GTSI acquired all of the outstanding shares of common stock of Falcon Microsystems, Inc. ("Falcon"). GTSI and Falcon are hereinafter referred to as the "Company." On February 12, 1998, the Company entered into and closed on an Asset Purchase Agreement with BTG, Inc., and two of its subsidiaries (collectively, "BTG") under which the Company acquired substantially all of the assets of the BTG division that resells computer hardware, software and integrated systems to the Government (the "BTG Division"). The acquisition was financed by the payment of cash of approximately $9.7 million and the issuance of 15,375 shares of Series C 8% Cumulative Redeemable Preferred Stock ("Series C Preferred Stock"), having a liquidation preference of $15.4 million. On May 12, 1998, the Company's stockholders approved a proposal to convert the Series C Preferred Stock into 3,000,000 shares of Common Stock valued at $5.125 per share. The acquisition of the BTG Division was accounted for using the purchase method of accounting. The financial statements include the results of operations of the BTG Division since the acquisition date. On February 10, 1999, the Company entered into subsequent agreements with BTG related to the reacquisition of a portion of GTSI common stock from BTG, the terms of certain contracts and the relationship of the parties going forward. Pursuant to the agreements, GTSI reacquired 600,000 shares of its common stock of which 200,000 were tendered to GTSI at no cost and 400,000 were purchased by GTSI for $5.00 per share, in exchange for a three-year, 8% interest bearing note from BTG with the principal due in three annual installments of $500,000, $500,000 and $1,000,000, respectively. The final payment under this note was made on July 16, 2001. Additionally, on October 23, 2000, the Company purchased the remaining 1.3 million shares of GTSI stock held by BTG for $4.25 a share or $5.53 million. 1. Summary of Significant Accounting Policies Consolidation. The consolidated financial statements include the accounts of GTSI and its wholly owned subsidiary, Falcon. All significant intercompany accounts and transactions are eliminated in consolidation. Accounting Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The most significant estimates include the allowance for doubtful accounts, reserves for excess or obsolete inventory, reserves for asset impairment, and reserves for future costs to be incurred under the Company's warranty programs. Revenue Recognition. Revenue from hardware product sales is generally recognized when title to the products sold passes to the customer, with provisions established for estimated product returns. Based upon the Company's standard shipping terms, title generally passes upon the customer's receipt of the products. The Company also recognizes revenue under sales-type lease arrangements in accordance with the provisions of Statements of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." Revenue from software product sales is recognized in accordance with the provisions of American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition." Revenue from the sale of software products is recognized when persuasive evidence of an arrangement exists, the software has been delivered, the fee is fixed or determinable and collection is 30 probable. Net revenues from sales of third party software maintenance contracts are recognized at the time of sale. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on the application of generally accepted accounting principles to revenue recognition issues in financial statements. SAB No. 101 clarifies the appropriate timing of revenue recognition when products are shipped to customers. The impact to the Company of the adoption of SAB No. 101 was to generally defer the recognition of revenue from two to seven days as compared to the Company's previous method. During the fourth quarter of 2000, the Company adopted the provisions of SAB No. 101 retroactive to January 1, 2000. The Company implemented the guidance set forth in SAB No. 101 by recording a charge to income of $467,000, representing the cumulative effect of adopting SAB No. 101 on January 1, 2000. The Emerging Issues Task Force ("EITF") has issued EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent." Consistent with the requirements under SAB No. 101, EITF No. 99-19 provides guidance regarding the income statement presentation of revenue based on either (a) the gross amount billed to a customer because it has earned revenue from the sale of the goods or services or (b) the net amount retained (that is, the amount billed to a customer less the amount paid to a supplier) because it has earned a commission or fee. Beginning with the fourth quarter of 2000, and on a retroactive basis for all periods presented, the accompanying financial statements have been reclassified to reflect the provisions of EITF No. 99-19. Adoption of EITF No. 99-19 had no impact on our reported gross margin or net income, but merely resulted in the reduction of previously reported sales and cost of sales for our resold software maintenance agreements of approximately $13.4 million for 2000. Fair Value of Financial Instruments. At December 31, 2002 and 2001, the recorded values of financial instruments such as accounts receivable and payable and notes payable to banks approximated their fair values, based on the short-term maturities of these instruments. As of December 31, 2002 and 2001, the Company believes the carrying amount of its current and long-term lease receivables approximates its fair value since the lease receivables are discounted at an interest rate that approximates market. Accounts Receivable. Accounts receivable principally represents amounts collectible from the Government and prime contractors to the Government. Other accounts receivable result from items billed to suppliers under various agreements involving the sale of their products. The Company performs ongoing credit evaluations of its non-governmental customers but generally does not require collateral to support any outstanding obligation owed to GTSI. Allowances for potential uncollectible amounts are estimated and deducted from total accounts receivable. Sales of Lease Receivables. The Company sells products to certain customers under sales-type lease arrangements. The Company accounts for its sales-type leases according to the provisions of SFAS No. 13, "Accounting for Leases," and accordingly, recognizes current and long-term lease receivables, net of unearned finance income on the accompanying balance sheets. The Company periodically sells lease receivables to various unrelated financing companies. The Company accounts for its sales of lease receivables in accordance with SFAS No. 140, "Accounting for Transfers and Serving of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement No. 125." In accordance with the criteria set forth in SFAS No. 140, lease receivables amounting to $49.0 million and $39.8 million, in 2002 and 2001 respectively, were accounted for as sales and, as a result, the related receivables have been excluded from the accompanying balance sheets. A $500,000 gain on the sales of certain of the Company's lease receivables is included in interest and other income in the accompanying statements of operations for the year ended December 31, 2002. 31 Merchandise Inventories. Merchandise inventories are valued at the lower of cost or market. Cost is determined using a weighted average method. Property and Equipment. Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over estimated useful lives ranging from three to ten years. Leasehold improvements are amortized using the straight-line method over the terms of the leases or their estimated useful lives, whichever is shorter. Impairment of Long-Lived Assets. Long-lived assets, consisting primarily of property and equipment and capitalized software, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be addressed pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company determines impairment by comparing the carrying value of these long-lived assets to a probability weighted estimated undiscounted future cash flows expected to result from the use of these assets and their eventual disposition. In the event the Company determines that an impairment exists, a loss would be recognized based on the amount by which the carrying value exceeds the fair value of the assets, which is generally determined by using quoted market prices or valuation techniques such as the discounted present value of expected future cash flows, appraisals, or other pricing models as appropriate. 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 related to costs based on its actual historical return rates and repair costs at the time of sale. Income Taxes. The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are computed based on the estimated future tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. SFAS No. 109 requires that a valuation allowance be established when necessary to reduce deferred tax assets to amounts expected to be realized. Earnings Per Share. In accordance with SFAS No. 128, "Earnings Per Share," the Company presents basic and diluted earnings per share on the face of the statements of operations for all periods presented. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For the years ended December 31, 2002, 2001 and 2000, diluted weighted average common shares outstanding includes the dilutive effect of options if exercised of 854,000, 905,000 and 204,000 shares, respectively. Interest and Other Income, Net. For the years ended December 31, 2002, 2001, and 2000, interest and financing income includes $3.6 million, $2.2 million, and $2.1 million, respectively, of financing income earned on prompt payment of vendor invoices and $1.4 million, $1.7 million, and $ 0.1 million, respectively, of interest income from lease receivables. A $500,000 gain on the sales of certain of the Company's lease receivables is included in interest and other income in the accompanying balance sheets. Marketing Development and Cooperative Advertising Funds. Certain vendors provide the Company with sales incentive programs. Generally, the funds received under these programs are 32 determined based on the Company's purchases and/or sales of the vendor's product. The funds are earned upon performance of specific promotional programs or upon completion of predetermined objectives dictated by the vendor. Once earned, the funds reduce associated expenses of promotional programs. Concentration of Credit Risk. The Company's customers are primarily federal, state and local government agencies and prime contractors to the Government, including systems integrators. In 2002, the Company sold products or services to thousands of different customers, including to most agencies and major departments of the Government, to many state governments and to hundreds of prime contractors. In 2002, the Company had sales to a single system integrator, which is a prime contractor to the Government in excess of 9% of the Company's net sales for 2002. In addition, aggregate 2002 sales to the Government's Departments of the Army, Navy and Air Force were 16.3%, 7.1% and 10.6%, respectively, of GTSI's 2002 sales. Outstanding Checks. Included in accounts payable at December 31, 2002 and 2001, are approximately $6.9 million and $11.9 million, respectively, which represent checks that have been issued but have yet to clear the bank. New Accounting Pronouncements. In June 2001 the Financial Accounting Standards Board (FASB) approved SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill that existed at June 30, 2001. The amortization of existing goodwill will cease on December 31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new method of testing goodwill and certain intangibles for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The Company's adoption of these standards did not have a material effect on its consolidated financial statements or its results of operations. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this Statement is to develop consistent accounting for asset retirement obligations and related costs in the financial statements and provide more information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will be required to implement SFAS No. 143 on January 1, 2003. The Company does not believe that adoption of this standard will have a material effect on its consolidated financial statements or its results of operations. In July 2002, the FASB issued SFAS No., 146 "Accounting for Costs Associated with Exit or Disposal Activities". This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The principal difference between Statement No. 146 and Issue 94-3 relates to Statement 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. Statement No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. A fundamental conclusion in this Statement is that an entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This Statement also establishes that fair value is the objective for initial measurement of the liability. The provisions of this Statement are effective for exit or disposal 33 activities that are initiated after December 31, 2002. The adoption of this standard is not expected to have a material impact on the consolidated financial statements of the Company. In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 elaborates on the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 31, 2002. The Company does not expect adoption of FIN 45 to have a material effect on its financial condition, results of operations of liquidity. In January 2003, the Financial Accounting Standards Board 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 immediately to variable interest entities created after January 31, 2003. The Company is currently in the process of evaluating what impact, if any, FIN 46 will have on its financial condition, results of operations or liquidity. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS 123." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock -based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the fair market value of the Company's stock at the date of the grant over the exercise price of the related option. The Company has adopted the annual disclosure provisions of SFAS No. 148 in its financial report for the year ended December 31, 2002 and will adopt the interim disclosure provisions for its financial reports for the quarter ended March 31, 2003. 34 Had compensation costs for the Company's stock options been determined based on SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been as follows (in thousands, except per share amounts): 2002 2001 2000 ------ ------- ------- Net income - as reported $9,533 $ 4,486 $10,617 Add: Total stock-based employee compensation expense as reported under intrinsic value method (APB No. 25) for all awards, net of related tax effects -- -- -- Deduct: Total stock-based employee compensation expense determined under fair value based method (SFAS No. 123) for all awards, net of related tax effects (978) (1,061) (920) Net income - pro forma $8,555 $ 3,425 $ 9,697 Net income per share - as reported (basic) 1.15 0.55 1.18 Net income per share - as reported (diluted) 1.04 0.50 1.15 Net income per share - pro forma (basic) 1.03 0.42 1.08 Net income per share - pro forma (diluted) 0.93 0.38 1.05 The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 2002 2001 2000 --------- --------- --------- Average expected life 4.0 years 4.4 years 5.0 years Risk free interest rate 2.53% 4.50% 4.95% Volatility 77.95% 75.9% 75.9% Dividend yield -- -- -- 2. Accounts Receivable The composition of accounts receivable as of December 31, 2002 and 2001, is as follows (in thousands): 2002 2001 --------- --------- Trade accounts receivable $ 122,765 $ 117,815 Vendor and other receivables 17,233 21,983 --------- --------- 139,998 139,798 Less: Allowance for uncollectible accounts $ (834) $ (1,413) --------- --------- Accounts receivable, net $ 139,164 $ 138,385 ========= ========= 35 3. Lease Receivables The Company sold products to certain customers under sales-type lease arrangements. Leasing arrangements were for two to three years and carry market interest rates ranging from 7.83 to 10.20 percent. Total future minimum lease payments and unearned finance income due under the sales-type leases are as follows (in thousands): Unearned Total Lease Finance Net Principle Payments Due Income Due ------------ -------- ------------- 2003 $347 $ 39 $308 ---- ---- ---- Total lease receivables $347 $ 39 $308 ==== ==== ==== 4. Property and Equipment The composition of property and equipment as of December 31, 2002 and 2001, is as follows (in thousands): 2002 2001 ---- ---- Office furniture and equipment $ 11,885 $ 11,066 Computer software 15,938 15,289 Leasehold improvements 4,960 4,832 ---------------------- 32,783 31,187 Less accumulated depreciation and amortization (21,076) (19,213) ---------------------- Property and equipment, net $ 11,707 $ 11,974 ====================== Depreciation and amortization expense $ 3,543 $ 4,407 ====================== Depreciation and amortization expense on property and equipment and leasehold improvements was $3.5 million, $4.4 million, and $3.9 million, in 2002, 2001, and 2000, respectively. During 2002 the Company replaced its website and disposed of the old website. The remaining book value of the old website of approximately $580,000 was written off during the second quarter of 2002. 5. Internal Software The Company is internally developing software to replace its current fulfillment system. As of December 31, 2002 the Company has capitalized approximately $4.6 million dollars under this project. The Company policy capitalizes qualifying computer software costs incurred for software developed for internal use during the application development stage in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Costs incurred during the application development stage include designing software configuration and interfaces, coding, installing software, and testing. These costs include both external direct costs and internal costs. Costs incurred outside of the application development stage are expensed as incurred. 36 6. Notes Payable to Banks The Company has a revolving line of credit (the "Revolver") with a group of banks, which allows for borrowings up to $50.0 million during its highest seasonal period. Additionally, the Company has a separate facility with a bank for inventory financing of vendor products (the "Wholesale Financing Facility"), which allows for borrowings up to $60.0 million during its highest seasonal period. Combined, the Revolver and the Wholesale Financing Facility (the "Credit Facilities") allow the Company to borrow from $55.0 million to $110.0 million depending on the seasonal period. The seasonal structure of the Credit Facilities coincides with the seasonality of the Company's business and allows the Company to minimize banking fees. The interest rate under the Credit Facilities is a rate indexed to the London Interbank Offered Rate (LIBOR). As of December 31, 2002, 2001, and 2000, respectively, the Company's interest rate on the Revolver was 3.13%, 3.68%, and 8.40%, respectively. Amounts due to the banks of $7.5 million as of December 31, 2002 are classified as current liabilities down from $20.2 million as of December 31, 2001. The available portion of the Credit Facility was approximately $42.5 million at December 31, 2002, up from $29.8 million at December 31, 2001. Borrowing is limited to 85% of eligible accounts receivable. The Credit Facility is secured by substantially all of the Company's operating assets. Current obligations are first funded and then all cash receipts are automatically applied to reduce outstanding borrowings. The Credit Facility also contains certain covenants that include restrictions on the payment of dividends and the purchase of the Company's Common Stock, as well as provisions specifying compliance with certain quarterly and annual financial ratios. At December 31, 2002, the Company was in compliance with all financial covenants set forth in the credit facility. The following information pertains to the notes payable to banks for the years ended December 31, 2002, 2001, and 2000 (dollars in thousands): 2002 2001 2000 ---- ---- ---- Weighted average interest rate........................ 3.5% 5.7% 8.2% 7. Income Taxes The components of the provision (benefit) for income taxes for the years ended December 31, 2002, 2001, and 2000 are as follows (in thousands): 2002 2001 2000 ------- ------- ------- Current taxes : Federal $ 5,769 $ 1,079 $ 1,923 State 765 287 403 ------- ------- ------- 6,534 1,366 2,326 Deferred taxes: Federal (372) 1,398 (4,063) State (49) 174 (271) ------- ------- ------- (421) 1,572 (4,334) ------- ------- ------- Income tax (benefit) $ 6,113 $ 2,938 $(2,008) ======= ======= ======= Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities and the amounts recorded for income tax purposes. As of December 37 31, 1999, the Company had a valuation allowance of $5.0 million against its net deferred tax assets. In the fourth quarter of 2000, the Company, after its third consecutive year of positive earnings, concluded that a valuation allowance against its net deferred tax assets was no longer necessary as the future realizability of these assets was now more likely than not. Accordingly, the valuation allowance was eliminated. Significant components of the Company's deferred taxes as of December 31, 2002 and 2001 were as follows (in thousands): December 31, -------------------- 2002 2001 -------------------- Deferred tax assets: Accounts receivable and inventory allowances $ 322 $ 546 Intangible assets 1,339 1,512 Accrued warranty 1,701 2,460 Bid and proposal costs 552 502 Vacation accrual 431 388 Depreciation 674 368 Rent abatement 96 97 Other reserves 711 526 Prepaid revenue 839 -- -------------------- Total deferred tax assets 6,665 6,399 -------------------- Deferred tax liabilities: Web site development costs 1,302 1,457 -------------------- Total deferred tax assets 1,302 1,457 -------------------- Net deferred tax assets reported $ 5,363 $ 4,942 ==================== The Company's effective tax rate for the years ended December 31, 2002, 2001, and 2000 differs from the statutory rate for federal income taxes as a result of the following factors: 2002 2001 2000 ---- ---- ---- Statutory rate 34.0% 34.0% 34.0% State income taxes, net of Federal tax benefit 4.6% 4.6% 4.5% Valuation allowance 0.0% 0.0% -59.3% Other 0.5% 1.0% -1.3% ---- ---- ---- 39.1% 39.6% -22.1% ==== ==== ==== 8. Stockholders' Equity Stock Options and Warrants. The Company has two combination incentive and non-statutory stock option plans, the "1996 Plan" and the "1994 Plan," that provide for the granting of options to employees (both plans) and non-employee directors (only under the 1996 Plan) to purchase up to 2,500,000 and 300,000 shares, respectively, of the Company's common stock. In addition, in May 1997 the Company's Board of Directors adopted the 1997 Non-Officer Stock Option Plan (the "1997 Plan"). The 1997 Plan provides for the granting of non-statutory stock options only to employees other than officers and directors to purchase up to 300,000 shares of the Company's common stock. Until its expiration on March 15, 1996, the Company had another combination incentive and non-statutory stock 38 option plan, the "1986 Plan," that provided for the granting of options to employees to purchase up to 1,100,000 shares of the Company's common stock. Under the 1997, 1996, 1994 and 1986 Plans, options have a term of up to ten years, generally vest over four years and option prices are required to be at not less than 100% of the fair market value of the Company's common stock at the date of grant and, except in the case of non-employee directors, must be approved by the Board of Directors or its Compensation Committee. Options under the 1997, 1996, 1994 and 1986 Plans were as follows:
Weighted Weighted Average Average Number of Option Exercise Price Per Exercise Price Remaining Shares Share Per Share Life - ----------------------------------------------------------------------------------------------------------- 1997 Plan: Outstanding at December 31, 1999 275,925 $2.88-5.38 $ 4.52 Granted 57,000 $3.25-5.22 $ 3.60 Forfeited or canceled (49,625) $3.31-5.31 $ 4.70 Exercised (3,333) $2.88 $ 2.88 Outstanding at December 31, 2000 279,967 $2.88-5.38 $ 4.23 Granted Forfeited or canceled (13,792) $2.88-4.88 $ 3.41 Exercised (112,917) $2.88-5.38 $ 4.42 Outstanding at December 31, 2001 153,258 $2.88-5.25 $ 4.16 Granted 33,000 $7.93-11.06 $ 9.15 Forfeited or canceled (6,750) $3.13-4.50 $ 3.49 Exercised (93,583) $2.88-5.25 $ 4.37 Outstanding at December 31, 2002 85,925 $2.88-11.06 $ 5.90 5.0 - ----------------------------------------------------------------------------------------------------------- 1996 Plan: Outstanding at December 31, 1999 1,254,000 $2.88-5.44 $ 4.22 Granted 463,000 $2.81-3.31 $ 3.21 Forfeited or canceled (254,000) $2.88-5.25 $ 4.24 Exercised (10,750) $3.13-3.75 $ 3.62 Outstanding at December 31, 2000 1,452,250 $2.81-5.44 $ 3.91 Granted 233,000 $4.00-6.40 $ 6.03 Forfeited or canceled (55,916) $2.88-4.00 $ 3.46 Exercised (252,084) $2.88-5.25 $ 3.82 Outstanding at December 31, 2001 1,377,250 $2.81-6.40 $ 4.30 Granted 265,000 $8.00-13.67 $10.00 Forfeited or canceled (43,000) $3.25-6.40 $ 3.77 Exercised (262,233) $2.88-6.40 $ 3.95 Outstanding at December 31, 2002 1,337,017 $2.81-13.67 $ 5.52 4.9 - ----------------------------------------------------------------------------------------------------------- 1994 Plan: Outstanding at December 31, 1999 281,500 $2.88-13.44 $ 6.13 Granted 35,000 $3.31 $ 3.31 Forfeited or canceled (60,500) $4.81-13.44 $ 7.71 Exercised (6,500) $2.88 $ 2.88 Outstanding at December 31, 2000 249,500 $2.88-12.88 $ 5.70 Granted -- -- $ 0.00 Forfeited or canceled -- -- $ 0.00 Exercised (34,500) $2.88-3.50 $ 3.24 Outstanding at December 31, 2001 215,000 $2.88-12.88 $ 6.10 Granted 98,000 $7.81-11.06 $ 9.29
39
Forfeited or canceled (72,417) $2.88-12.50 $ 5.42 Exercised (95,166) $2.88-7.31 $ 4.56 Outstanding at December 31, 2002 145,417 $2.88-12.88 $ 7.25 6.4 - ----------------------------------------------------------------------------------------------------------- 1986 Plan: Outstanding at December 31, 1999 57,000 $3.50-10.25 $ 4.33 Granted -- -- -- Forfeited or canceled (50,000) $3.50 $ 3.50 Exercised -- -- -- Outstanding at December 31, 2000 7,000 $10.25 $10.25 Granted -- -- -- Forfeited or canceled (7,000) $10.25 $10.25 Exercised -- -- -- Outstanding at December 31, 2001 -- -- -- Granted -- -- -- Forfeited or canceled -- -- -- Exercised -- -- -- Outstanding at December 31, 2002 -- -- -- -- - ----------------------------------------------------------------------------------------------------------- Nonstatutory Stock Options: Outstanding at December 31, 1999 1,145,000 $3.13-10.50 $ 4.42 Granted -- -- -- Forfeited or canceled (50,000) $3.13-10.50 $ 4.41 Exercised (100,000) $3.75 $ 3.75 Outstanding at December 31, 2000 995,000 $3.13-10.50 $ 4.47 Granted 400,000 $3.81-6.76 $ 4.73 Forfeited or canceled (87,500) $3.81-5.25 $ 4.34 Exercised (147,500) $3.75-5.25 $ 4.21 Outstanding at December 31, 2001 1,160,000 $3.13-10.50 $ 4.60 Granted 176,000 $7.81-11.06 $ 8.94 Forfeited or canceled (9,000) $7.81 $ 7.81 Exercised -- -- -- Outstanding at December 31, 2002 1,327,000 $3.13-11.06 $ 5.16 3.9 - ----------------------------------------------------------------------------------------------------------- FOR ALL PLANS: Outstanding at December 31, 2002 2,895,359 $2.81-13.67 $ 5.45 4.7
40 Outstanding and Exercisable by Price Range as of December 31, 2002
Options Outstanding Options Exercisable - ----------------------------------------------------------- ------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Exercise Outstanding at Contractual Exercise Exercisable at Exercise Prices 12/31/02 Life-Years Price 12/31/02 Price - ----------------- -------------- ----------- -------- -------------- -------- 2.81-2.85 75,000 4.4 $ 2.81 75,000 $ 2.81 2.85-4.28 1,521,684 3.8 3.64 1,246,434 3.68 4.28-5.70 309,675 4.4 5.07 298,425 5.07 5.70-7.13 333,000 5.5 6.27 153,000 6.25 7.13-8.55 223,000 6.7 8.12 47,996 8.43 8.55-9.98 85,000 8.2 8.75 -- -- 9.98-11.40 340,000 5.6 10.90 104,000 10.52 12.83-13.67 8,000 4.9 13.37 3,000 12.88 - ----------------- --------- ----------- ------ --------- ------- 2.81-14.25 2,895,359 4.7 $ 5.45 1,927,855 $ 4.57 ================= ========= =========== ====== ========= =======
At December 31, 2002, in the 1997 Plan, options for 28,675 shares were exercisable and 4,242 options were available for grant; in the 1996 Plan, options for 884,263 shares were exercisable and 637,916 options were available for grant; in the 1994 Plan, options for 45,917 shares were exercisable and 717 options were available for grant; and in the 1986 Plan, no options for shares were exercisable. Stock Purchase Plan. The Company has established an Employee Stock Purchase Plan ("ESPP"). Eligible employees may elect to set aside, through payroll deduction, up to 15% of their compensation to purchase common stock of the Company. The maximum number of shares that an eligible employee may purchase during any offering period is equal to 5% of such employee's compensation for the 12 calendar-month period prior to the commencement of an offering period divided by 85% of the fair market value of a share of common stock on the first day of the offering period. The ESPP is implemented through one offering during each six-month period beginning January 1 and July 1. The ESPP purchase price is 85% of the lower of the fair market value of a share of common stock on the first day or the last day of the offering period. In the offering periods ended June 30, 2002 and December 31, 2002, employees purchased 63,269 and 77,858 shares, respectively, at prices of $6.67 and $6.67, respectively. In the offering periods ended June 30, 2001 and December 31, 2001, employees purchased 68,465 and 57,563 shares, respectively, at prices of $2.68 and $5.02, respectively. In the offering periods ended June 30, 2000 and December 31, 2000, employees purchased 27,221 and 43,007, respectively, at prices of $2.34 and $2.66, respectively. The weighted average fair market value of shares under the ESPP was $6.67, $3.75, and $2.53 in 2002, 2001, and 2000, respectively. The Company has reserved 750,000 shares of common stock for the ESPP, of which 203,293 were available for future issuance as of December 31, 2002. 9. Commitments and Contingencies The Company is occasionally a defendant in litigation incidental to its business. The Company believes that none of such litigation currently pending, individually or in the aggregate, will have a material adverse effect on the Company's financial condition or results of operations. In December 1999 the Company purchased $1.7 million of business intelligence software. Contractually, the Company has the right to sell this business intelligence software to various Government agencies through June 30, 2003. Through December 31, 2002, the Company has sold approximately 41 $300,000 of this product. Based on its sales history and the continued challenges with selling this product, the Company's management believes that the remaining $1.4 million of the business intelligence software inventory was impaired and as a result wrote off the remaining unsold balance in 2002. During the fourth quarter of 2002, the Company determined that it was remote that certain accrued obligations would need to be paid. Accordingly, the associated obligation of $1.4 million has been reversed and as a result operating expenses have been reduced. The Company leases office and warehouse space and various equipment under noncancelable operating leases. In October 1997, the Company executed a ten-year lease for an administrative facility consisting of approximately 100,500 square feet of new office space in Chantilly, Virginia. The agreement has one five-year option period and commenced on December 1, 1998. The Company is obligated under the lease agreement to provide to the landlord a letter of credit in the amount of $2.0 million as a security deposit for all tenant requested improvements associated with the lease. This deposit will be reduced by 10% per year, over the life of the lease. The Company recorded leasehold improvements in the amount of $2.0 million, as well as a liability for deferred rent of $2.0 million in conjunction with the build-out improvements. The asset and liability are being amortized over the life of the lease. The Company leases a warehouse and distribution facility in Chantilly, Virginia, in a separate 200,000 square-foot facility under a lease expiring in December 2006. In December 2002, GTSI expanded its office space by leasing approximately 34,000 square feet of office space in Chantilly, Virginia under a lease expiring in November 2005, with one two-year option and one one-year option. The Company also entered into a lease agreement on April 1, 1999 for a 20,000 square-foot distribution center in Chattanooga, Tennessee. The Company has exercised its one-year lease renewal option for the Chattanooga facilities effective April 1, 2002. Rent expense for the years ended December 31, 2002, 2001, and 2000 was approximately $2.0 million, $2.1 million, and $2.0 million, respectively. The Company also maintains a sales office in Germany and had entered into a lease agreement as of January 1, 1999 for a term of two years ending on December 31, 2000. The Company renewed this lease commitment as of January 1, 2002 and 2003 for one-year terms ending on December 31, 2002 and 2003, respectively. Collective future minimum lease payments as of December 31, 2002, are as follows (in thousands): Operating Year ending December 31, Leases ------------------------ --------- 2003 $ 2,440 2004 2,656 2005 2,655 2006 2,081 2007 1,295 Thereafter 1,221 ------- Total minimum lease payments $12,348 ======= 42 10. 401(k) Plan Effective April 1991, the Company adopted the Employees' 401(k) Investment Plan (the "Plan"), a savings and investment plan intended to be qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"). All employees of the Company who are at least 21 years of age and have completed at least six months of employment with the Company are eligible to participate. The Plan is voluntary and allows participating employees to make pretax contributions, subject to limitations under the Code, of a percentage (not to exceed 15%) of their total compensation. Employee contributions are fully vested at all times. The Company, in its sole discretion, may make contributions in amounts, if any, as may be determined by the Board of Directors for the benefit of all participants. In 2002, 2001, and 2000 the Company contributed a total of $887,322, $799,847, and $662,164 to the Plan, respectively. 11. Segment Reporting In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires certain information about operating segments to be presented in the financial statements and in condensed financial statements of interim periods. The Company has determined that through December 31, 2002, it operated as one business segment as defined by SFAS No. 131. In addition, the Company aggregates and reports revenues from products that have similar economic characteristics in their nature, production, and distribution process. The primary customer of the Company is the Federal Government, which under SFAS No. 131 is considered a single customer. 43 12. Quarterly Financial Data (unaudited) The following tables set forth selected unaudited quarterly financial data and the percentages such items represent of sales. The quarterly financial data reflect, in the opinion of the Company, all normal and recurring adjustments necessary to present fairly the results of operations for such periods. Results of any one or more quarters are not necessarily indicative of annual results or continuing trends.
2002 Quarters Ended ---------------------------------------------------------------------------------- March 31, June 30, September 30, December 31, ------------------ ------------------ ----------------- ----------------- (In thousands, except per share data) Sales $ 176,743 100.0% $ 200,992 100.0% $ 276,846 100.0% $ 280,149 100.0% Cost of sales 162,232 91.8% 185,883 92.5% 254,485 91.9% 254,505 90.8% Gross margin 14,511 8.2% 15,109 7.5% 22,361 8.1% 25,644 9.2% Operating expenses 15,386 8.7% 14,427 7.2% 18,414 6.7% 18,272 6.5% (Loss) income from operations (875) -0.5% 682 0.3% 3,947 1.4% 7,372 2.6% Interest income, net (1,770) -1.0% (611) -0.3% (1,288) -0.5% (851) -0.3% Income before income taxes 895 0.5% 1,293 0.6% 5,235 1.9% 8,223 2.9% Income tax provision 354 0.2% 521 0.3% 2,094 0.8% 3,144 1.1% Net income 541 0.3% 772 0.4% 3,141 1.1% 5,079 1.8% Net income per common share Basic: Basic net (loss) income per share $ 0.07 $ 0.09 $ 0.38 $ 0.60 Diluted: Diluted net (loss) income per share $ 0.06 $ 0.08 $ 0.32 $ 0.54 Weighted average common shares outstanding Basic 8,184 8,265 8,316 8,439 ========= ========= ========= ========= Diluted 9,518 9,582 9,723 9,402 ========= ========= ========= ========= Contract Vehicles 2002 Quarter Ended ---------------------------------------------------------------------------------- (Dollars in millions) March 31, June 30, September 30, December 31, ------------------ ------------------ ----------------- ----------------- GSA Schedules $ 35.0 19.8% $ 64.1 31.9% $ 97.5 35.2% $ 79.4 28.3% IDIQ Contracts 62.2 35.2% 80.5 40.0% 113.8 41.1% 132.1 47.1% Open Market 19.1 10.8% 16.8 8.4% 33.4 12.1% 37.8 13.5% Subcontracts and Other Contracts 60.4 34.2% 39.6 19.7% 32.1 11.6% 30.9 11.1% ------------------ ------------------ ----------------- ----------------- Total $176.7 100% $201.0 100% $276.8 100% $280.2 100% ================== ================== ================= =================
44
Top 5 Vendors 2002 Quarter Ended ---------------------------------------------------------------------------------- (Dollars in millions) March 31, June 30, September 30, December 31, ------------------ ------------------ ----------------- ----------------- Panasonic $ 28.0 15.9% $ 25.9 12.9% $ 37.0 13.4% $ 32.6 11.6% Cisco 36.8 20.8% 15.5 7.7% 33.2 12.0% 29.4 10.5% Sun 10.9 6.2% 24.8 12.3% 46.8 16.9% 28.1 10.0% Hewlett-Packard 17.5 9.9% 18.4 9.2% 32.9 11.9% 31.6 11.3% Microsoft 9.1 5.1% 34.8 17.3% 32.3 11.7% 19.4 6.9% Other 74.4 42.1% 81.6 40.6% 94.6 34.1% 139.1 49.7% ------------------ ------------------ ----------------- ----------------- Total $176.7 100% $201.0 100% $276.8 100% $280.2 100% ================== ================== ================= ================= 2001 Quarters Ended ---------------------------------------------------------------------------------- March 31, June 30, September 30, December 31, ------------------ ------------------ ----------------- ----------------- (In thousands, except per share data) Sales $ 149,288 100.0% $ 151,090 100.0% $ 203,077 100.0% $ 280,041 100.0% Cost of sales 136,523 91.4% 138,250 91.5% 186,899 92.0% 256,698 91.7% Gross margin 12,765 8.6% 12,840 8.5% 16,178 8.0% 23,343 8.3% Operating expenses 15,358 10.3% 15,698 10.4% 14,853 7.3% 15,501 5.5% (Loss) income from operations (2,593) -1.7% (2,858) -1.9% 1,325 0.7% 7,842 2.8% Interest income, net (655) -0.4% (679) -0.4% (1,945) -1.0% (428) -0.2% (Loss) income before income taxes (1,938) -1.3% (2,179) -1.4% 3,270 1.6% 8,270 3.0% Income tax (benefit) provision (747) -0.5% (840) -0.6% 1,260 0.6% 3,264 1.2% Net (loss) income (1,191) -0.8% (1,339) -0.9% 2,010 1.0% 5,006 1.8% Net income per common share Basic: Basic net (loss) income per share $ (0.15) $ (0.16) $ 0.24 $ 0.62 Diluted: Diluted net (loss) income per share $ (0.15) $ (0.16) $ 0.22 $ 0.54 Weighted average common shares outstanding Basic 8,042 8,157 8,256 8,119 ========= ========= ========= ========= Diluted 8,042 8,157 9,225 9,258 ========= ========= ========= ========= Contract Vehicles 2001 Quarter Ended ---------------------------------------------------------------------------------- (Dollars in millions) March 31, June 30, September 30, December 31, ------------------ ------------------ ----------------- ----------------- GSA Schedules $ 26.4 17.7% $ 35.4 23.4% $ 76.4 37.7% $100.2 35.8% IDIQ Contracts 91.9 61.6% 79.3 52.5% 80.3 39.5% 103.9 37.1% Open Market 23.9 16.1% 23.7 15.7% 30.3 14.9% 55.5 19.8% Subcontracts and Other Contracts 7.1 4.8% 12.7 8.4% 16.1 7.9% 20.4 7.3% --------------- --------------------- ------------------- -------------------- Total $149.3 100% $151.1 100% $203.1 100% $280.0 100% =============== ===================== =================== ==================== 45 Top 5 Vendors 2001 Quarter Ended ------------------------------------------------------------------------------- (Dollars in millions) March 31, June 30, September 30, December 31, ------------------ ------------------ ----------------- ----------------- Hewlett-Packard $ 29.8 20.0% $ 28.3 18.7% $ 34.7 17.1% $ 42.3 15.1% Panasonic 27.5 18.4% 18.4 12.2% 23.4 11.5% 23.2 8.3% Microsoft 11.1 7.4% 16.2 10.7% 27.3 13.4% 33.4 11.9% Cisco 12.8 8.6% 15.1 10.0% 21.8 10.7% 30.7 11.0% Sun 7.3 4.9% 16.2 10.7% 19.6 9.7% 19.9 7.1% Other 60.8 40.7% 56.9 37.7% 76.3 37.6% 130.5 46.6% ------------------ ------------------ ----------------- ----------------- Total $149.3 100% $151.1 100% $203.1 100% $280.0 100% ================== ================== ================= =================
GTSI CORP. AND SUBSIDIARY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands) Balance at Charged to Balance Beginning Costs and at end Description of Period Expenses Deductions (1) of Period - --------------------------------- --------- ---------- -------------- --------- Year ended December 31, 2002: Allowance for bad debts $ 1,413 $ 218 $ (797) $ 834 Year ended December 31, 2001: Allowance for bad debts $ 1,709 $ 171 $ (467) $1,413 Year ended December 31, 2000: Allowance for bad debts $ 2,556 $ (10) $ (837) $1,709
(1) Adjustments and amounts written off during the period. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. GTSI Corp. engaged the services of Ernst & Young LLP as independent auditors to replace Arthur Andersen LLP, effective July 11, 2002. For additional information, see GTSI Corp.'s current report on Form 8-K dated July 16, 2002. 46 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated by reference to the sections of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 14, 2003 entitled "Election of Directors," "Executive Officers" and "Common Stock Ownership of Principal Stockholders and Management - Section 16(a) Beneficial Ownership Reporting Compliance," to be filed with the Commission. Item 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated by reference to the sections of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 14, 2003 entitled "Election of Directors - Compensation of Directors" and "Executive Compensation and Other Information," to be filed with the Commission. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated by reference to the section of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 14, 2003 entitled "Common Stock Ownership of Principal Stockholders and Management," to be filed with the Commission. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated by reference to the sections of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 14, 2003 entitled "Election of Directors - Class 3 Nominees" and "Compensation of Directors" and "Executive Compensation and Other Information-Employment Agreements and Termination of Employment and Change of Control Arrangements," to be filed with the Commission. Item 14. controls and procedures. (a) Evaluation of disclosure controls and procedures Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a - 14(c) and 15d - 14(c)) as of a date ("the Evaluation Date") within 90 days before the filing of this annual report, have concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate and designed to ensure that the information required to be filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the requisite time periods. (b) Changes in internal controls There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the Evaluation Date. 48 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 3.1 Restated Certificate of Incorporation (23) 3.2 Bylaws, as amended (12) 10.1 Amended and Restated 1986 Stock Option Plan, (3), including forms of Stock Option Agreements and Stock Purchase Agreement (1)(2) 10.2 Employee Stock Purchase Plan, as amended to date (1)(5) 10.3 Officer Severance Plan, as amended to date (14) 10.4 GTSI Employees' 401(k) Investment Plan (2); and Amendment No. 1 (4); Amendment No. 2 and Amendment No. 3 thereto (14) 10.5 Lease dated August 11, 1995 between the Registrant and Security Capital Industrial Trust covering new distribution center facility (14) 10.7 1994 Stock Option Plan, as amended to date (1) 10.8 1996 Stock Option Plan, as amended to date (1) 10.9 1997 Non-Officer Stock Option Plan, as amended to date (1) 10.10 Lease dated December 10, 1997 between the Registrant and Petula Associates, Ltd. covering new headquarters facility (excluding attachments and exhibits) (17) 10.11 Second Amended and Restated Business Credit and Security Agreement, dated as of July 28, 1997, among the Registrant, certain lenders named in such agreement, and Deutsche Financial Services Corporation, as a Lender and as Agent (excluding attachments and exhibits) (17) 10.12 Amendment, dated as of July 2, 1998, to Second Amended and Restated Business Credit and Security Agreement, dated as of July 28, 1997, among the Registrant, certain lenders named in such agreement, and Deutsche Financial Services Corporation, as a Lender and as Agent (21) 10.13 Amendment, dated as of July 2, 1998, to Agreement for Wholesale Financing dated as of June 27, 1996, among the Registrant and Deutsche Financial Services Corporation (21) 10.14 Amendment, dated as of November 24, 1999 to Second Amended and Restated Business Credit and Security Agreement, dated July 28, 1997, among the Registrant, certain lenders named in such agreement and Deutsche Financial Services Corporation, as a Lender and as Agent (22) 10.15 Addendum, dated as of November 23, 1999 to Agreement for Wholesale Financing dated June 27, 1996, among the Registrant and Deutsche Financial Services Corporation (22) 10.16 Amendment, dated as of November 17, 2000 to Second Amended and Restated Business Credit and Security Agreement, dated July 28, 1997, among the Registrant, certain lenders 49 named in such agreement and Deutsche Financial Services Corporation, as a Lender and as Agent (23) 10.17 Amendment, dated as of February 28, 2001 to Second Amended and Restated Business Credit and Security Agreement, dated as of July 28, 1997, among the Registrant, certain lenders named in such agreement, and Deutsche Financial Services Corporation, as a Lender and as Agent 10.18 Amendment, dated as of March 13, 2001, to Agreement for Wholesale Financing dated as of June 27, 1996, among the Registrant and Deutsche Financial Services Corporation 10.19 Amendment, dated as of February 26, 2002 to Second Amended and Restated Business Credit and Security Agreement, dated as of July 28, 1997, among the Registrant, certain lenders named in such agreement, and Deutsche Financial Services Corporation, as a Lender and as Agent 10.20 Amendment, dated as of February 26, 2002, to Agreement for Wholesale Financing dated as of June 27, 1996, among the Registrant and Deutsche Financial Services Corporation 10.21 Amendment, dated as of March 27, 2002, to Agreement for Wholesale Financing dated as of June 27, 1996, among the Registrant and Deutsche Financial Services Corporation 10.22 Amendment, dated as of August 7, 2002, to Agreement for Wholesale Financing dated as of June 27, 1996, among the Registrant and Deutsche Financial Services Corporation 10.23 Amendment, dated as of January 3, 2003 to Second Amended and Restated Business Credit and Security Agreement, dated as of July 28, 1997, among the Registrant, certain lenders named in such agreement, and Deutsche Financial Services Corporation, as a Lender and as Agent 10.24 Offer Letter dated November 29, 2000 between the Registrant and John T. Spotila (1)(23) 10.25 Employment Agreement dated January 1, 2001 between the Registrant and M. Dendy Young (1)(23) 10.26 Non-Qualified Stock Option Agreement effective January 2, 2001 between the Registrant and John T. Spotila (1) 10.27 Offer Letter dated June 28, 2001 between Registrant and Terri Allen (1)(24) 10.28 Non-Qualified Stock Option Agreement effective July 31, 2001 between the Registrant and Terri Allen (1) 10.29 Retirement Agreement effective March 12, 2002 between the Registrant and Robert D. Russell (1)(25) 10.30 Offer Letter dated May 21, 2002 between the Registrant and Dr. Jack Littley III (1) 10.31 Retirement Agreement effective November 8, 2002 between the Registrant and William E. Johnson, Jr. (1) 10.32 Offer Letter dated December 31, 2002 between the Registrant and Thomas Mutryn (1) 50 10.33 Memorandum Regarding Promotion to Senior Vice President dated February 20, 2003 between the Registrant and Dr. Jack Littley III (1) 10.34 Non-Qualified Stock Option Agreement effective January 28, 2003 between the Registrant and Thomas Mutryn (1) 23.1 Consent of Ernst & Young LLP 23.2 Information Regarding Consent of Arthur Andersen LLP 99.1 Section 906 Certification of M. Dendy Young, Chief Executive Officer 99.2 Section 906 Certification of Thomas Mutryn, Chief Financial Officer 51 (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 Registration Statement on Form S-1 (Registration No. 33-41351) filed with the Commission on June 21, 1991. (3) Incorporated by reference to Pre-effective Amendment No. 3 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-41351) filed with the Commission on September 20, 1991. (4) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (Registration No. 33-55090) filed with the Commission on November 25, 1992. (5) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 1992. (6) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19394) for the quarter ended March 31, 1993. (7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19394) for the quarter ended September 30, 1993. (8) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 1993. (9) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19394) for the quarter ended March 31, 1994. (10) Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on August 31, 1994, as amended by Form 8-K/A No. 1 filed with the Commission on October 31, 1994. (11) Incorporated by reference to the Registrant's Annual Report on Form 10-Q (File No. 0-19394) for the year ended December 31, 1994. (12) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 1996. (13) Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on January 17, 1995. (14) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19394) for the quarter ended June 30, 1995. (15) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 1995. (16) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19394) for the quarter ended March 31, 1996. (17) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 1997. (18) Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on May 18, 1998. 52 (19) Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on May 21, 1998. (20) Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on August 5, 1998. (21) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19394) for the quarter ended June 30, 1998. (22) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 1999. (23) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 2000. (24) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19394) for the year ended December 31, 2002. (25) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19394) for the quarter ended April 30, 2001. (b) Reports on Form 8-K No reports on Form 8-K have been filed by the Registrant during the last quarter of the period covered by this Form 10-K. (c) Exhibits See the list of Exhibits in Item 14(a)(3) beginning on Pages 47 of this Form 10-K. (d) Financial Statement Schedules See the Index included in Item 8 on Page 25 of this Form 10-K. 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chantilly, Commonwealth of Virginia. GTSI CORP. Dated: March 28, 2003 By: /S/ M. DENDY YOUNG ------------------------------ M. Dendy Young Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /S/ M. DENDY YOUNG Chairman and March 28, 2003 - ----------------------------- Chief Executive Officer M. Dendy Young (Principal Executive Officer) and a Director /S/ THOMAS A. MUTRYN Senior Vice President and March 28, 2003 - ----------------------------- Chief Financial Officer Thomas A. Mutryn (Principal Financial and Accounting Officer) /S/ LEE JOHNSON Director March 28, 2003 - ----------------------------- Lee Johnson /S/ STEVEN KELMAN Director March 28, 2003 - ----------------------------- Steven Kelman, Ph.D. /S/ JAMES J. LETO Director March 28, 2003 - ----------------------------- James J. Leto /S/ LAWRENCE J. SCHOENBERG Chairman Emeritus March 28, 2003 - ----------------------------- Lawrence J. Schoenberg /S/ JOHN M. TOUPS Director March 28, 2003 - ----------------------------- John M. Toups /S/ DANIEL R. YOUNG Director March 28, 2003 - ----------------------------- Daniel R. Young 54 Written Certifications Of Chief Executive Officer I, Dendy Young, certify that: 1. I have reviewed this annual report on Form 10-K of GTSI Corp.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 GTSI Corp. By: /s/ M. Dendy Young ---------------------------------------- M. Dendy Young Chairman and Chief Executive Officer 55 Written Certifications Of Chief Financial Officer I, Thomas Mutryn, certify that: 1. I have reviewed this annual report on Form 10-K of GTSI Corp.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 GTSI Corp. By: /s/ Thomas A. Mutryn ---------------------------------- Thomas A. Mutryn Chief Financial Officer 56 EX-10.7 3 ex10-7_d12322.txt EXHIBIT 10.7 STOCK OPTION PLAN AS AMENDED THROUGH APRIL 12, 2002 GTSI Corp. 1994 STOCK OPTION PLAN 1. Establishment and Purposes of the Plan. GTSI Corp. hereby establishes this 1994 Stock Option Plan to promote the interests of the Company and its stockholders by (i) helping to attract and retain the services of 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 during the one year prior to service as an administrator of the Plan, has not been granted or awarded, and during such service, is not granted or awarded stock options or stock appreciation rights pursuant to the Plan or any other plan of the Company or any of its Affiliates entitling the participants therein to acquire stock, stock options or stock appreciation rights of the Company or any Affiliates, except for any plan under which the award of stock, stock options or stock appreciation rights is not subject to the discretion of any person or persons. i. "Employee" shall mean any employee of the Company, including officers and directors who are also employees. 1 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-Statutory Stock Option" shall mean an Option which is not an Incentive Stock Option. m. "Option" shall mean a stock option to purchase Common Stock granted to an Optionee pursuant to the Plan. n. "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. o. "Optioned Stock" shall mean the Common Stock subject to an Option granted pursuant to the Plan. p. "Optionee" shall mean any Employee who is granted an Option. q. "Plan" shall mean this GTSI Corp. 1994 Stock Option Plan. r. "Shares" shall mean shares of the Common Stock or any shares into which such Shares may be converted in accordance with Section 10 of the Plan. 3. Shares Reserved. The maximum aggregate number of Shares reserved for issuance pursuant to the Plan shall be 300,000 Shares or the number of shares of stock to which such Shares shall be adjusted as provided in Section 10 of the Plan. Such number 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 6(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 2 prescribe, amend and rescind rules and regulations relating to the Plan subject to the limitations set forth in Section 12 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 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 on the date of exercise of an Option or transfer of Shares. 5. Eligibility. Options may be granted under the Plan only to Employees. An Employee who has been granted an Option may, if he or she is otherwise eligible, be granted additional Options. 6. 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 for all purposes, 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. 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 awarded as Options 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 3 the exercise of an Option, shall be such price as is determined by the Committee; provided, however, such price shall in no event be less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant with respect to both Non-Statutory Stock Options and Incentive Stock Options. 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 ten percent (10%) of the combined voting power of all classes of stock of the Company, the exercise price per Share shall be no less than one-hundred-ten percent (110%) of the Fair Market Value per Share on the date of grant. d. Medium and Time of Payment. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Committee and may consist entirely of cash, check or such other consideration and method of payment permitted under any laws to which the Company is subject which is approved by the Committee; provided, however, that the Optionee shall be required to pay in cash an amount necessary to satisfy the Company's withholding obligations. 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 ten (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 ten percent (10%) of the total combined voting power of all classes of stock of the Company, shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option. The term of a Non-Statutory Stock Option may be up to ten (10) years from the date such Employee first becomes vested in any portion of an Option award. The term of any Option 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 One Hundred Thousand Dollars ($100,000), the Options in excess of such limit shall be treated as Non-Statutory Stock Options. 7. 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. 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 4 method of payment allowable under Section 6(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 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 10 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 (1) month, or such other period of time not exceeding three (3) 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 (6) months from the date of the Option award or three (3) months from the date of termination of employment) or six (6) months in the case of a Non-Statutory Stock Option as is determined by the Committee at the time of granting the Option, 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 (6) 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 (6) months (or such other period of time not exceeding one (1) year as is determined by the Committee at the time of granting the Option) 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 by bequest or inheritance, but in any case (unless otherwise determined by the Committee at the time of granting the Option) 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. 5 g. Expiration of Option. Notwithstanding any provision in the Plan, including but not limited to the provisions set forth in Sections 7(e) and 7(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 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. 8. 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 transfers between spouses incident to a divorce. 9. Holding Period. In the case of officers and directors of the Company, at least six (6) months must elapse from the date of grant of the Option to the date of disposition of the underlying Shares. 6 10. 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 thirty (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 7(e) of the Plan. 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. 11. Stockholder Approval. Effectiveness of the Plan shall be subject to approval by the stockholders of the Company within twelve (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. 7 12. Amendment and Termination of the Plan. a. Amendment and Termination. 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 (i) materially increase the benefits accruing to participants under the Plan; (ii) materially increase the number of Shares which may be issued under the Plan, other than in connection with an adjustment under Section 10 of the Plan; (iii) materially modify the requirements as to eligibility for participation in the Plan; (iv) materially change the designation of the class of Employees eligible to be granted Options; (v) remove the administration of the Plan from the Committee; or (vi) extend the term of the Plan beyond the maximum term set forth in Section 15 hereunder. b. Effect of Amendment or Termination. Except as otherwise provided in Section 10 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 1994 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 11 of the Plan. 13. 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, 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 sixty (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. 14. 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 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. No Employee shall have any right to or interest in Options authorized hereunder 8 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 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 deposited, postage and registry or certification fee prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. 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. 15. Effective Date and Term of Plan. The Plan shall become effective upon stockholder approval as provided in Section 11 of the Plan. The Plan shall continue in effect for a term of ten (10) years unless sooner terminated under Section 12 of the Plan. 9 CERTIFICATE OF ASSISTANT SECRETARY The undersigned Assistant Secretary of GTSI Corp. (the "Company") hereby certifies that the foregoing is a true and correct copy of the Company's 1994 Stock Option Plan, as amended through April 12, 2002. IN WITNESS WHEREOF, the undersigned has executed this document as of the 18th day of April, 2002. /s/ CHARLES DELEON ----------------------------------- Charles DeLeon, Assistant Secretary 2 EX-10.8 4 ex10-8_d12322.txt EXHIBIT 10.8 STOCK OPTION PLAN AS AMENDED THROUGH APRIL 12, 2002 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 3 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. 4 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 2,500,000 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 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 5 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 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 6 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 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. If an Optionee ceases to serve as a Non-Employee Director for any reason, he or she may, but only within six months following the date he or she ceases to serve on the Board of Directors, exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. To the extent that he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified 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 entirely of cash, check or broker's commitment to pay, 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. 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. 7 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, 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. 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 8 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 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, 9 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 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. 10 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 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 11 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. 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 12 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, 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 13 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 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 14 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. Certificate of Corporate Secretary The Assistant Secretary of GTSI Corp. (the "Company") hereby certifies that the foregoing 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 12, 2002. /s/ CHARLES DELEON ------------------------------------- Charles DeLeon, Assistant Secretary 15 EX-10.9 5 ex10-9_d12322.txt EXHIBIT 10.9 STOCK OPTION AGREEMENT AS AMENDED THROUGH April 12, 2002 GTSI CORP. 1997 NON(Y)OFFICER STOCK OPTION PLAN 1. Establishment and Purposes of the Plan. GTSI Corp. hereby establishes this 1997 Non-Officer Stock Option Plan to promote the interests of the Company and its stockholders by (i) helping to attract and retain the services of certain non-officer 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 continue working toward, and contributing to, the success of the Company; and (iii) fostering such persons' equity investment in, and thereby aligning their interests with the long-term growth and financial success 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. 16 (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) "Employee" shall mean any employee of the Company who is not an officer or director, as defined under Rule 4461 of The Nasdaq Stock Market's National Market Rules or successor Rules, whether such employee is employed on a full-time or part-time basis. Any person designated by the Company as an independent contractor may be treated as an Employee for purposes of the Plan. (i) "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 Market tier of The Nasdaq Stock Market, 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. (j) "Option" shall mean a non-statutory stock option to purchase the Common Stock of the Company granted to an Optionee pursuant to the Plan. Options to be granted pursuant to the Plan are intended to be "non-statutory stock options" and are not intended to be "incentive stock options" within the meaning of Section 422 of the Code, or to otherwise qualify for any special tax benefits to the Optionee. (k) "Option Agreement" means a written agreement substantially in the form 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. (l) "Optioned Stock" shall mean the Common Stock subject to an Option granted pursuant to the Plan. (l) "Optionee" shall mean any Employee who is granted an Option under the Plan. (m) "Plan" shall mean this GTSI Corp. 1997 Non-Officer Stock Option Plan. 17 (n) "Shares" shall mean shares of the Common Stock or any shares into which such Shares may be converted in accordance with Section 9 of the Plan. 3. Shares Reserved. The maximum aggregate number of Shares reserved for issuance pursuant to the Plan shall be 300,000 Shares or the number of shares of stock to which such Shares shall be adjusted as provided in Section 9 of the Plan. Such number of Shares may be set aside out of authorized but unissued Shares not reserved for any other purpose, or out of issued Shares reacquired by, and held in the treasury of, the Company. 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 persons. 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, to: (i) grant Options; (ii) determine (if necessary), upon review of relevant information, the Fair Market Value per Share; (iii) determine the exercise price of the Options to be granted to Employees in accordance with Section 6(c) of the Plan; (iv) 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) prescribe, amend and rescind rules and regulations relating to the Plan subject to the limitations set forth in Section 11 of the Plan; (vi) 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 18 the consent of the Optionee, to modify or amend an outstanding Option or Option Agreement; (vii) accelerate the exercise date of any Option; (viii) 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) interpret the Plan or any agreement entered into with respect to the grant or exercise of Options; (x) 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 pursuant to Options or agreements relating to the grant or exercise thereof; (xi) with the consent of the Optionee, cancel any Option previously granted (and the Committee may or may not substitute an option at a different price and/or different amounts and/or under different terms and conditions); and (xii) make such other determinations and establish such other procedures as it deems necessary or advisable for the administration of the Plan. (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 telephonic 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. Options may be granted under the Plan only to Employees. An Employee who has been granted an Option may, if he or she is otherwise eligible, be granted additional Options; provided, however, that no Option shall be granted to any Employee if immediately after the 19 grant of such Option such Employee would own stock, including stock subject to outstanding options previously granted to him or her, amounting to or exceeding 5% of the total combined voting power or value of all classes of stock of the Company. 6. Terms and Conditions of Options. Options granted by the Committee pursuant to the Plan 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. (b) Number of Shares. Each Option Agreement shall state the number of Shares to which it pertains. 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 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. (d) Medium and Time of Payment. 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 20 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 Option may be up to 10 years from the date the Optionee first becomes vested in any portion of an Option award. The term of any Option 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) Suspension or Termination of Option. The Company's Chief Executive Officer, its General Counsel, and its Vice President for Human Resources (any such person, an "Authorized Officer") each may prescribe, at any time and from time to time (including after a notice of exercise has been properly delivered to the Company), that the right to exercise an Option may be suspended pending a reasoned, good faith determination by an Authorized Officer or the Committee on whether an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company, breach of fiduciary duty or deliberate disregard of Company rules; has made an unauthorized disclosure of any Company trade secret or confidential information; has engaged in any conduct constituting unfair competition; has induced any customer of the Company to breach a contract with the Company or any principal for whom the Company acts as agent to terminate such agency relationship; or has engaged in any other act or conduct proscribed by the Committee from time to time (any such act or conduct, individually or collectively, "Misconduct"). No Optionee shall be entitled to exercise any Option if the Authorized Officer or the Committee, as the case may be, has so determined such Optionee to have engaged in any Misconduct. 7. 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. 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 21 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 6(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 to receive dividends or any other rights as a stockholder shall exist with respect 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 9 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, such Optionee may, but only within one month 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 the Optionee was not entitled to exercise the Option at the date of such termination, or if the Optionee 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 an Option, with the consent of the Optionee, extend the period of time during which the Optionee may exercise his or her 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 an 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 22 of six months, that the 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 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 by death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), 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 such Optionee's termination of employment by death or permanent and 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 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 the Optionee 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 of the Plan, including but not limited to the provisions set forth in Sections 7(e) and 7(f) of the Plan, 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 23 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 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. 8. 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 transfers between spouses incident to a divorce. 9. 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 24 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); 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 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 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 7(e) of the Plan. (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. 25 10. Stockholder Approval. Pursuant to Section (i)(1)(A) of The Nasdaq Stock Market's National Market Rules, stockholder approval is not required of 1/3 broadly based plans or arrangements including [employees other than officers or directors]. Therefore, the Plan shall become effective upon its approval by the Company's Board of Directors. 11. Amendment and Termination of the Plan. (a) Amendment and Termination. Except as provided in Section 11(b) of the Plan, the Committee may amend or terminate the Plan at any time and from time to time, in such respects as the Committee may deem advisable. (b) Effect of Amendment or Termination. Except as otherwise provided in Section 9 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. 12. 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, 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. 26 13. 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 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 to discharge any Employee thereof at any time for any reason or no reason. No Employee 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 Corporate 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 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 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 to the Corporate Secretary of the Company, by letter mailed as provided herein above, 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. 27 (e) Information to Optionees. The Company shall provide without charge to each Optionee upon request copies of such annual and periodic reports as are provided by the Company to its stockholders generally. (f) Availability of Plan. A copy of the Plan shall be delivered to the Corporate Secretary of the Company and shall be shown by him or her to any eligible person making reasonable inquiry concerning it. (g) 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. 14. Effective Date and Term of Plan. The Plan shall become effective on May 6, 1997, and shall continue in effect for a term of ten years unless sooner terminated pursuant to Section 11 of the Plan. CERTIFICATE OF ASSISTANT SECRETARY The undersigned Assistant Secretary of GTSI Corp. (the "Company") hereby certifies that the foregoing is a true and correct copy of the Company's 1997 Non-Officer Stock Option Plan, as adopted by the Company's Board of Directors on May 6, 1997, and as amended through April 12, 2002. IN WITNESS WHEREOF, the undersigned has executed this document as of the 18th day of April, 2002. /s/ CHARLES DELEON ----------------------------------- 28 Charles DeLeon, Assistant Secretary 29 EX-10.17 6 ex10-17_d12322.txt EXHIBIT 10.17 FIFTH AMENDMENT THIS FIFTH AMENDMENT ("Amendment") is entered into as of the 28th day of February, 2001 by and among Deutsche Financial Services Corporation ("DFS"), as Agent and a Lender ("Agent"), the other Lenders signatories hereto ("Lenders") and GTSI Corp. f/k/a Government Technology Services, Inc. ("Borrower"). RECITALS Agent, Lenders (and/or their successors by assignment, as applicable) and Borrower are parties to that certain Second Amended and Restated Business Credit and Security Agreement dated as of July 28, 1997 (as amended from time to time, the "Credit Agreement"). Lenders and Agent now desire to amend certain provisions of the Credit Agreement subject to the terms hereof. NOW, THEREFORE, in consideration of the forgoing premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Reserves. The following sentence shall be added to the end of Section 3.12 of the Credit Agreement. "Furthermore, when requested in writing by SunTrust Bank, Agent shall have the right to establish reserves up to Seven Million Five Hundred Thousand Dollars ($7,500,000), against the amount of Loans which Borrower may otherwise request under Section 3.2, in the amount of the Microsoft Transfers. The "Microsoft Transfers" shall mean all amounts paid by Borrower to Microsoft Corporation or its subsidiaries or affiliates via Automated Clearing House (ACH) transfers from Borrower's account at SunTrust Bank." 2. Consent to Filing of Lien by SunTrust Bank. Notwithstanding the provisions of Section 9.2.3 to the contrary, Borrower may grant a security interest to SunTrust Bank in Borrower's accounts and the proceeds thereof, and SunTrust Bank may file, on or after the effective date of this Amendment, a Lien on Borrower's accounts and the proceeds thereof; provided that such security interest and Lien are at all times subordinate to DFS' security interests and Liens in Borrower's accounts and the proceeds thereof, both in its capacity as Agent under the Credit Agreement, and in its individual capacity. 3. Consent to Acquisition of Assets of EdgeMark Systems, Inc. Notwithstanding the provisions of Section 9.2.4 to the contrary, Lenders hereby consent to Borrower's purchase of substantially all of the assets of EdgeMark Systems, Inc., provided that after giving effect to such purchase, Borrower is in compliance with each of the financial covenants set forth in Section 9.3.1 of the Credit Agreement. 4. Consent to Stock Repurchase. In the Third Amendment dated November 24, 1999 among Agent, Lenders and Borrower ("Third Amendment"), Lenders previously consented to Borrower's purchase of its stock from third-party shareholders in an amount not to exceed Five Million Two Hundred Fifty Thousand Dollars ($5,250,000). In the Fourth Amendment dated November 17, 2000 among Agent, Lenders and Borrower ("Fourth Amendment"), Lenders consented to an increase of such amount to Six 30 Million One Hundred Thousand Dollars ($6,100,000). Borrower has requested that Lender consent to additional purchases of Borrower's stock. Notwithstanding the provisions of Section 9.2.16 to the contrary, Lenders hereby consent to Borrower's purchase of its stock from third-party shareholders in an amount not to exceed Four Million Six Hundred Seventy Five Thousand Dollars ($4,675,000); provided: (i) that the aggregate amount of all such stock held by Borrower (including stock previously purchased), does not exceed Twelve Million Nine Hundred Ten Thousand Dollars ($12,910,000) and (ii) after giving effect to such purchase, Borrower is in compliance with each of the financial covenants set forth in Section 9.3.1 of the Credit Agreement. 5. Conditions to Effectiveness. This Fifth Amendment shall become effective as of the date first written above upon receipt by the Agent of counterparts to this Fifth Amendment duly executed by the Borrower and the Lenders. 6. Miscellaneous. Except to the extent specifically amended herein, all terms and conditions of the Credit Agreement and the other Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. Capitalized terms used but not defined herein shall have the meanings given them in the Credit Agreement. Borrower waives notice of Agent's and each Lender's acceptance of this Amendment. Agent and each Lender reserves all of their respective rights and remedies under the Credit Agreement and other Loan Documents. IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as of the date first written above. GTSI Corp. By: ______________________________________ Name: ____________________________________ Title: ___________________________________ DEUTSCHE FINANCIAL SERVICES CORPORATION, as Agent and a Lender By: ______________________________________ Name: ____________________________________ Title: ___________________________________ Date: ____________________________________ SUNTRUST BANK, a Lender 31 By: ______________________________________ Name: ____________________________________ Title: ___________________________________ Date: ____________________________________ FLEET CAPITAL CORPORATION, a Lender By: ______________________________________ Name: ____________________________________ Title: ___________________________________ Date: ____________________________________ 32 EX-10.18 7 ex10-18_d12322.txt EXHIBIT 10.18 AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING This Amendment to Agreement for Wholesale Financing is made to that certain Agreement for Wholesale Financing entered into by and between GTSI Corp. (f/k/a Government Technology Services, Inc.) ("Dealer") and Deutsche Financial Services Corporation ("DFS") as of June 27, 1996, as amended ("Agreement"). FOR VALUE RECEIVED, Dealer and DFS agree to amend the Agreement as follows: 1. All references in the Agreement to "Government Technology Services, Inc." shall be deemed to be references to "GTSI Corp." 2. Dealer hereby confirms its understanding of the discretionary nature of its credit facility established pursuant to the terms of the Agreement. The foregoing notwithstanding, DFS hereby confirms that it has established a facility available for Dealer's inventory purchases under the terms of the Agreement in the amount of Thirty-five Million Dollars ($35,000,000). DFS is not permitted to increase the foregoing facility amount without the prior written consent of a majority, by number, of the "Lenders" (as that terms is defined in the Credit Agreement), excluding DFS as a Lender for purposes of such calculation. 3. The following paragraph shall be incorporated into the Agreement as if fully and originally set forth therein and shall replace in their entirety any previous provisions concerning the subject matter hereof: "Financial Covenants. Dealer agrees that it will: (a) as of the last day of each calendar quarter set forth below, maintain a Tangible Net Worth plus Subordinated Debt in the combined amount of not less than the amount shown below for the period corresponding thereto: Period Amount ------ ------ Calendar quarter ending 9/30/00 $40,000,000 Calendar quarter ending 12/31/00 $40,000,000 Calendar quarter ending 3/31/01 $40,000,000 33 Calendar quarter ending 6/30/01 $40,000,000; (b) as of the last day of each calendar quarter set forth below, maintain a ratio of Debt minus Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than the amount shown below for the period corresponding thereto: Period Ratio ------ ----- Calendar quarter ending 09/30/00 7.0 to 1.0 Calendar quarter ending 12/31/00 4.0 to 1.0 Calendar quarter ending 3/31/01 4.0 to 1.0 Calendar quarter ending 6/30/01 4.0 to 1.0; (c) as of the last day of each calendar quarter set forth below, maintain a ratio of Current Assets to current liabilities of not less than the amount shown below for the period corresponding thereto: Period Ratio ------ ----- Calendar quarter ending 9/30/00 1.1 to 1.0 Calendar quarter ending 12/31/00 1.2 to 1.0 Calendar quarter ending 3/31/01 1.2 to 1.0 Calendar quarter ending 6/30/01 1.2 to 1.0; (d) for the fiscal year of Borrower ending December 31, 2000, and each fiscal year-end thereafter, Borrower shall achieve net income, before giving effect to provisions for income taxes, of at least Two Million Dollars ($2,000,000.00). 34 Prior to September 30, 2001, Agent and Borrower shall renegotiate the above financial covenants for application to any subsequent periods of this Agreement. If on or prior to September 30, 2001, the parties fail to execute a written amendment to this Agreement providing for such revised financial covenants for any subsequent periods of this Agreement, then the above financial covenants in effect for the calendar quarter ending June 30, 2001, shall be and remain in effect, until such amendment is executed and in full force and effect. For purposes of this paragraph: (i) "Tangible Net Worth" means the book value of Borrower's assets less liabilities (including as liabilities all recorded reserves for contingencies and other potential liabilities), excluding from such assets all Intangibles; (ii) "Intangibles" means and includes general intangibles (as that term is defined in the UCC); accounts receivable and advances due from officers, directors, member, owner, employees, stockholders and affiliates; leasehold improvements net of depreciation; licenses; good will; prepaid expenses (except for those determined by Agent, in its sole discretion, not to be Intangible); escrow deposits (except for those determined by Agent, in its sole discretion, not to be Intangible); covenants not to compete; the excess of cost over book value of acquired assets; franchise fees; organizational costs; finance reserves held for recourse obligations; capitalized research and development costs; and such other similar items as DFS may from time to time determine in DFS' sole discretion; (iii) "Debt" means all of Borrower's liabilities and indebtedness for borrowed money of any kind and nature whatsoever, whether direct or indirect, absolute or contingent, and including obligations under capitalized leases, guaranties or with respect to which Borrower has pledged assets to secure performance, whether or not direct recourse liability has been assumed by Borrower; (iv) "Subordinated Debt" means all of Borrower's Debt which is subordinated to the payment of Borrower's liabilities to the Lenders by an agreement in form and substance satisfactory to Agent; and (v) "Current Assets" means Borrower's current assets. The foregoing terms will be determined in accordance with GAAP consistently applied, and, if applicable, on a consolidated basis ("Financial Covenants")." 4. Each and every reference in the Agreement to the "Credit Agreement" shall be deemed to refer to that certain Second Amended and Restated Business Credit and Security Agreement among Dealer, DFS, DFS as agent, and certain lenders named therein, dated on July 28, 1997, as amended from time to time. 5. Paragraph number 9 of the Agreement shall be deleted in its entirety and replaced with the following: "9. Payment Terms/Paydown. Dealer will immediately pay DFS the principal indebtedness owed DFS on each item of Collateral financed by DFS (as shown on the Statement of Transaction identifying such Collateral) on the earliest occurrence of any of the following events: (a) when such Collateral is lost, stolen or damaged; (b) for Collateral financed under Pay-As-Sold ("PAS") terms (as shown on the Statement of Transaction identifying such Collateral), when such 35 Collateral is sold, transferred, rented, leased, otherwise disposed of or matured; (c) in strict accordance with any curtailment schedule for such Collateral (as shown on the Statement of Transaction identifying such Collateral); (d) for Collateral financed under Scheduled Payment Program ("SPP") terms (as shown on the Statement of Transaction identifying such Collateral), in strict accordance with the installment payment schedule; and (e) when otherwise required under the terms of any financing program agreed to in writing by the parties. Dealer will forward to DFS by the 10th day of each month a Collateral Summary Report (as defined below) dated as of the last day of the prior month. Regardless of the SPP terms pertaining to any Collateral financed by DFS, and notwithstanding any scheduled payments made by Dealer after the Determination Date (as defined below), if DFS determines, after reviewing the Collateral Summary Report, after conducting an inspection of the Collateral or otherwise, that (i) Collateral Liquidation Value as of the Determination Date is less than (ii) One Hundred and Twenty-Five Percent (125%) of the total current outstanding indebtedness owed by Dealer to DFS as of the date of the Collateral Summary Report, inspection or any other date on which a paydown is otherwise required hereunder, as applicable (the 'Determination Date'), Dealer will immediately upon demand pay to DFS the amount necessary so that the Collateral Liquidation Value as of the Determination Date equals or exceeds One Hundred and Twenty-Five Percent (125%) of the total current outstanding indebtedness owed by Dealer as of the Determination Date. The term 'Collateral Summary Report' is defined herein to mean a report compiled by Dealer specifying: (a) the total aggregate wholesale invoice price of all of Dealer's inventory financed by DFS that is unsold and in Dealer's possession and control as of the date of such Report; and (b) the total aggregate wholesale invoice price of all of Dealer's inventory not financed by DFS that is unsold and in Dealer's possession and control as of the date of such Report: in each case to the extent DFS has a first priority, fully perfected security interest therein. The term 'Collateral Liquidation Value' is defined herein to mean: (a) one hundred percent (100%) of the total aggregate wholesale invoice price of all of Dealer's inventory financed by DFS that is unsold, in unopened boxes or other containers, as applicable, and in Dealer's possession and control as of the date of the Collateral Summary Report and not aged more than six (6) months from the date of invoice, and (b) fifty percent (50%) of the total aggregate wholesale invoice price of all Dealer's inventory not financed by DFS that is unsold, in unopened boxes or other containers, as applicable, and in Dealer's possession and control as of the date of the Collateral Summary Report and not aged more than six (6) months from the 36 date of invoice; in each case to the extent DFS has a first priority, fully perfected security interest therein subject to the terms of that certain Subordination Agreement dated as of July 28, 1997 among DFS, in its individual capacity, DFS, as agent, and certain lenders named therein;. If Dealer from time to time is required to make immediate payment to DFS of any past due obligation discovered during any Collateral audit, upon review of a Collateral Summary Report or at any other time, Dealer agrees that acceptance of such payment by DFS shall not be construed to have waived or amended the terms of its financing program. The proceeds of any Collateral received by Dealer will be held by Dealer in trust for DFS' benefit, for application as provided in this Agreement. Dealer will send all payments to DFS' branch office(s) responsible for Dealer's account. DFS may apply: (i) payments to reduce finance charges first and then principal, regardless of Dealer's instructions; and (ii) principal payments to the oldest (earliest) invoice for Collateral financed by DFS, but, in any event, all principal payments will first be applied to such Collateral which is sold, lost, stolen, damaged, rented, leased, or otherwise disposed of or unaccounted for. Any third party discount, rebate, bonus or credit granted to Dealer for any Collateral will not reduce the debt Dealer owes DFS until DFS has received payment therefor in cash. Dealer will: (1) pay DFS even if any Collateral is defective or fails to conform to any warranties extended by any third party; (2) not assert against DFS any claim or defense Dealer has against any third party; and (3) indemnify and hold DFS harmless against all claims and defenses asserted by any buyer of the Collateral relating to the condition of, or any representations regarding, any of the Collateral. Dealer waives all rights of offset and counterclaims Dealer may have against DFS." All other terms as they appear in the Agreement, to the extent consistent with the foregoing, are ratified and remain unchanged and in full force and effect. IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to Agreement for Wholesale Financing this 13th day of March, 2001. GTSI Corp. ATTEST: By:_________________________ Title:______________________ 37 (Assistant) Secretary DEUTSCHE FINANCIAL SERVICES CORPORATION By:____________________________________ Title:_________________________________ 38 EX-10.19 8 ex10-19_d12322.txt EXHIBIT 10.19 SIXTH AMENDMENT THIS SIXTH AMENDMENT ("Amendment") is entered into as of the 26th day of February, 2002 by and among Deutsche Financial Services Corporation ("DFS"), as Agent and a Lender ("Agent"), the other Lenders party hereto ("Lenders") and GTSI Corp. f/k/a Government Technology Services, Inc. ("Borrower"). RECITALS Agent, Lenders (and/or their successors by assignment, as applicable) and Borrower are parties to that certain Second Amended and Restated Business Credit and Security Agreement dated as of July 28, 1997 (as amended from time to time, the "Credit Agreement"; terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement). Borrower, Lenders and Agent now desire to amend certain provisions of the Credit Agreement subject to the terms hereof. NOW, THEREFORE, in consideration of the forgoing premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Definitions. The definition of "Permitted Liens" in Section 2 of the Credit Agreement is hereby amended by adding the following to the end thereof: "; and (h) Liens in favor of DFS (in its individual capacity and not as an Agent on behalf of the Lenders) and IBM Credit Corporation (each a "Secured Creditor"), provided that a subordination agreement is at all times in effect among the Secured Creditor, Agent and Lenders." 2. Credit Facility. Notwithstanding anything to contrary in Section 3 of the Agreement, Agent and the Lenders hereby agree, subject to the terms and conditions of this Agreement, to temporarily increase Borrower's `Total Credit', such that its aggregate revolving credit facility shall be up to Fifty Million Dollars ($50,000,000) through March 31, 2002. On April 1, 2002, Borrower's aggregate revolving credit facility will automatically revert to up to Thirty Million Dollars ($30,000,000) for the remainder of the First Seasonal Period as provided in the Agreement and without further notice from DFS. Each Lender agrees and confirms that through March 31, 2002, its Commitment and corresponding Pro Rata Share shall be as provided in the Agreement for the Fourth Seasonal Period. 3. Borrowing Base. Section 3.2 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "3.2 Borrowing Base. On receipt of each Borrowing Base Certificate in form and substance acceptable to Agent, which shall be delivered with each Notice of Borrowing and at least weekly (the "Borrowing Base Certificate"), Agent will credit Borrower with the lesser of: 39 (A) Borrower's Total Credit, and (B) the remainder of (i) eighty-five percent (85%) of the net amount of the Eligible Accounts which are, absent error or other discrepancy, listed in such Borrowing Base Certificate, minus (ii) the face amount of all letters of credit issued of guaranteed by an LC Guarantying Lender, minus (iii) a reserve in the amount of Ten Million Dollars ($10,000,000) (the "Inventory Reserve"), and minus (iv) all other reserves established by DFS in accordance with Section 3.12 of this Agreement. For purposes hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, discounts (which may, at Agent's option, be calculated on shortest terms), credits, rebates, allowances, or excise taxes of any nature at any time issued, owing claimed by Account Debtors, granted, outstanding, or payable in connection with such Accounts at such time." 4. Establishment of Reserves. Section 3.12 of the Credit Agreement is hereby amended by adding the following new sentence to the end thereof: "In addition to the foregoing and not in limitation thereof, Agent and the Lenders agree that, if a Default has occurred and is continuing under this Agreement, DFS may not receive payments from Borrower under its inventory credit facility from Accounts constituting the Inventory Reserve (as such term is defined in Section 3.2) until such time as all of the Obligations owed to Agent and Lenders under this Agreement have been paid in full." 5. Total Indebtedness. Section 9.2.12 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "9.2.12 Total Indebtedness. Borrower shall not create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur or suffer to exist, any Indebtedness, except: (i) the Obligations; (ii) Subordinated Debt; (iii) Indebtedness of any Subsidiary to Borrower not to exceed $250,000 at any time; (iv) unsecured Accounts payable to trade creditors and current operating expenses (other than for money borrower) incurred in the ordinary course of business which are aged not more than thirty (30) days past due, unless proceedings, and for which adequate reserves have been established in accordance with GAAP; (v) Obligations to pay Rentals permitted by Section 9.2.19; (vi) Indebtedness not otherwise permitted by Section 9.2.12 which does not exceed at any time, in the aggregate, the sum of $2,000,000; (vii) Permitted Purchase Money Indebtedness; or (viii) Indebtedness of Borrower to DFS (in its individual capacity, and not as an Agent or a Lender under this Agreement) and IBM Credit Corporation, which is secured by a Permitted Lien. 6. Financial Covenants. Section 9.3.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "9.3.1 Amounts. Borrower agrees that it will: 40 (a) as of the last day of each calendar quarter set forth below, maintain a Tangible Net Worth plus Subordinated Debt in the combined amount of not less than the amount shown below for the period corresponding thereto: Period Amount ------ ------ Calendar quarter ending 3/31/02 $40,000,000 Calendar quarter ending 6/30/02 $40,000,000 Calendar quarter ending 9/30/02 $40,000,000 Calendar quarter ending 12/31/02 $40,000,000; (b) as of the last day of each calendar quarter set forth below, maintain a ratio of Debt minus Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than the amount shown below for the period corresponding thereto: Period Ratio ------ ----- Calendar quarter ending 3/31/02 4.0 to 1.0 Calendar quarter ending 6/30/02 4.0 to 1.0 Calendar quarter ending 09/30/02 7.0 to 1.0 Calendar quarter ending 12/31/02 4.0 to 1.0; (c) as of the last day of each calendar quarter set forth below, maintain a ratio of Current Assets to current liabilities of not less than the amount shown below for the period corresponding thereto: Period Ratio ------ ----- Calendar quarter ending 3/31/02 1.20 to 1.0 41 Calendar quarter ending 6/30/02 1.20 to 1.0 Calendar quarter ending 9/30/02 1.10 to 1.0 Calendar quarter ending 12/31/02 1.20 to 1.0; (d) as of the last day of each fiscal year of Borrower, achieve net income, before giving effect to provisions for income taxes, of at least Two Million Dollars ($2,000,000.00). For purposes of this paragraph: (i) "Tangible Net Worth" means the book value of Borrower's assets less liabilities (including as liabilities all recorded reserves for contingencies and other potential liabilities), excluding from such assets all Intangibles; (ii) "Intangibles" means and includes general intangibles (as that term is defined in the UCC); accounts receivable and advances due from officers, directors, member, owner, employees, stockholders and affiliates; leasehold improvements net of depreciation; licenses; good will; prepaid expenses (except for those determined by Agent, in its sole discretion, not to be Intangible); escrow deposits (except for those determined by Agent, in its sole discretion, not to be Intangible); covenants not to compete; the excess of cost over book value of acquired assets; franchise fees; organizational costs; finance reserves held for recourse obligations; capitalized research and development costs; and such other similar items as DFS may from time to time determine in DFS' sole discretion; (iii) "Debt" means all of Borrower's liabilities and indebtedness for borrowed money of any kind and nature whatsoever, whether direct or indirect, absolute or contingent, and including obligations under capitalized leases, guaranties or with respect to which Borrower has pledged assets to secure performance, whether or not direct recourse liability has been assumed by Borrower; (iv) "Subordinated Debt" means all of Borrower's Debt which is subordinated to the payment of Borrower's liabilities to the Lenders by an agreement in form and substance satisfactory to Agent; and (v) "Current Assets" means Borrower's current assets. The foregoing terms will be determined in accordance with GAAP consistently applied, and, if applicable, on a consolidated basis ("Financial Covenants")." 7. Consent to Inventory Credit Facility Increases. Pursuant to the terms of the Agreement for Wholesale Financing between Borrower and DFS dated June 27, 1996, as amended from time to time, DFS has agreed to make available to Borrower an inventory credit facility of: (i) Thirty-five Million Dollars ($35,000,000) from December 1st of each calendar year through August 31st of the following calendar year, and (ii) Sixty Million Dollars ($60,000,000) from September 1st through November 30th of each calendar year. In addition to the foregoing, DFS has agreed to extend to Borrower a temporary overline in the amount of Twenty-Five Million Dollars ($25,000,000), which temporarily increases Borrower's inventory credit facility up to an aggregate maximum of Sixty Million Dollars ($60,000,000) through March 31, 2002. Pursuant to the terms of that certain Subordination Agreement dated as of July 28, 1997 among DFS, as Agent, and the Lender Parties named therein, the prior written consent of a majority, by number, of the Lender Parties, excluding DFS as a Lender Party, is required to increase the maximum amount of the inventory credit facility available to Borrower. By their signatures below, each of the Lenders does hereby consent to each of the above-described increases in the Borrower's inventory credit facility, and does hereby ratify and consent to any increases in the amount of Borrower's inventory credit facility that occurred prior to the date hereof. 42 8. Miscellaneous. Except to the extent specifically amended herein, all terms and conditions of the Credit Agreement and the other Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. Capitalized terms used but not defined herein shall have the meanings given them in the Credit Agreement. Borrower waives notice of Agent's and each Lender's acceptance of this Amendment. Agent and each Lender reserves all of their respective rights and remedies under the Credit Agreement and other Loan Documents. IN WITNESS WHEREOF, the parties hereto have executed this Sixth Amendment as of the date first written above. GTSI Corp. By: --------------------------------------------------- Name: Robert D. Russell ------------------------------------------------- Title: Senior Vice President & Chief Financial Officer ------------------------------------------------ DEUTSCHE FINANCIAL SERVICES CORPORATION, as Agent and a Lender By: --------------------------------------------------- Name: Greg Ledington ------------------------------------------------- Title: Vice President ------------------------------------------------ Date: ------------------------------------------------- SUNTRUST BANK, N.A., a Lender By: --------------------------------------------------- Name: Mark Swaak ------------------------------------------------- Title: Vice President ------------------------------------------------ Date: ------------------------------------------------- FLEET CAPITAL CORPORATION, a Lender By: --------------------------------------------------- Name: Sharon Garner ------------------------------------------------- Title: Vice President ------------------------------------------------ 43 Date: ------------------------------------------------- 44 EX-10.20 9 ex10-20_d12322.txt EXHIBIT 10.20 AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING This Amendment to Agreement for Wholesale Financing is made to that certain Agreement for Wholesale Financing entered into by and between GTSI Corp. (f/k/a Government Technology Services, Inc. ("Dealer") and Deutsche Financial Services Corporation ("DFS") as of June 27, 1996, as amended ("Agreement"). FOR VALUE RECEIVED, Dealer and DFS agree to amend the Agreement as follows: 1. Dealer hereby confirms its understanding of the discretionary nature of its credit facility established pursuant to the terms of this Agreement. The foregoing notwithstanding, DFS hereby confirms that it has established a facility available for Dealer's inventory purchases under the terms of the Agreement in the amount of: (i) Thirty-five Million Dollars ($35,000,000) from December 1st of each calendar year through August 31st of the following calendar year, and (ii) Sixty Million Dollars ($60,000,000) from September 1st through November 30th of each calendar year. In addition to the foregoing, DFS has agreed to extend to Dealer a temporary overline in the amount of Twenty-Five Million Dollars ($25,000,000) through March 31, 2002. This overline temporarily increases the amount of Dealer's inventory credit facility up to an aggregate maximum of Sixty Million Dollars ($60,000,000.00) and will automatically expire without further notice from DFS on March 31, 2002. DFS is not permitted to increase the foregoing facility amounts without the prior written consent of a majority, by number, of the "Lenders" (as that term is defined in the Credit Agreement), excluding DFS as a Lender for the purposes of such calculation. 2. The following paragraph shall be incorporated into the Agreement as if fully and originally set forth therein and shall replace in their entirety any previous provisions concerning the subject matter hereof: "Financial Covenants. Dealer agrees that it will: (a) as of the last day of each calendar quarter set forth below, maintain a Tangible Net Worth plus Subordinated Debt in the combined amount of not less than the amount shown below for the period corresponding thereto: Period Amount ------ ------ 45 Calendar quarter ending 3/31/02 $40,000,000 Calendar quarter ending 6/30/02 $40,000,000 Calendar quarter ending 9/30/02 $40,000,000 Calendar quarter ending 12/31/02 $40,000,000; (b) as of the last day of each calendar quarter set forth below, maintain a ratio of Debt minus Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than the amount shown below for the period corresponding thereto: Period Ratio ------ ----- Calendar quarter ending 3/31/02 4.0 to 1.0 Calendar quarter ending 6/30/02 4.0 to 1.0 Calendar quarter ending 09/30/02 7.0 to 1.0 Calendar quarter ending 12/31/02 4.0 to 1.0; (c) as of the last day of each calendar quarter set forth below, maintain a ratio of Current Assets to current liabilities of not less than the amount shown below for the period corresponding thereto: Period Ratio ------ ----- Calendar quarter ending 3/31/02 1.20 to 1.0 Calendar quarter ending 6/30/02 1.20 to 1.0 Calendar quarter ending 9/30/02 1.10 to 1.0 Calendar quarter ending 12/31/02 1.20 to 1.0; 46 (d) as of the last day of each fiscal year of Borrower, achieve net income, before giving effect to provisions for income taxes, of at least Two Million Dollars ($2,000,000.00). For purposes of this paragraph: (i) "Tangible Net Worth" means the book value of Borrower's assets less liabilities (including as liabilities all recorded reserves for contingencies and other potential liabilities), excluding from such assets all Intangibles; (ii) "Intangibles" means and includes general intangibles (as that term is defined in the UCC); accounts receivable and advances due from officers, directors, member, owner, employees, stockholders and affiliates; leasehold improvements net of depreciation; licenses; good will; prepaid expenses (except for those determined by Agent, in its sole discretion, not to be Intangible); escrow deposits (except for those determined by Agent, in its sole discretion, not to be Intangible); covenants not to compete; the excess of cost over book value of acquired assets; franchise fees; organizational costs; finance reserves held for recourse obligations; capitalized research and development costs; and such other similar items as DFS may from time to time determine in DFS' sole discretion; (iii) "Debt" means all of Borrower's liabilities and indebtedness for borrowed money of any kind and nature whatsoever, whether direct or indirect, absolute or contingent, and including obligations under capitalized leases, guaranties or with respect to which Borrower has pledged assets to secure performance, whether or not direct recourse liability has been assumed by Borrower; (iv) "Subordinated Debt" means all of Borrower's Debt which is subordinated to the payment of Borrower's liabilities to the Lenders by an agreement in form and substance satisfactory to Agent; and (v) "Current Assets" means Borrower's current assets. The foregoing terms will be determined in accordance with GAAP consistently applied, and, if applicable, on a consolidated basis ("Financial Covenants")." 3. Paragraph number 9 of the Agreement shall be deleted in its entirety and replaced with the following: "9. Payment Terms/Paydown. Dealer will immediately pay DFS the principal indebtedness owed DFS on each item of Collateral financed by DFS (as shown on the Statement of Transaction identifying such Collateral) on the earliest occurrence of any of the following events: (a) when such Collateral is lost, stolen or damaged; (b) for Collateral financed under Pay-As-Sold ("PAS") terms (as shown on the Statement of Transaction identifying such Collateral), when such Collateral is sold, transferred, rented, leased, otherwise disposed of or matured; (c) in strict accordance with any curtailment schedule for such Collateral (as shown on the Statement of Transaction identifying such Collateral); (d) for Collateral financed under Scheduled Payment Program ("SPP") terms (as shown on the Statement of Transaction identifying such Collateral), in strict accordance with the installment payment schedule; and (e) when otherwise required under the terms of any financing program agreed to in writing by the parties. 47 Dealer will forward to DFS by the 10th day of each month a Collateral Summary Report (as defined below) dated as of the last day of the prior month. Regardless of the SPP terms pertaining to any Collateral financed by DFS, and notwithstanding any scheduled payments made by Dealer after the Determination Date (as defined below), if DFS determines, after reviewing the Collateral Summary Report, after conducting an inspection of the Collateral or otherwise, that (i) the total current outstanding indebtedness owed by Dealer to DFS as of the date of the Collateral Summary Report, inspection or any other date on which a paydown is otherwise required hereunder, as applicable (the "Determination Date"), exceeds (ii) the Collateral Liquidation Value (as defined below) as of the Determination Date by more than Five Million Dollars ($5,000,000.00), Dealer will immediately upon demand pay DFS the difference between (i) Dealer's total current outstanding indebtedness owed to DFS as of the Determination Date, and (ii) the sum of (a) the Collateral Liquidation Value as of the Determination Date plus (b) Five Million Dollars ($5,000,000.00). The term 'Collateral Summary Report' is defined herein to mean a report compiled by Dealer specifying: (a) the total aggregate wholesale invoice price of all of Dealer's inventory financed by DFS that is unsold and in Dealer's possession and control as of the date of such Report; and (b) the total aggregate wholesale invoice price of all of Dealer's inventory not financed by DFS that is unsold and in Dealer's possession and control as of the date of such Report: in each case to the extent DFS has a first priority, fully perfected security interest therein. The term 'Collateral Liquidation Value' is defined herein to mean: one hundred percent (100%) of the total aggregate wholesale invoice price of all of Dealer's inventory financed by DFS that is unsold, in unopened boxes or other containers, as applicable, and in Dealer's possession and control as of the date of the Collateral Summary Report and not aged more than six (6) months from the date of invoice; to the extent DFS has a first priority, fully perfected security interest therein subject to the terms of that certain Subordination Agreement dated as of July 28, 1997 among DFS, in its individual capacity, DFS, as agent, and certain lenders named therein. If Dealer from time to time is required to make immediate payment to DFS of any past due obligation discovered during any Collateral audit, upon review of a Collateral Summary Report or at any other time, Dealer agrees that acceptance of such payment by DFS shall not be construed to have waived or amended the terms of its financing program. The proceeds of any Collateral received by Dealer will be held by Dealer in trust for DFS' benefit, for application as provided in this Agreement. Dealer will send all payments to DFS' branch office(s) responsible for Dealer's account. DFS may apply: (i) payments to reduce finance charges first and then principal, regardless of Dealer's instructions; and (ii) principal payments to the oldest (earliest) invoice for Collateral financed by DFS, but, in any event, all principal payments will first be applied to such Collateral which is sold, lost, stolen, damaged, rented, leased, or otherwise disposed of or unaccounted for. Any third party discount, rebate, bonus or credit granted to Dealer for any Collateral will not reduce the debt Dealer owes DFS until DFS has received payment therefor in cash. Dealer will: (1) pay DFS even if any Collateral is defective or fails to conform to any warranties extended by any third party; (2) not assert against DFS any claim or defense Dealer has against 48 any third party; and (3) indemnify and hold DFS harmless against all claims and defenses asserted by any buyer of the Collateral relating to the condition of, or any representations regarding, any of the Collateral. Dealer waives all rights of offset and counterclaims Dealer may have against DFS." 4. Each and every reference in the Agreement to the "Credit Agreement" shall be deemed to refer to that certain Second Amended and Restated Business Credit and Security Agreement among Dealer, DFS, DFS as agent, and certain lenders named therein, dated on July 28, 1997, as amended from time to time. All other terms as they appear in the Agreement, to the extent consistent with the foregoing, are ratified and remain unchanged and in full force and effect. IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to Agreement for Wholesale Financing this 26th day of February, 2002. GTSI Corp. ATTEST: By: --------------------------------------- Robert D. Russell, Sr. Vice President & Chief Financial Officer John Spotila, Secretary DEUTSCHE FINANCIAL SERVICES CORPORATION By: --------------------------------------- Greg Ledington, Vice President 49 EX-10.21 10 ex10-21_d12322.txt EXHIBIT 10.21 AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING This Amendment to Agreement for Wholesale Financing is made to that certain Agreement for Wholesale Financing entered into by and between GTSI Corp. (f/k/a Government Technology Services, Inc. ("Dealer") and Deutsche Financial Services Corporation ("DFS") as of June 27, 1996, as amended ("Agreement"). FOR VALUE RECEIVED, Dealer and DFS agree to amend the Agreement as follows: 1. Dealer hereby confirms its understanding of the discretionary nature of its credit facility established pursuant to the terms of this Agreement. The foregoing notwithstanding, DFS hereby confirms that it has established a facility available for Dealer's inventory purchases under the terms of the Agreement in the amount of: (i) Thirty-five Million Dollars ($35,000,000) from December 1st of each calendar year through August 31st of the following calendar year, and (ii) Sixty Million Dollars ($60,000,000) from September 1st through November 30th of each calendar year. In addition to the foregoing, DFS has agreed to extend to Dealer a temporary overline in the amount of Twenty-Five Million Dollars ($25,000,000) through May 31, 2002. This overline temporarily increases the amount of Dealer's inventory credit facility up to an aggregate maximum of Sixty Million Dollars ($60,000,000.00) and will automatically expire without further notice from DFS on May 31, 2002. DFS is not permitted to increase the foregoing facility amounts without the prior written consent of a majority, by number, of the "Lenders" (as that term is defined in the Credit Agreement), excluding DFS as a Lender for the purposes of such calculation. 2. Each and every reference in the Agreement to the "Credit Agreement" shall be deemed to refer to that certain Second Amended and Restated Business Credit and Security Agreement among Dealer, DFS as agent, and certain lenders named therein, dated as of July 28, 1997, as amended from time to time. All other terms as they appear in the Agreement, to the extent consistent with the foregoing, are ratified and remain unchanged and in full force and effect. IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to Agreement for Wholesale Financing this 27 day of March, 2002. 50 GTSI Corp. ATTEST: By: --------------------------------------- Robert D. Russell, Sr. Vice President & Chief Financial Officer - --------------------------------- John Spotila, Secretary DEUTSCHE FINANCIAL SERVICES CORPORATION By: --------------------------------------- Greg Ledington, Vice President 51 Lender Acknowledgment and Consent Each of the undersigned Lenders, as such term is defined in that certain Second Amended and Restated Business Credit and Security Agreement dated as of July 28, 1997, as amended from time, among Deutsche Financial Services Corporation, as Agent and a Lender, the other Lenders party thereto and GTSI Corp. f/k/a Government Technology Services, Inc., hereby acknowledges and consents to the terms of the foregoing Amendment to Agreement for Wholesale Financing. DEUTSCHE FINANCIAL SERVICES CORPORATION, as Agent and a Lender By: -------------------------------- Name: Greg Ledington ------------------------------ Title: Vice President ----------------------------- Date: ------------------------------ SUNTRUST BANK, N.A., a Lender By: -------------------------------- Name: Mark Swaak ------------------------------ Title: Vice President ----------------------------- Date: ------------------------------ FLEET CAPITAL CORPORATION, a Lender By: -------------------------------- Name: Sharon Garner ------------------------------ Title: Vice President ----------------------------- Date: ------------------------------ 52 EX-10.22 11 ex10-22_d12322.txt EXHIBIT 10.22 AMENDMENT TO AGREEMENT FOR WHOLESALE FINANCING This Amendment to Agreement for Wholesale Financing is made to that certain Agreement for Wholesale Financing entered into by and between GTSI Corp. (f/k/a Government Technology Services, Inc.) ("Dealer") and Deutsche Financial Services Corporation ("DFS") as of June 27, 1996, as amended ("Agreement"). FOR VALUE RECEIVED, Dealer and DFS agree to amend the Agreement as follows: 1. Dealer hereby confirms its understanding of the discretionary nature of its credit facility established pursuant to the terms of this Agreement. The foregoing notwithstanding, DFS hereby confirms that it has established a facility available for Dealer's inventory purchases under the terms of the Agreement in the amount of: (i) Thirty-five Million Dollars ($35,000,000) from December 1st of each calendar year through August 31st of the following calendar year, and (ii) Sixty Million Dollars ($60,000,000) from September 1st through November 30th of each calendar year. Notwithstanding the foregoing, DFS has agreed that, during the calendar year 2002 only, Dealer's seasonal uplift to Sixty Million Dollars ($60,000,000.00) will commence one month early on August 1, 2002. The uplift will automatically expire, without further notice from DFS, on the regularly scheduled ending date of November 30, 2002. DFS is not permitted to increase the foregoing facility amounts without the prior written consent of a majority, by number, of the "Lenders" (as that term is defined in the Credit Agreement), excluding DFS as a Lender for the purposes of such calculation. 2. Each and every reference in the Agreement to the "Credit Agreement" shall be deemed to refer to that certain Second Amended and Restated Business Credit and Security Agreement among Dealer, DFS as agent, and certain lenders named therein, dated as of July 28, 1997, as amended from time to time. All other terms as they appear in the Agreement, to the extent consistent with the foregoing, are ratified and remain unchanged and in full force and effect. IN WITNESS WHEREOF, Dealer and DFS have executed this Amendment to Agreement for Wholesale Financing this 7th day of August, 2002. 53 GTSI Corp. ATTEST: By: ------------------------------------------- Quang Le, Acting Chief Financial Officer, Vice President and Corporate Controller - -------------------------------- John Spotila, Secretary DEUTSCHE FINANCIAL SERVICES CORPORATION By: ------------------------------------------- David Mintert, Vice President of Operations 54 Lender Acknowledgment and Consent Each of the undersigned Lenders, as such term is defined in that certain Second Amended and Restated Business Credit and Security Agreement dated as of July 28, 1997, as amended from time, among Deutsche Financial Services Corporation, as Agent and a Lender, the other Lenders party thereto and GTSI Corp. f/k/a Government Technology Services, Inc., hereby acknowledges and consents to the terms of the foregoing Amendment to Agreement for Wholesale Financing. DEUTSCHE FINANCIAL SERVICES CORPORATION, as Agent and a Lender By: ----------------------------------------- Name: David Mintert --------------------------------------- Title: Vice President of Operations -------------------------------------- Date: --------------------------------------- SUNTRUST BANK, N.A., a Lender By: ----------------------------------------- Name: Mark Swaak --------------------------------------- Title: Vice President -------------------------------------- Date: --------------------------------------- FLEET CAPITAL CORPORATION, a Lender By: ----------------------------------------- Name: Reed Paden --------------------------------------- Title: Vice President -------------------------------------- Date: --------------------------------------- 55 EX-10.23 12 ex10-23_d12322.txt EXHIBIT 10.23 SEVENTH AMENDMENT THIS SEVENTH AMENDMENT ("Amendment") is entered into as of the 3rd day of January, 2003 by and among GE Commercial Distribution Finance Corporation, formerly known as Deutsche Financial Services Corporation ("CDF"), as Agent and a Lender ("Agent"), the other Lenders party hereto ("Lenders") and GTSI Corp. f/k/a Government Technology Services, Inc. ("Borrower"). RECITALS Agent, Lenders (and/or their successors by assignment, as applicable) and Borrower are parties to that certain Second Amended and Restated Business Credit and Security Agreement dated as of July 28, 1997 (as amended from time to time, the "Credit Agreement"; terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement). Borrower, Lenders and Agent now desire to amend certain provisions of the Credit Agreement subject to the terms hereof. NOW, THEREFORE, in consideration of the forgoing premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 2. Reserves. The following sentence shall be added to the end of Section 3.12 of the Credit Agreement, and shall restate in its entirety the final sentence of Section 3.12 which was added pursuant to the Fifth Amendment dated February 28, 2001 among the parties hereto: "Furthermore, when requested in writing by SunTrust Bank, N.A., Agent shall have the right to establish reserves up to Fifteen Million Dollars ($15,000,000), against the amount of Loans which Borrower may otherwise request under Section 3.2, in the amount of the Microsoft Transfers. The "Microsoft Transfers" shall mean all amounts paid by Borrower to Microsoft Corporation or its subsidiaries or affiliates via Automated Clearing House (ACH) transfers from Borrower's account at SunTrust Bank N.A." 2. Miscellaneous. Except to the extent specifically amended herein, all terms and conditions of the Credit Agreement and the other Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. Capitalized terms used but not defined herein shall have the meanings given them in the Credit Agreement. Borrower waives notice of Agent's and each Lender's acceptance of this Amendment. Agent and each Lender reserves all of their respective rights and remedies under the Credit Agreement and other Loan Documents. 56 [Signatures on following page.] 57 IN WITNESS WHEREOF, the parties hereto have executed this Seventh Amendment as of the date first written above. GTSI Corp. By: ----------------------------------- Quang Le Acting Chief Financial Officer, Vice President & Corporate Controller GE COMMERCIAL DISTRIBUTION FINANCE CORPORATION, as Agent and a Lender By: ----------------------------------- David Mintert Vice President of Operations Date: -------------------------------- SUNTRUST BANK, N.A., a Lender By: ----------------------------------- R. Mark Swaak Vice President Date: -------------------------------- FLEET CAPITAL CORPORATION, a Lender By: ----------------------------------- W. Reed Paden Vice President 58 Date: -------------------------------- 59 EX-10.26 13 ex10-26_d12322.txt EXHIBIT 10.26 NON-QUALIFIED STOCK OPTION AGREEMENT JOHN SPOTILA GTSI CORP. Nonqualified Stock Option Agreement GTSI Corp., a Delaware corporation (the "Company"), hereby grants to John T. Spotila (the "Optionee") an option (the "Option") to purchase a total of 180,000 shares of Common Stock, $0.005 par value (the "Shares"), of the Company, at the price and on the terms set forth herein. 1. Nature of the Option. This Option is intended to be a nonqualified stock option and is not intended to be an incentive stock option within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or to otherwise qualify for any special tax benefits to the Optionee. 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Company. (b) "Common Stock" shall mean the Common Stock, $0.005 par value, of the Company. (c) "Continuous Employment" or "Continuous Status As An Employee" shall mean the absence of any interruption or termination of employment or service as an Employee by the Company or any Parent or Subsidiary of the Company which now exists or is hereafter organized or acquired by or acquires the Company. Continuous Employment shall not be considered interrupted in the case of transfers between locations of the Company or between the Company, its Parent, or any of its Subsidiaries or its successors. (d) "Employee" shall mean any person, including officers and directors, employed by the Company, its Parent, any of its Subsidiaries or its successors. The payment of directors' fees by the Company shall not be sufficient to constitute employment by the Company. (e) "Optioned Stock" shall mean the Common Stock subject to this Option. (f) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Sections 425(e) and (g) of the Code. (g) "Subsidiary" shall mean a subsidiary corporation, whether now or hereafter existing, as defined in Sections 425(f) and (g) of the Code. 3. Date of Grant; Term of Option. This Option is granted as of January 2, 2001 (the "Grant Date"), and it may not be exercised later than the earlier of (i) seven years from the Grant Date or (ii) three months after the Optionee has ceased to be an Employee of the Company. 60 4. Option Exercise Price. The Option exercise price is $3.813 per Share. 5. Exercise of Option. This Option shall be exercisable during its term only as follows: (a) Right to Exercise. Fifty Thousand Shares shall vest and become exercisable as of January 2, 2001. The remaining Shares shall vest and become exercisable cumulatively in four equal annual installments of 32,500, with the first installment vesting on the first anniversary of the Grant Date and the remaining installments occurring upon each subsequent anniversary of the Grant Date; provided, however, that the entire Option shall vest and be exercisable immediately as to all outstanding shares if your duties or responsibilities are materially modified without your consent, or in the case of a "change in control," and if your employment ceases for any reason other than for "cause." "Change in control" is defined as (i) control of 50% or more of outstanding shares of GTSI; (ii) a change in a majority of the Company Board of Directors if the change occurred during any 12 consecutive months, and the new directors were not elected by the Company's stockholders or by a majority of the directors who were in office at the beginning of the 12 months; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. "Cause" is defined as termination by GTSI of an officer's employment as a result of: (i) acts or omissions involving unacceptable performance or conduct (examples of which include, but are not limited to: failure or refusal to perform assigned duties or to follow Company policies, as determined in the sole discretion of the Company; commission of sexual harassment; excessive absenteeism; unlawful use or possession of drugs or misuse of legal drugs or alcohol; misappropriation of a Company asset or opportunity; the offer, payment, solicitation or acceptance of any bribe or kickback with respect to the Company's business; the assertion, representation or certification of any false claim or statement to a Company customer; or indictment or conviction for any felony whatsoever or for any misdemeanor involving moral turpitude); (ii) inability for any reason to perform the essential functions of the position; or (iii) other conduct deemed by the Company to be inappropriate for an officer or harmful to the Company's interests or reputation. (b) Method of Exercise. This Option shall be exercisable from time to time as to all or any portion of the Shares as to which this Option is then exercisable by written notice in the form attached hereto (the "Notice"). The Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company or such other person as may be designated by the Company. The Notice shall be accompanied by payment of the aggregate Option exercise price. Such payment of the aggregate Option exercise price shall be by cash, check or such other consideration and method of payment as may be approved by the Board or authorized by this Option. The certificate or certificates for the Shares as to which this Option shall be exercised shall be registered in the name of the Optionee and shall bear any legend required under Section 14 hereof and/or applicable Blue Sky or other laws. (c) Restrictions on Exercise. This Option may not be exercised if the issuance of the Shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. The Company shall not be obligated to take any affirmative action in order to cause the exercise of this Option or the issuance of shares pursuant thereto to comply with such laws or regulations. As a condition to the exercise of this Option, the Company may require the Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. This Option may not be exercised for a fraction of a Share. 61 (d) Effect of Exercise. Exercise of this Option in any manner shall result in a decrease in the number of Shares which thereafter may be available for sale under this Option by the number of Shares as to which this Option is exercised. 6. No Rights as Stockholder. Until this Option is properly exercised in whole or in part in accordance with the terms of Section 5 hereof, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect 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 this Option is exercised, except as provided in Section 10 hereof. 7. Delivery of Share Certificates. As soon as practicable after any proper exercise of this Option, the Company shall, without transfer or issue tax to the Optionee, 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 this Option shall have been exercised. The time of issuance and delivery of the certificate(s) representing the Shares for which this 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 applicable listing requirements of any national or regional securities exchange or any law or regulation applicable to the issuance or delivery of such Shares. 8. Termination of Status as an Employee. If the 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 Continuous Status as an Employee, the Optionee shall have the right to exercise this Option at any time within three months after the date of such termination to the extent that the Optionee was entitled to exercise this Option at the date of such termination. If the Optionee ceases to serve as an Employee due to death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), this Option may be exercised at any time within six months after the date of death or termination of employment due to disability, in the case of death, by the Optionee's estate or by a person who acquired the right to exercise this Option by bequest or inheritance, or, in the case of disability, by the Optionee, but in any case only to the extent the Optionee was entitled to exercise this Option at the date of such termination. To the extent that the Optionee was not entitled to exercise this Option at the date of termination, or to the extent this Option is not exercised within the time specified herein, this Option shall terminate. Notwithstanding the foregoing, this Option shall not be exercisable after the expiration of the term set forth in Section 3 hereof. 9. Nontransferability of Option. This Option 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, and may be exercised during the lifetime of the Optionee only by the Optionee. Subject to the foregoing, the terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 10. Reservation of Shares. The Company covenants and agrees that during the term of this Option the Company will at all times have authorized and reserved for the purpose of the issue upon exercise of this Option at least the maximum number of shares of Common Stock as are issuable upon the exercise of this Option. 11. Continuation of Employment. This Option shall not confer upon the Optionee any right to continue in the employment of the Company or any of its Subsidiaries or limit in any respect the right of the Company to discharge the Optionee at any time, with or without cause and with or without notice. 62 12. Withholding. The Company reserves the right to withhold, in accordance with any applicable laws, from any consideration payable to Optionee any taxes required to be withheld by federal, state or local law as a result of the grant or exercise of this Option or the sale or other disposition of the Shares issued upon exercise of this Option. If the amount of any consideration payable to the Optionee is insufficient to pay such taxes or if no consideration is payable to the Optionee, upon the request of the Company, the Optionee shall pay to the Company an amount sufficient for the Company to satisfy any federal, state or local tax withholding requirements it may incur, as a result of the grant or exercise of this Option or the sale or other disposition of the Shares issued upon the exercise of this Option. 13. Legends. Each certificate representing the Shares shall contain such legends as may be required under applicable blue sky laws. Unless an appropriate registration statement is filed and becomes effective pursuant to the Securities Act of 1933, as amended, with respect to the Shares, each certificate representing such Shares shall also have endorsed thereon a legend substantially as follows: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 14. Action by the Company. The existence of this Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding. 15. Interpretation. As a condition to the granting of this Option, the Optionee and each person who succeeds to the Optionee's rights hereunder, agrees that any dispute or disagreement which shall arise under or as a result of or pursuant to this Option shall be determined by the Board in its sole discretion, and that any such determination or interpretation of the terms of this Option by the Board shall be final, binding and conclusive. 16. Notices. Any notice to be given to the Company pursuant to this Option shall be addressed to the Company in care of its Secretary (or such other person as the Company may designate from time to time) as its principal office, and any notice to be given to the Optionee shall be delivered personally or addressed to him at the address given beneath his signature set forth below, or at such other address as the Optionee may hereafter designate in writing to 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 deposited, postage and registry or certification fee prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. 17. Invalid Provisions. In the event that any provision of this Option 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. 63 18. Governing Law. This Option shall be governed by and construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, this Option Agreement has been duly executed on behalf of the Company by an authorized representative of the Company and by the Optionee and is dated as of the Grant Date. GTSI Corp. Optionee By:____________________________________ Signature: _________________________ Name:__________________________________ Address: ___________________________ Title:_________________________________ ___________________________ 64 GTSI CORP. NOTICE OF EXERCISE OF STOCK OPTION (Please print legibly or type) I, John Spotila, ("Optionee"), hereby agree, represent and warrant to GTSI Corp. (the "Company") as follows: 1. On January 2, 2001, I was granted a Nonqualified Stock Option (the "Option") pursuant to which I was granted the right to purchase 180,000 shares of the Company's Common Stock, subject to adjustment in accordance with the Nonqualified Stock Option Agreement evidencing said Option (the "Optioned Shares"). 2. I am eligible to exercise the Option to the extent that I am exercising the Option. 3. I hereby elect to exercise the Option to purchase __________ of such Optioned Shares (the "Shares") under the Nonqualified Stock Option Agreement evidencing said Option at $3.813 per Share, for an aggregate purchase price of $__________. 4. This Notice of Exercise of Stock Option is accompanied by payment in full for the Shares and withholding tax in the form of cash, a check or any combination thereof. 5. In connection with my exercise of the Option, I have received a copy of the Nonqualified Stock Option Agreement relating to the Company's Common Stock issuable under the Option. Dated: _________________________ ___________________________________ Signature of Optionee _________________________________ ___________________________________ Social Security Number Address ___________________________________ City, State, Zip ================================================================================ Received on behalf of GTSI Corp. on _________________________. Signature:_________________________ Print Name:________________________ 65 EX-10.28 14 ex10-28_d12322.txt EXHIBIT 10.28 NON-QUALIFIED STOCK OPTION AGREEMENT TERRI ALLEN GTSI CORP. Nonqualified Stock Option Agreement GTSI Corp., a Delaware corporation (the "Company"), hereby grants to Terri Allen (the "Optionee") an option (the "Option") to purchase a total of 30,000 shares of Common Stock, $0.005 par value (the "Shares"), of the Company, at the price and on the terms set forth herein. 1. Nature of the Option. This Option is intended to be a nonqualified stock option and is not intended to be an incentive stock option within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or to otherwise qualify for any special tax benefits to the Optionee. 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Company. (b) "Common Stock" shall mean the Common Stock, $0.005 par value, of the Company. (c) "Continuous Employment" or "Continuous Status As An Employee" shall mean the absence of any interruption or termination of employment or service as an Employee by the Company or any Parent or Subsidiary of the Company which now exists or is hereafter organized or acquired by or acquires the Company. Continuous Employment shall not be considered interrupted in the case of transfers between locations of the Company or between the Company, its Parent, or any of its Subsidiaries or its successors. (d) "Employee" shall mean any person, including officers and directors, employed by the Company, its Parent, any of its Subsidiaries or its successors. The payment of directors' fees by the Company shall not be sufficient to constitute employment by the Company. (e) "Optioned Stock" shall mean the Common Stock subject to this Option. (f) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Sections 425(e) and (g) of the Code. (g) "Subsidiary" shall mean a subsidiary corporation, whether now or hereafter existing, as defined in Sections 425(f) and (g) of the Code. 3. Date of Grant; Term of Option. This Option is granted as of July 31, 2001 (the "Grant Date"), and it may not be exercised later than the earlier of (i) seven years from the Grant Date or (ii) three months after the Optionee has ceased to be an Employee of the Company. 4. Option Exercise Price. The Option exercise price is $6.40 per Share. 5. Exercise of Option. This Option shall be exercisable during its term only as follows: 66 (a) Right to Exercise. This Option shall vest and be exercisable cumulatively in four equal annual installments, the first installment vesting on the first anniversary of the Grant Date and the remaining installments occurring upon each subsequent anniversary of the Grant Date; provided, however, that the entire Option shall vest and be exercisable immediately as to all outstanding shares if your duties or responsibilities are materially modified without your consent, or in the case of a "change in control," and if your employment ceases for any reason other than for "cause." "Change in control" is defined as (i) control of 50% or more of outstanding shares of GTSI; (ii) a change in a majority of the Company Board of Directors if the change occurred during any 12 consecutive months, and the new directors were not elected by the Company's stockholders or by a majority of the directors who were in office at the beginning of the 12 months; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. "Cause" is defined as termination by GTSI of an officer's employment as a result of: (i) acts or omissions involving unacceptable performance or conduct (examples of which include, but are not limited to: failure or refusal to perform assigned duties or to follow Company policies, as determined in the sole discretion of the Company; commission of sexual harassment; excessive absenteeism; unlawful use or possession of drugs or misuse of legal drugs or alcohol; misappropriation of a Company asset or opportunity; the offer, payment, solicitation or acceptance of any bribe or kickback with respect to the Company's business; the assertion, representation or certification of any false claim or statement to a Company customer; or indictment or conviction for any felony whatsoever or for any misdemeanor involving moral turpitude); (ii) inability for any reason to perform the essential functions of the position; or (iii) other conduct deemed by the Company to be inappropriate for an officer or harmful to the Company's interests or reputation. (b) Method of Exercise. This Option shall be exercisable from time to time as to all or any portion of the Shares as to which this Option is then exercisable by written notice in the form attached hereto (the "Notice"). The Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company or such other person as may be designated by the Company. The Notice shall be accompanied by payment of the aggregate Option exercise price. Such payment of the aggregate Option exercise price shall be by cash, check or such other consideration and method of payment as may be approved by the Board or authorized by this Option. The certificate or certificates for the Shares as to which this Option shall be exercised shall be registered in the name of the Optionee and shall bear any legend required under Section 14 hereof and/or applicable Blue Sky or other laws. (c) Restrictions on Exercise. This Option may not be exercised if the issuance of the Shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. The Company shall not be obligated to take any affirmative action in order to cause the exercise of this Option or the issuance of shares pursuant thereto to comply with such laws or regulations. As a condition to the exercise of this Option, the Company may require the Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. This Option may not be exercised for a fraction of a Share. (d) Effect of Exercise. Exercise of this Option in any manner shall result in a decrease in the number of Shares which thereafter may be available for sale under this Option by the number of Shares as to which this Option is exercised. 6. No Rights as Stockholder. Until this Option is properly exercised in whole or in part in accordance with the terms of Section 5 hereof, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect 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 this Option is exercised, except as provided in Section 10 hereof. 7. Delivery of Share Certificates. As soon as practicable after any proper exercise of this Option, the Company shall, without transfer or issue tax to the Optionee, 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 this Option shall have been exercised. The time of 67 issuance and delivery of the certificate(s) representing the Shares for which this 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 applicable listing requirements of any national or regional securities exchange or any law or regulation applicable to the issuance or delivery of such Shares. 8. Termination of Status as an Employee. If the 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 Continuous Status as an Employee, the Optionee shall have the right to exercise this Option at any time within three months after the date of such termination to the extent that the Optionee was entitled to exercise this Option at the date of such termination. If the Optionee ceases to serve as an Employee due to death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), this Option may be exercised at any time within six months after the date of death or termination of employment due to disability, in the case of death, by the Optionee's estate or by a person who acquired the right to exercise this Option by bequest or inheritance, or, in the case of disability, by the Optionee, but in any case only to the extent the Optionee was entitled to exercise this Option at the date of such termination. To the extent that the Optionee was not entitled to exercise this Option at the date of termination, or to the extent this Option is not exercised within the time specified herein, this Option shall terminate. Notwithstanding the foregoing, this Option shall not be exercisable after the expiration of the term set forth in Section 3 hereof. 9. Nontransferability of Option. This Option 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, and may be exercised during the lifetime of the Optionee only by the Optionee. Subject to the foregoing, the terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 10. Reservation of Shares. The Company covenants and agrees that during the term of this Option the Company will at all times have authorized and reserved for the purpose of the issue upon exercise of this Option at least the maximum number of shares of Common Stock as are issuable upon the exercise of this Option. 11. Continuation of Employment. This Option shall not confer upon the Optionee any right to continue in the employment of the Company or any of its Subsidiaries or limit in any respect the right of the Company to discharge the Optionee at any time, with or without cause and with or without notice. 12. Withholding. The Company reserves the right to withhold, in accordance with any applicable laws, from any consideration payable to Optionee any taxes required to be withheld by federal, state or local law as a result of the grant or exercise of this Option or the sale or other disposition of the Shares issued upon exercise of this Option. If the amount of any consideration payable to the Optionee is insufficient to pay such taxes or if no consideration is payable to the Optionee, upon the request of the Company, the Optionee shall pay to the Company an amount sufficient for the Company to satisfy any federal, state or local tax withholding requirements it may incur, as a result of the grant or exercise of this Option or the sale or other disposition of the Shares issued upon the exercise of this Option. 13. Legends. Each certificate representing the Shares shall contain such legends as may be required under applicable blue sky laws. Unless an appropriate registration statement is filed and becomes effective pursuant to the Securities Act of 1933, as amended, with respect to the Shares, each certificate representing such Shares shall also have endorsed thereon a legend substantially as follows: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 68 14. Action by the Company. The existence of this Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding. 15. Interpretation. As a condition to the granting of this Option, the Optionee and each person who succeeds to the Optionee's rights hereunder, agrees that any dispute or disagreement which shall arise under or as a result of or pursuant to this Option shall be determined by the Board in its sole discretion, and that any such determination or interpretation of the terms of this Option by the Board shall be final, binding and conclusive. 16. Notices. Any notice to be given to the Company pursuant to this Option shall be addressed to the Company in care of its Secretary (or such other person as the Company may designate from time to time) as its principal office, and any notice to be given to the Optionee shall be delivered personally or addressed to him at the address given beneath his signature set forth below, or at such other address as the Optionee may hereafter designate in writing to 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 deposited, postage and registry or certification fee prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. 17. Invalid Provisions. In the event that any provision of this Option 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. 18. Governing Law. This Option shall be governed by and construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, this Option Agreement has been duly executed on behalf of the Company by an authorized representative of the Company and by the Optionee and is dated as of the Grant Date. GTSI Corp. Optionee By:____________________________________ Signature:___________________________ Name:__________________________________ Address:_____________________________ Title:_________________________________ _____________________________ 69 GTSI CORP. NOTICE OF EXERCISE OF STOCK OPTION (Please print legibly or type) I, Terri Allen, ("Optionee"), hereby agree, represent and warrant to GTSI Corp. (the "Company") as follows: 1. On July 31, 2001, I was granted a Nonqualified Stock Option (the "Option") pursuant to which I was granted the right to purchase 30,000 shares of the Company's Common Stock, subject to adjustment in accordance with the Nonqualified Stock Option Agreement evidencing said Option (the "Optioned Shares"). 2. I am eligible to exercise the Option to the extent that I am exercising the Option. 3. I hereby elect to exercise the Option to purchase __________ of such Optioned Shares (the "Shares") under the Nonqualified Stock Option Agreement evidencing said Option at $6.40 per Share, for an aggregate purchase price of $__________. 4. This Notice of Exercise of Stock Option is accompanied by payment in full for the Shares and withholding tax in the form of cash, a check or any combination thereof. 5. In connection with my exercise of the Option, I have received a copy of the Nonqualified Stock Option Agreement relating to the Company's Common Stock issuable under the Option. Dated: ________________________________________________________________________ Signature of Optionee ________________________________________________________________________________ Social Security Number Address ________________________________________________________________________________ City, State, Zip ================================================================================ Received on behalf of GTSI Corp. on _________________________. Signature:______________________________________________________________________ Print Name:_____________________________________________________________________ 70 EX-10.30 15 ex10-30_d12322.txt EXHIBIT 10.30 OFFER LETTER OF JACK LITTLEY 21 May 2002 Dr. Jack Littley, III 12710 Megills Landing Lane Clifton, VA 20124 Dear Jack: GTSI Corp. ("GTSI") is pleased to offer you the position of Vice President, Program Services. In this position, you will report directly to John Spotila, our President and Chief Operating Officer. We would like your employment to commence as soon as possible, preferably by the Projected Start Date referred to below. We are optimistic that you will be able to make a significant contribution to GTSI. In that spirit, after you have been with us for at least a year we would contemplate reviewing with you the possibility of other promotion opportunities within GTSI. Your total annual target compensation will be $275,000. This will consist of a base salary of $175,000 ($7,291.67 semi-monthly) plus participation in an Executive Incentive Compensation Plan. At 100% goal attainment, your annual target bonus under this plan will be $100,000. Your incentive plan will track three objectives - EBT, growth in net contribution for services, and measurable improvements in customer satisfaction. GTSI will discuss your incentive plan with you in more detail, during your first three months of active employment. You will be eligible, on the first of the month following your hire date, to join the GTSI benefits plan which would include life insurance, comprehensive medical, dental and vision insurance for yourself and dependents on a contributory basis if you so elect. We will provide you with detailed information concerning your complete benefits package upon employment. You will be eligible for four weeks of vacation for the year 2002 and for each calendar year. This will prorate for partial years, with no carryover from one calendar year to the next. As with all GTSI employees, you will be subject to all Company policies and procedures. In the case of a "change in control,"(1) you will receive immediate vesting of all outstanding stock options. As part of your compensation package, we will recommend to the Compensation Committee of the Company's Board of Directors that the Committee grant to you a nonstatutory stock option ("Option"), effective as of the date of grant (the "Grant Date"), to purchase 30,000 shares of the Company's Common Stock. The exercise price will be equal to the closing price of the Company's Common Stock on the Grant Date or, if there has been no trading in the Company's Common Stock on the Grant Date, then the immediately preceding date upon which the Company's Common Stock is so traded (as reported the following business day in The Wall Street Journal). Your options will vest and be exercisable, cumulatively, in four equal annual installments with the first installment vesting on the first anniversary of the Grant Date, and will be subject to the terms and provisions of the stock option agreement evidencing the grant of the Option. Your Option shall expire, to the extent not previously exercised, upon the earlier of seven years from the date of initial vesting or three months after you cease to be a GTSI employee. Since this stock option offer is by law subject to approval by GTSI's Board of Directors or a Committee thereof, no one at GTSI can promise or ensure such approval. Nonetheless, we envisage Committee approval without problem. - --------------- (1) Change of control is defined as (i) control of 50% or more of outstanding shares of GTSI; (ii) a change in a majority of the Company Board of Directors if the change occurred during any 12 consecutive months, and the new directors were not elected by the Company's shareholders or by a majority of the directors who were in office at the beginning of the 12 months; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. 71 To comply with the Immigration Reform and Control Act, you will be required to verify citizenship by completing the enclosed form and presenting the requested documents on the first day of employment. Employment is contingent upon satisfactory references, successful completion of pre-employment drug screening, and the completion of a GTSI Corp. non-disclosure form. Your employment at GTSI will be an "at will" relationship; that is, either party may end it at any time. Neither this offer of employment, nor your acceptance, nor our maintenance of personnel policies, procedures, and benefits creates a minimum term of employment. Please also be advised that it is GTSI's policy that employees should discuss salary issues only with their manager. For the first 120 days of employment, you will serve an initial introductory period. The creation of enthusiastic customers by exceeding their expectations is a fundamental principle for GTSI and all its employees. In this regard, we rely on effective customer relationship management ("CRM"), as implemented through our contact database, as a unifying factor that manages all forms of communication with our customers, increasing the value of GTSI to our customers and the value of our customers to GTSI. To create enthusiastic customers in this manner, we need the support and commitment of each and every GTSI employee. We ask that you give us that support and commitment throughout your time at GTSI. By executing this letter, you represent and warrant to GTSI that you are not currently subject to any express or implied contractual obligations to any of your former employers under any secrecy, non-competition or other agreements or understandings, except for any of which you have furnished copies or written summaries to me, prior to your execution of this letter. This letter contains our entire understanding with respect to your employment at GTSI. It supersedes all prior or contemporaneous representations, promises or agreements concerning this subject, whether in written or oral form, and whether made to or with you by any employee or other person affiliated with GTSI or any actual or perceived agent. This offer of employment will expire one week from the date of this letter. Jack, we believe you will provide GTSI with the creativity and experience to contribute to continued GTSI growth. We also believe that GTSI can provide you with opportunities for professional growth and financial return. We look forward to the commencement of your employment with GTSI and expect a mutually fulfilling and rewarding relationship. Please acknowledge your acceptance of this offer by signing the enclosed copy of this letter, and returning it to me as soon as possible along with your completed application of employment. Sincerely, Acknowledged/Accepted Bridget Atkinson _____________________Date____________ Vice President Jack Littley Human Resources Projected Start Date: June 03, 2002 72 EX-10.31 16 ex10-31_d12322.txt EXHIBIT 10.31 RETIREMENT AGREEMENT WILLIAM E. JOHNSON JR. EMPLOYMENT RETIREMENT AGREEMENT THIS EMPLOYMENT RETIREMENT AGREEMENT (the "Agreement"), to include Exhibit A and Exhibit B that are incorporated by this reference, is entered into by and between GTSI Corp., a Delaware corporation ("GTSI"), and William E. Johnson, Jr. ("Employee"). It will become effective as set forth in Section 14.17 (the "Effective Date"). RECITALS A. Employee on October 15, 2002 notified GTSI of his retirement as an employee and officer of GTSI effective end of day, October 31, 2002 (the "Retirement Date"). B. Employee desires to receive the benefits under GTSI's Officer Severance Plan dated 2/17/91, and amended on 9/3/92, 3/10/93, and 11/3/94 (the "Severance Plan"), which benefits are stated in the Severance Plan to be contingent upon, among other things, Employee's entering into this Agreement and undertaking the obligations set forth in this Agreement. C. GTSI and Employee desire to set forth their respective rights and obligations with respect to Employee's retirement from GTSI and to settle and resolve all matters concerning Employee's past services to GTSI. AGREEMENT NOW, in consideration of the foregoing recitals and the mutual covenants and conditions in this agreement, the receipt and sufficiency of which are hereby acknowledged, GTSI and Employee agree as follows: I. Background 73 1. DEFINITIONS The following terms shall have the meanings set forth below: 1.1 "Includes;" "Including." Except where followed directly by the word "only," the terms "includes" or "including" means "includes, but is not limited to," and "including, but not limited to," respectively. 1.2 "Severance Covered Period." The term "Severance Covered Period" means the continuous twelve (12) month period of time immediately following the Retirement Date defined as October 31, 2002 to October 31, 2003. II. Employee Severance and Obligations 2. SEVERANCE BENEFITS 2.1 Employee Compensation. GTSI and Employee acknowledge and agree that GTSI will pay to him, any and all: (a) salary and wages, and (b) accrued but unpaid vacation time, as owed by GTSI to Employee up to the Retirement Date. Except for the Severance Compensation described below, GTSI owes no other wages or salary to Employee. All Severance Compensation payments by GTSI to Employee will be by check mailed to Employee or direct deposit, as mutually agreed to by the parties. 2.2 Severance Compensation. Subject to Employee's continuing compliance with the terms of this Agreement, GTSI will pay to Employee severance compensation as follows: (a) a bonus of Fifty Thousand Dollars ($50,000.00) on or before November 15, 2002; and (b) eleven (11) months of salary in the sum of One Hundred Seventy Four Thousand, One-Hundred and Sixty Seven Dollars ($174,167.00) over a period of eleven (11) months beginning November 1, 2002 and ending September 30, 2003, payable in bi-monthly payments on GTSI's normal pay periods ((a) and (b) together identified as the "Severance Compensation"). Payments will begin following the Effective Date. As clarification, the gross amount of Severance Compensation payable to Employee will be equal to $224,167.00. GTSI will withhold from the Severance Compensation standard and applicable taxes and payroll deductions. Severance Compensation will not include any other bonuses, incentive compensation, commission payments, pension or any other amounts. Except for the foregoing Severance Compensation, GTSI will have no payment, fees, bonuses, compensation, wages, or any other type of payment obligation to Employee following the Retirement Date. Severance Compensation payments will end on September 30, 2003. 2.3 Accelerated Options in Lieu of a Portion of Severance Compensation. As provided under the Plan, Employee has elected irrevocably to accept accelerated vesting of a portion of the Employee's outstanding but unvested stock options in lieu of a portion of the Employee's salary payout under the Severance Compensation. Employee has elected to forgo one (1) month of salary (equal to $15,833.00) in order to accelerate his unvested stock options by one calendar quarter. The stock options to be accelerated and thereby available for exercising by Employee (at the applicable exercise period) are identified in Exhibit A. By electing this option, Employee will be paid 11 months of salary under Section 2.2 above. Employee has elected this option in writing, as indicted in Exhibit B. 2.4 Continuation of Certain Benefits. Subject to Employee's continuing compliance with the terms of this Agreement, from the Retirement Date until December 31, 2002, GTSI will continue the medical and dental benefits (the "Benefits") provided to Employee as of the date of Retirement, subject to 74 Employee's continued payment of his applicable share. GTSI will withhold Employee's Benefit deductions from his Severance Compensation. These Benefits will be terminated as of December 31, 2002, provided that Employee may purchase (at such Employee's expense) continuation medical coverage from GTSI's health insurance carrier to the extent he is entitled to do so as a matter of right under federal or state law; such coverage is generally known as COBRA. Except for the foregoing Benefits provided until December 31, 2002, Employee will not be entitled to any other GTSI benefits. 2.5 "Stock Options & ESPP." Exhibit A sets forth a complete list of all stock options to purchase capital stock of GTSI which have been previously issued to Employee and which have vested as of the date hereof. Employee has the right to exercise these stock options to the extent set out in the applicable stock option agreements, subject to standard GTSI processes and requirements for exercising stock options. All other outstanding stock options granted to Employee will immediately expire upon the Retirement Date. To the extent that the Employee participated in GTSI's Employee Stock Purchase Plan ("ESPP"), the full amount of Employee's ESPP payroll deductions made as of the start of the current offering period (July 1, 2002) will be returned to the Employee in the next GTSI pay date. 2.6 "Sole Entitlement." Employee acknowledges and agrees that his sole entitlement to compensation, payments of any kind, monetary and non-monetary benefits and perquisites with respect to his prior GTSI relationship (as an officer and employee) and the Severance Plan is as set forth in this Agreement and any applicable stock option agreements. Further, through this Agreement, GTSI has satisfied all of its obligations under the Severance Plan and any stock option agreement. 3. COMPANY PROPERTY On or before the Effective Date, Employee will return to GTSI any and all GTSI assets or property, which have come into his possession or control. If Employee does not return the assets or property by the Effective Date, GTSI will have the right to offset the cost of such assets or property as permitted under Section 4(e) of the Severance Plan. 4. CONFIDENTIAL INFORMATION, TRADE SECRETS 4.1 Employee recognizes, acknowledges and agrees that GTSI is the owner of proprietary rights in certain confidential sales and marketing information, programs, tactics, systems, methods, processes, distribution methods, compilations of technical and non-technical information, records and other business, financial, sales, marketing and other information and things of value. To the extent that any or all of the foregoing constitute valuable trade secrets and/or confidential and/or privileged information of GTSI, Employee agrees that at any time after he executes this Agreement: (a) That, except with prior written authorization from GTSI's CEO or COO, for purposes related to GTSI's best interests, he will not directly or indirectly duplicate, remove, transfer, disclose or utilize, nor knowingly allow any other person to duplicate, remove, transfer, disclose or utilize, any property, assets, trade secrets or other things of value ("Confidential Information"). Confidential Information includes, but is not limited to, in whatever format, any records, techniques, procedures, systems, methods, market research, distribution arrangements, advertising and promotional materials, lists of past, present or prospective customers, lists of past, present or prospective vendor partners, prices, costs, or margin information, current and future strategic business plans, presentations, documents, or financial data or records, and any other data or information prepared for, stored in, processed by or obtained from, an automated information system belonging to or in the possession of 75 GTSI which are not intended for and have not been the subject of public disclosure, and provide GTSI with a competitive or business advantage. Employee represents that he has returned to GTSI any and all such Confidential Information, or if contained as a mental impression, agrees to safeguard all GTSI trade secrets in his possession or known to him at all times so that they are not disclosed to, any individual, other than an authorized GTSI employee. Employee agrees to exercise his reasonable efforts to assure the safekeeping, in GTSI's interest, of all such Confidential Information known to him. This subsection shall not apply to Confidential Information that (i) is now or later becomes generally known to the public or competitors of GTSI (other than as a result of a breach of this Agreement); (ii) Employee lawfully obtains from any third party who has lawfully obtained such information without any obligation of confidentiality; or (iii) is later published or generally disclosed to the public by GTSI. Employee shall bear the burden of showing that any of the foregoing exclusions applies to any information or materials. (b) That all improvements, discoveries, systems, techniques, ideas, processes, programs and other things of value made or conceived in whole or in part by Employee with respect to any aspects of GTSI's current or anticipated business while an employee of GTSI are and remain the sole and exclusive property of GTSI, and Employee has disclosed all such things of value to GTSI and will cooperate with GTSI to ensure that the ownership by GTSI of such property is protected. All of such property of GTSI in Employee's possession or control, including, but not limited to, all personal notes, documents and reproductions thereof, relating to the business and the trade secrets or confidential or privileged information of GTSI has already been, or shall be immediately, delivered to an authorized representative of GTSI's Legal Department. 5. NON-COMPETE AND NON-SOLICITATION 5.1. Non-Compete. Employee agrees that for two years from the Retirement Date, he will not, without the prior written consent of GTSI's CEO or COO, either directly or indirectly, for himself or on behalf of or in conjunction with any other person, company, partnership, corporation, business, group or other entity, as an officer, director, owner, partner, member, joint venture, or in any other capacity, whether as an employee, independent contractor, consultant, advisor or sales representative provide managerial services in support of the fulfillment, distribution or operations of a Federal government information technology (IT) reseller that has an office within 50 miles of GTSI's headquarters, where employment is in direct support of the resale of IT products or services to the federal government. Employee is not restricted from having an ownership interest in any company engaged in the marketing and sale of information technology solutions to Federal, state and local government customers, provided he is in compliance with this Section 5.1. 76 5.2. Non-Solicitation of Employees. Employee agrees that for two years from the Retirement Date, he will not, without the prior written consent of GTSI's CEO or COO, solicit or attempt to solicit for employment for or on behalf of any corporation, partnership, venture or other business entity any person who, on the last day of Employee's employment with GTSI or within 6 months prior to that date, was employed by GTSI or a subsidiary as an employee, manager or executive and with whom Employee had material contact during the course of his employment with GTSI (whether or not such person would commit a breach of contract). 5.3. Non-Solicitation of Customers and Partners. Employee acknowledges that he owes GTSI a duty of Loyalty, and to preserve and protect, among other things, GTSI's Confidential Information, as well as GTSI's relationships with its present and potential customers and partners. As a result, Employee agrees that for two years from the Retirement Date, he will not, without the prior written consent of GTSI's CEO or COO: (a) solicit or make any statement or do any act intended to cause such customer or partner to make use of or obtain from any person or business, services or goods which are similar or related to those offered by GTSI; or (b) discuss with any other GTSI employee the present operations or formation and future operations of any business competing with or intended to compete with GTSI. 6. REPRESENTATIONS REGARDING COVENANTS 6.1 Employee acknowledges and agrees that the services rendered by him to GTSI in the course of his prior employment were of a special and unique character, and that breach by him of any provision of the covenants set forth in Section 4 or 5 of this Agreement will cause GTSI irreparable injury and damages. Employee expressly agrees that GTSI shall be entitled, in addition to all other remedies available to it whether at law or in equity, to injunctive and other equitable relief to secure their enforcement. 6.2 The parties expressly agree that the covenants contained in Section 4 or 5 of this Agreement are reasonable in scope, duration and otherwise; however, if any of the restraints provided in these covenants are adjudicated to be excessively broad as to area or time or otherwise, such restraint shall be limited, reduced, or deleted as described in Section 14.6 to whatever extent is reasonable and the restraint shall be fully enforced in such modified form. Any provisions of such covenants not so reduced shall remain in full force and effect. 6.3 Employee's obligations set forth in Sections 4, 5 and 6 of this Agreement are in addition to, and not instead of, Employee's obligations under any existing nondisclosure agreement between GTSI and Employee (the "Nondisclosure Agreement"). Employee acknowledges that any Nondisclosure Agreement will survive this termination of employment, and that nothing in this Agreement will be construed as terminating, limiting, or otherwise minimizing any of the obligations set out in the Nondisclosure Agreement(s). 7. COOPERATION Employee agrees that for any time following his execution of this Agreement, he will cooperate fully and reasonably with GTSI in connection with any future or currently pending proceeding, dispute, investigation, litigation or threatened litigation (the "Matter"): (1) directly or indirectly involving GTSI (which, for purposes of this section, will include GTSI and each of its current and future subsidiaries, successors or permitted assigns); or (2) directly or indirectly involving any director, officer or employee 77 of GTSI (with regard to matters relating to such person(s) acting in such capacities with regard to GTSI business). Such cooperation will include making himself available upon reasonable notice at reasonable times and places to meet with GTSI representative(s) to provide information and statements regarding his knowledge, experience, records, or other awareness of the Matter, and/or consult with and to testify truthfully (at GTSI's expense for reasonable, pre-approved out-of-pocket travel costs) in any action as reasonably requested by the CEO or COO or the Board of Directors. Employee further agrees to promptly notify GTSI's CEO or COO in writing in the event that he receives any legal process or other communication purporting to require or request him to produce testimony, documents, information or things in any Matter, or any other issue related to GTSI, its directors, officers or employees, and that he will not produce testimony, documents, information or other things with regard to any Matter or any other pending or threatened lawsuit or proceeding regarding GTSI without giving GTSI prior written notice of the same and reasonable time to protect its interests. Employee further promises that when so directed by the CEO or COO or the Board of Directors, he will make himself available to attend any such legal proceeding and will truthfully respond to any questions in any manner concerning or relating to GTSI and will produce all documents and things in his possession or under his control which in any manner concern or relate to GTSI. 8. PRIVILEGED INFORMATION Employee acknowledges that as the result of his prior service as an officer and employee of GTSI, he has had access to, and is in possession of, information and documents protected by the attorney-client privilege and by attorney work product doctrine, such as information relating to acquisitions, past, current or future disputes, investigations or litigation, and Board of Directors' correspondence. Employee understands that the privilege to hold such information and documents confidential is GTSI's, not his personally, and that he will not disclose the information or documents to any person or entity without the express prior written consent of the CEO or COO or Board of GTSI unless he is required to do so by law. III. Mutual Obligations of Parties 9. MUTUAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each party represents, warrants and covenants (with respect to itself/himself only) to the other party that, to its/his respective best knowledge and belief as of the date of each party's respective signature below: 9.1 Full Power and Authority. It/he has full power and authority to execute, enter into and perform its/his obligations under this Agreement; this Agreement, after execution by both parties, will be a legal, valid and binding obligation of such party enforceable against it/him in accordance with its terms; it/he will not act or omit to act in any way which would materially interfere with or prohibit the performance of any of its/his obligations hereunder, and no approval or consent other than as has been obtained of any other party is necessary in connection with the execution and performance of this Agreement. 9.2 Effect of Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions it contemplates: (a) will not interfere or conflict with, result in a breach of, constitute a default under or violation of any of the terms, provisions, covenants or conditions of any contract, agreement or understanding, whether written or oral, to which either party is a party (including, in the case of GTSI, its bylaws and articles of incorporation as amended to date) or to which it/he is bound; and 78 (b) will not conflict with or violate any applicable law, rule, regulation, judgment, order or decree of any government, governmental agency or court having jurisdiction of such party. 10. PROHIBITION AGAINST DISPARAGEMENT GTSI and Employee each agree that at any time following the execution of this Agreement, any communication, whether oral or written, occurring on or off the premises of GTSI, made by it/him or its/his agent to any person or entity (including, without limitation, any GTSI employee, customer, vendor, supplier and any competitor and any person associated with any media) which in any way relates to his or to GTSI or to GTSI's directors, officers, management or employees: (1) will be truthful; and (2) will not disparage or undermine the reputation or business practices of Employee or GTSI or its directors, officers, management or employees. The only exceptions to the foregoing shall be: (1) truthful statements privately made to (a) the CEO or COO of GTSI, or their designated representatives, (b) any member of GTSI's Board of Directors, (c) GTSI's auditors, (d) inside or outside counsel of GTSI, (e) Employee's counsel or (f) Employee's spouse; (2) truthful statements lawfully compelled and made under oath; (3) truthful statements made to specified persons upon and in compliance with prior written authorization from or in connection with formal legal or administrative proceedings, GTSI's CEO or COO or Board; and (4) truthful statements made by GTSI's CEO or COO to specified persons upon and in compliance with prior authorization from Employee asking them to respond to inquiries from such specified persons. 11. MUTUAL RELEASE OF CLAIMS 11.1 Employee forever releases and discharges GTSI and the predecessor corporation of GTSI as well as the successors, current or prior stockholders of record, officers, directors, heirs, predecessors, assigns, agents, employees, attorneys and representatives of each of them, past or present, from any and all cause or causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities, expenses and demands of any kind or character whatsoever, whether known or unknown, anticipated or not anticipated, whether or not previously brought before any state or federal agency, court or other governmental entity which are existing on or arising prior to the date of this Agreement and which, directly or indirectly, in whole or in part, relate or are attributable to, connected with, or incidental to the previous employment of Employee by GTSI, the separation of that employment, and any dealings between the parties concerning Employee's employment existing prior to the date of execution of this Agreement (excepting only claims arising from a breach by GTSI of this Agreement including those obligations recited herein or to be performed hereunder) including but not limited to any and all claims of discrimination on account of sex, race, age, handicap, veteran status, national origin or religion, and claims or causes of action based upon any equal employment opportunity laws, ordinances, regulations or orders, including but not limited to Title VII of the Civil Rights Act of 1964 and the Age Discrimination In Employment Act, the Americans With Disabilities Act, Executive Order 11246, the Rehabilitation Act and any applicable state or local anti-discrimination statutes; claims for breach of any contract, agreement or promises made prior to this date; claims for wrongful termination actions of any type, breach of express or implied covenant of good faith and fair dealing; intentional or negligent infliction of emotional distress; claims for libel, slander or invasion of privacy; provided, however, that Employee and GTSI agree that Employee does not waive any rights or claims under the Age Discrimination In Employment Act that may arise after the execution of this document by Employee. This proviso is intended to exclude from release only claims "that arise after" execution of this document by Employee as provided for by the Older Workers Benefit Protection Act. This release also applies to any claims or rights that Employee might have or assert with respect to any claims or rights, if any, concerning any GTSI bonus plan applicable to GTSI officers. Nothing contained in this Section 11.1 shall affect any rights, claims or causes of action which Employee may have (1) as a stockholder of GTSI; (2) to indemnification by GTSI, to the extent required under the provisions of GTSI's Certificate of Incorporation, GTSI's By-Laws, the Delaware General Corporation Law, insurance or contracts, with respect to matters relating to 79 Employee's prior service as an officer, employee and agent of GTSI; (3) to make claims against or seek contribution from anyone not released by the first sentence of this Section 11.1 with respect to any matter or anyone released by the first sentence of this Section 11.1 with respect to any matter not released thereby; or (4) with respect to GTSI's performance of this Agreement. 11.2 GTSI forever releases and discharges Employee, and his heirs, from any and all cause or causes of action, actions, judgments, liens, indebtedness, damages, losses, claims, liabilities, expenses and demands of any kind or character whatsoever, whether known or unknown, anticipated or not anticipated, whether or not previously brought before any state or federal agency, court or other governmental entity which are existing on or arising prior to the date of this Agreement and which, directly or indirectly, in whole or in part, relate or are attributable to, connected with, or incidental to the previous employment of Employee by GTSI, the separation of that employment, and any dealings between the parties concerning Employee's employment existing prior to the date of execution of this Agreement, excepting only claims arising from a breach by Employee of this Agreement including those obligations recited herein or to be performed hereunder. Nothing contained in this Section 11.2 will affect any rights, claims or causes of action which GTSI may have to make claims against or seek contribution from anyone not released by the first sentence of this Section 11.2 with respect to any matter or anyone released by the first sentence of this Section 11.2 with respect to any matter not released thereby; or with respect to Employee's performance of this Agreement. 80 IV. Miscellaneous 12. FORMER EMPLOYEE REPRESENTATIONS Notwithstanding that this Agreement may be entered into subsequent to the Retirement Date, Employee represents and warrants that he has not acted or omitted to act in any respect which involves fraud or malfeasance towards GTSI or which directly or indirectly would have constituted a violation of Sections 4 or 5 of this Agreement had this Agreement then been in effect. 13. ASSIGNMENT Employee represents and warrants that he has not assigned, transferred or granted or purported to assign, transfer or grant any claims, entitlement, matters, demands or causes of action herein released, disclaimed, discharged or terminated, and agrees to indemnify and hold harmless GTSI from and against any and all costs, expense, loss or liability incurred by GTSI as a consequence of any such assignment, transfer or grant. 14. OTHER PROVISIONS 14.1 Legal Advice and Construction of Agreement. Both GTSI and Employee have received (or have voluntarily and knowingly elected not to receive) independent legal advice with respect to the advisability of entering into this Agreement and neither has been entitled to rely upon or has in fact relied upon the legal or other advice of the other party or such other party's counsel (or employees) in entering into this Agreement. In Employee's case, he is/was expressly advised by GTSI of his right to consult an attorney to review this Agreement. Each party has participated in the drafting and preparation of this Agreement, and, accordingly, in any construction or interpretation of this Agreement, the same shall not be construed against any party by reason of the source of drafting. 14.2 Parties' Understanding. GTSI and Employee state that each has carefully read this Agreement, that it has been fully explained to it/him by its/his attorney (or that it/he has voluntarily and knowingly elected not to receive such explanation), that it/he fully understands its final and binding effect, that the only promises made to it/him to sign the Agreement are those stated above, and that it/he is signing this Agreement voluntarily. 14.3 Notices. All notices and demands referred to or required herein or pursuant hereto shall be in writing, shall specifically reference this Agreement and shall be deemed to be duly sent and given upon actual delivery to and receipt by the relevant party (which notice, in the case of GTSI, must be from an officer of GTSI) or five days after deposit in the U.S. mail by certified or registered mail, return receipt requested, with postage prepaid, addressed as follows (if, however, a party has given the other party due notice of another address for the sending of notices, then future notices shall be sent to such new address): (a) If to GTSI: GTSI Corp. 3901 Stonecroft Boulevard Chantilly, Virginia 20151 Attn: Chief Operating Officer With a copy to: Legal Department (b) If to Employee: William E. Johnson, Jr. 420 Edgewood Drive Mineral, VA 23117 81 14.4 Recitals and Section Headings. Each term of this Agreement is contractual and not merely a recital. All recitals are incorporated by reference into this Agreement. Captions and section headings are used herein for convenience only, are no part of this Agreement and will not be used in interpreting or construing it. 14.5 Entire Agreement. This Agreement constitutes a single integrated contract expressing the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter hereof. Notwithstanding the foregoing, the parties understand and agree that any Nondisclosure Agreement and all other written agreements between Employee and GTSI are separate from this Agreement and, subject to the terms and conditions of each such agreement, will survive the execution of this Agreement, and nothing contained in this Agreement will be construed as affecting the rights or obligations of either party set forth in such agreements. 14.6 Severability. In the event any provision of this Agreement or the application thereof to any circumstance will be held by a court of competent jurisdiction to be invalid, illegal or unenforceable, or to be excessively broad as to time, duration, geographical scope, activity, subject or otherwise, it will be construed to be limited or reduced so as to be enforceable to the maximum extent allowed by applicable law as it shall then be in force, and if such construction is not be feasible, then such provision will be deemed to be deleted herefrom in any action before that court, and all other provisions of this Agreement will remain in full force and effect. 14.7 Amendment and Waiver. This Agreement and each provision hereof may be amended, modified, supplemented or waived only by a written document specifically identifying this Agreement and signed by each party hereto. Except as expressly provided in this Agreement, no course of dealing between the parties hereto and no delay in exercising any right, power or remedy conferred hereby or now or hereafter existing at law, in equity, by statute or otherwise, will operate as a waiver of, or otherwise prejudice, any such rights, power or remedy. 14.8 Cumulative Remedies. None of the rights, powers or remedies conferred herein will be mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to every other right, power or remedy, whether conferred herein or now or hereafter available at law, in equity, by statute or otherwise. 14.9 Specific Performance. Each party hereto may obtain specific performance to enforce its/his rights hereunder and each party acknowledges that failure to fulfill its/his obligations to the other party hereto would result in irreparable harm. 14.10 Virginia Law and Location. This Agreement was negotiated, executed and delivered within the Commonwealth of Virginia, and the rights and obligations of the parties hereto will be construed and enforced in accordance with and governed by the internal laws (and not the conflict of laws) of the Commonwealth of Virginia applicable to the construction and enforcement of contracts between parties resident in Virginia which are entered into and fully performed in Virginia. 14.11 Force Majeure. Neither GTSI nor Employee will be deemed in default if its/his performance of obligations hereunder is delayed or become impossible or impracticable by reason of any act of God, war, fire, earthquake, strike, civil commotion, epidemic, or any other cause beyond such party's reasonable control. 14.12. No Admission. Neither the entry into this Agreement nor the giving of consideration under this Agreement will constitute an admission of any wrongdoing by GTSI or Employee. 82 14.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.14 Successors and Assigns. Neither party may assign this Agreement or any of its rights or obligations hereunder (including, without limitation, rights and duties of performance) to any third party or entity, and this Agreement may not be involuntarily assigned or assigned by operation of law, without the prior written consent of the non-assigning party, which consent may be given or withheld by such non-assigning party in the sole exercise of its discretion, except that GTSI may assign this Agreement to a corporation acquiring: (1) 50% or more of GTSI's capital stock in a merger or acquisition; or (2) all or substantially all of the assets of GTSI in a single transaction; and except that Employee may transfer or assign his rights under this Agreement voluntarily, involuntarily or by operation of law upon or as a result of his death to his heirs, estate and/or personal representative(s). Any prohibited assignment will be null and void, and any attempted assignment of this Agreement in violation of this section will constitute a material breach of this Agreement and cause for its termination by and at the election of the other party hereto by notice. This Agreement will be binding upon and inure to the benefit of each of the parties and, except as otherwise provided in this Agreement, their respective legal successors and permitted assigns. 14.15 Survival. The definitions, representations and warranties herein as well as obligations set forth in Sections 4, 5, 6, 7, 8, 10, and 11 will survive any termination of this Agreement for any reason whatsoever. 14.16 Limitation of Damages. Except as expressly set forth herein, in any action or proceeding arising out of, relating to or concerning this Agreement, including any claim of breach of contract, liability shall be limited to compensatory damages proximately caused by the breach and neither party will, under any circumstances, be liable to the other party for consequential, incidental, indirect or special damages, including but not limited to lost profits or income, even if such party has been apprised of the likelihood of such damages occurring. 14.17 Effective Date/Impact of Signature. This Agreement is delivered to Employee on October 15, 2002, and amended on October 28, 2002. Employee acknowledges that he has been advised that he has 21 days from October 28, 2002, to review this Agreement to decide whether or not to accept this Agreement by signing below. Employee understands and agrees that by signing this Agreement, he is giving up the right to sue for age discrimination, and that under this Agreement, GTSI will receive consideration to which it is not otherwise entitled, and would not receive but for his release of rights under the law. Notwithstanding anything in this Agreement to the contrary, Employee agrees that, after he has signed and delivered this Agreement to GTSI, this Agreement will not be effective or enforceable until the end of a seven (7) day revocation period beginning the day after the Employee signs this Agreement. GTSI will have no obligation to provide any Severance Compensation until the Agreement is signed and the seven-day period has expired. During this seven-day period, Employee may revoke his signature, without reason and in his sole judgment, but he may do so only by delivering a written statement of revocation to GTSI to the attention of COO and Legal Department. Once signed by Employee, if GTSI does not receive a written revocation from Employee by the end of the revocation period, then this Agreement will become legally enforceable. If signed by Employee, this Agreement will be effective as of the eighth day following the date of signature (the "Effective Date"), unless earlier revoked as noted above. 83 GTSI Corp. William E. Johnson, Jr. By:_____________________________ Signature:__________________________________ William E. Johnson, Jr. Print Name:_____________________ Print Title:____________________ Date:___________________________ Date: EXHIBIT A --------------------------------------- STOCK OPTIONS ------------------------------------------------------- Exercise Period Options Date Exercise Following Vested Issued Price Termination Date ------------------------------------------------------- 15,000 3/25/99 $3.7500 Three Months ------------------------------------------------------- 13,333 11/2/99 $2.8750 Three Months ------------------------------------------------------- 1,500 11/2/00 $3.2500 Three Months ------------------------------------------------------- *6,667 11/2/99 $2.8750 Three Months ------------------------------------------------------- *1,500 11/2/00 $3.2500 Three Months ------------------------------------------------------- 38,000 ------------------------------------------------------- * These 8,167 options are the stock options accelerated per Section 2.3 and Exhibit B. Note: Exercising of Options subject to compliance with GTSI's standard exercising process and procedures. Employee agrees to notify GTSI of intent to exercise no later than five (5) business days of the end of the applicable Exercise Period. Actual number of shares available will be determined based on official corporate record of Employee's option activity up to the Retirement Date. 84 EXHIBIT B NOTICE OF ELECTION TO ACCELERATE OPTIONS TO: CEO, GTSI CORP. CC: Legal Department FROM: William E. Johnson, Jr. RE: Officer Severance Plan - Election to Accelerate Vesting of Options Under the terms of the GTSI 1991 Officer Severance Plan (the "Severance Plan"), I am entitled to receive 12 months of severance pay in accordance with the terms of the Severance Plan. In accordance with Section 6 of the Severance Plan and subject to the Severance Plan in all respects, this letter constitutes notice to you that I hereby elect irrevocably (check only one of the following): |___| Alternative 1: To forego and waive any and all rights to accelerate the vesting of unvested installments of my stock options in accordance with the terms and conditions of the Severance Plan. OR |___| Alternative 2: To accelerate the vesting of the unvested installments of the stock options identified below granted to me under the GTSI Stock Option Plans, as follows: Number of Date(s) Unvested of Option Exercise Options to be Grant(s) Price Accelerated --------- -------- ------------- 11/2/99 $ 2.8750 6,667 11/2/00 $ 3.2500 1,500 I acknowledge and agree that in consideration for the Company's acceleration of the vesting of outstanding but unvested options under Alternative 2 above, I will forego and waive my rights to receive 1 month of severance pay to which I am otherwise entitled under the Severance Plan, as provided for in the Employment Retirement Agreement Section 2.3. Dated: October ____, 2002 _____________________________ William E. Johnson, Jr. 85 EX-10.32 17 ex10-32_d12322.txt EXHIBIT 10.32 OFFER LETTER OF THOMAS MUTRYN GTSI Corp. 3901 Stonecroft Blvd., Chantilly, VA 20151-1010 31 December 2002 Mr. Thomas A. Mutryn 8411 Rapley Ridge Lane Potomac, MD 20854 Dear Tom: GTSI Corp. ("GTSI") is pleased to offer you the position of Senior Vice President and Chief Financial Officer. In this position, you will report directly to me. We would like your employment to commence as soon as possible, preferably by the Projected Start Date referred to below. We are optimistic that you will be able to make a significant contribution to GTSI. Your total annual target compensation will be $391,000. This will consist of a base salary of $230,000 ($9,853.33 semi-monthly) plus participation in an Executive Incentive Compensation Plan (@ 70% of base salary). At 100% goal attainment, your annual target bonus under this plan will be $161,000. At 200% (the maximum payout for this Plan), your annual target bonus under this plan will be $322,000 ($552,000 TTC at 200%). GTSI guarantee that through the end of 2003, payouts under the incentive plan will not be less than 100% target. As a further incentive to you, you will also be eligible for a one time bonus of $60,000. This bonus will be distributed as follows: $30,000 after your initial start date and $30,000 after 6 months of successful employment. If you should leave within a one-year period of joining GTSI you will be required to repay a pro-rated amount of the bonus to GTSI. You will be eligible, on the first of the month following your hire date, to join the GTSI benefits plan which would include life insurance, comprehensive medical, dental and vision insurance for yourself and dependents on a contributory basis if you so elect. We will provide you with detailed information concerning your complete benefits package upon employment. You will be eligible for four weeks of vacation for the year 2003 and for each calendar year. This will prorate for partial years. As with all GTSI employees, you will be subject to all Company policies and procedures. If, during the first 6 months from your date of hire, your employment ceases for any reason other than for "cause"(2) you will receive a severance equal to 6 months' base salary paid out over the following six months. You will also be - --------------- (2) Cause - Termination by GTSI of an officer's employment for "Cause" means termination as a result of (i) acts or omissions involving unacceptable performance or conduct (examples of which include, but are not limited to: failure or refusal to perform assigned duties or to follow Company policies, as determined in the sole discretion of the Company; commission of sexual harassment; excessive absenteeism; unlawful use or possession of drugs or misuse of legal drugs or alcohol; misappropriation of a Company asset or opportunity; the offer, payment, solicitation or acceptance of any bribe or kickback with respect to the Company's business; the assertion, representation or certification of any false claim or statement to a Company customer; or indictment or conviction for any felony whatsoever or for any misdemeanor involving moral turpitude); (ii) inability for any reason to perform the essential functions of the position; or (iii) other conduct deemed by the Company to be inappropriate for an officer or harmful to the Company's interests or reputation. 3 Change of control is defined as (i) control of 50% or more of outstanding shares of GTSI; (ii) a change in a majority of the Company Board of Directors if the change occurred during any 12 consecutive months, and the new directors were not elected by the Company's shareholders or by a majority of the directors who were in office at the beginning of the 12 months; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. 86 eligible for any earned incentives during this six month period. The option exercise period would be extended for five months to be coterminous with the salary. In the case of a "change in control,"(3) you will receive immediate vesting of all outstanding stock options. If, within the first 24 months following a change of control, you are terminated, your compensation is reduced, your responsibilities substantively diminished, or you are required to relocate, you will receive a lump-sum payment equal to your then current annual salary plus your targeted annual bonus. As part of your compensation package, we will recommend to the Compensation Committee of the Company's Board of Directors that the Committee grant to you a nonstatutory stock option ("Option"), effective as of the date of grant which will be the date of actual Board approval, (the "Grant Date"), to purchase 125,000 shares of the Company's Common Stock. The exercise price will be equal to the closing price of the Company's Common Stock on the Grant Date or, if there has been no trading in the Company's Common Stock on the Grant Date, then the immediately preceding date upon which the Company's Common Stock is so traded (as reported the following business day in The Wall Street Journal). Your options will vest and be exercisable, cumulatively, in five equal annual installments with the first installment vesting on the Grant Date and the remaining installments vesting on each anniversary of the Grant Date, and will be subject to the terms and provisions of the stock option agreement evidencing the grant of the Option. Your Option shall expire, to the extent not previously exercised, upon the earlier of seven years from the date of initial vesting or three months after you cease to be a GTSI employee. Since this stock option offer is by rule subject to approval by GTSI's Board of Directors or a Committee thereof, no one at GTSI can promise or ensure such approval. Nonetheless, we envisage Committee approval without problem. To comply with the Immigration Reform and Control Act, you will be required to verify citizenship by completing the enclosed form and presenting the requested documents on the first day of employment. Employment is contingent upon satisfactory references, successful completion of pre-employment drug screening, and the completion of a GTSI Corp. non-disclosure form. Your employment at GTSI will be an "at will" relationship; that is, either party may end it at any time. Neither this offer of employment, nor your acceptance, nor our maintenance of personnel policies, procedures, and benefits creates a minimum term of employment. Please also be advised that it is GTSI's policy that employees should discuss salary issues only with their manager. For the first 120 days of employment, you will serve an initial introductory period. The creation of enthusiastic customers by exceeding their expectations is a fundamental principle for GTSI and all its employees. In this regard, we rely on effective customer relationship management ("CRM"), as implemented through our contact database, as a unifying factor that manages all forms of communication with our customers, increasing the value of GTSI to our customers and the value of our customers to GTSI. To create enthusiastic customers in this manner, we need the support and commitment of each and every GTSI employee. We ask that you give us that support and commitment throughout your time at GTSI. By executing this letter, you represent and warrant to GTSI that you are not currently subject to any express or implied contractual obligations to any of your former employers under any secrecy, non-competition or other agreements or understandings, except for any of which you have furnished copies or written summaries to me, prior to your execution of this letter. This letter contains our entire understanding with respect to your employment at GTSI. It supersedes all prior or contemporaneous representations, promises or agreements concerning this subject, whether in written or oral form, and whether made to or with you by any employee or other person affiliated with GTSI or any actual or perceived agent. This offer of employment will expire one week from the date of this letter. - --------------- (3) Change of control is defined as (i) control of 50% or more of outstanding shares of GTSI; (ii) a change in a majority of the Company Board of Directors if the change occurred during any 12 consecutive months, and the new directors were not elected by the Company's shareholders or by a majority of the directors who were in office at the beginning of the 12 months; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. 87 Tom, we believe you will provide GTSI with the creativity and experience to contribute to continued GTSI growth. We also believe that GTSI can provide you with opportunities for professional growth and financial return. We look forward to the commencement of your employment with GTSI and expect a mutually fulfilling and rewarding relationship. Please acknowledge your acceptance of this offer by signing the enclosed copy of this letter, and returning it to me as soon as possible along with your completed application of employment. Sincerely, Acknowledged/Accepted Dendy Young _________________________Date____________ Chairman & CEO Thomas A. Mutryn Projected Start Date: January 06, 2003 88 EX-10.33 18 ex10-33_d12322.txt EXHIBIT 10.33 PROMOTION LETTER OF JACK LITTLEY MEMORANDUM TO: John Littley III FROM: John Spotila DATE: February 20, 2003 SUBJECT: Promotion to Senior Vice President - -------------------------------------------------------------------------------- Dendy and I are very pleased to confirm your promotion to Senior Vice President, Program and Information Services effective January 7, 2003. In this capacity, you continue to report to me. In line with your new responsibilities, we have decided to increase your base salary to $190,000 per year effective retroactively to the effective date. With your incentive compensation plan of $100,000, your new annual target compensation is $290,000 ($190,000 base, $100,000 incentive). We are pleased to advise you that the Board has approved the issuance to you of new options for an additional 30,000 shares of GTSI Common Stock. The Grant Date for these options is January 28, 2003. Your exercise price will be equal to the closing price of the Company's Common Stock on the Grant Date. Your options will vest and be exercisable, cumulatively, in four equal annual installments with the first installment vesting on the first anniversary of the Grant Date. They will be subject to the terms and provisions of a Stock Option Agreement which we will be providing you shortly. Your options will expire, to the extent not previously exercised, upon the earlier of ten years from the date of initial vesting or one month after you cease to be a GTSI employee. Bridget Atkinson will follow up with you as needed if you have any questions about your new compensation. As always, we ask that you keep confidential all matters associated with your compensation. Please sign below on the enclosed copy of this memo to signify your acceptance of this new role within GTSI and return it to Bridget as soon as possible. Jack, this recognizes your excellent contributions to GTSI in the past and your continued commitment to our success. You have our sincerest congratulations and best wishes. Acknowledged & Accepted: John Littley III 89 EX-10.34 19 ex10-34_d12322.txt EXHIBIT 10.34 NON-QUALIFIED STOCK OPTION AGREEMENT Thomas Mutryn GTSI CORP. Nonqualified Stock Option Agreement GTSI Corp., a Delaware corporation (the "Company"), hereby grants to Thomas Mutryn (the "Optionee") an option (the "Option") to purchase a total of 125,000 shares of Common Stock, $0.005 par value (the "Shares"), of the Company, at the price and on the terms set forth herein. 1. Nature of the Option. This Option is intended to be a nonqualified stock option and is not intended to be an incentive stock option within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or to otherwise qualify for any special tax benefits to the Optionee. 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the Company. (b) "Common Stock" shall mean the Common Stock, $0.005 par value, of the Company. (c) "Continuous Employment" or "Continuous Status As An Employee" shall mean the absence of any interruption or termination of employment or service as an Employee by the Company or any Parent or Subsidiary of the Company which now exists or is hereafter organized or acquired by or acquires the Company. Continuous Employment shall not be considered interrupted in the case of transfers between locations of the Company or between the Company, its Parent, or any of its Subsidiaries or its successors. (d) "Employee" shall mean any person, including officers and directors, employed by the Company, its Parent, any of its Subsidiaries or its successors. The payment of directors' fees by the Company shall not be sufficient to constitute employment by the Company. (e) "Parent" shall mean a "parent corporation," whether now or hereafter existing, as defined in Sections 425(e) and (g) of the Code. (f) "Subsidiary" shall mean a subsidiary corporation, whether now or hereafter existing, as defined in Sections 425(f) and (g) of the Code. 3. Date of Grant; Term of Option. This Option is granted as of January 28, 2003 (the "Grant Date"), and it may not be exercised later than the earlier of (i) seven years from the Grant Date or (ii) three months after the Optionee has ceased to be an Employee of the Company. 4. Option Exercise Price. The Option exercise price is $11.30 per Share. 5. Exercise of Option. This Option shall be exercisable during its term only as follows: (a) Right to Exercise. This Option shall vest and be exercisable cumulatively in five equal installments, the first installment vesting on the Grant Date and the remaining installments occurring upon each subsequent anniversary of the Grant Date; provided, however, that the entire Option shall vest and be exercisable immediately as to all outstanding shares if your duties or responsibilities are materially 90 modified without your consent, or in the case of a "change in control," and if your employment ceases for any reason other than for "cause." "Change in control" is defined as (i) control of 50% or more of outstanding shares of GTSI; (ii) a change in a majority of the Company Board of Directors if the change occurred during any 12 consecutive months, and the new directors were not elected by the Company's stockholders or by a majority of the directors who were in office at the beginning of the 12 months; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. "Cause" is defined as termination by GTSI of an officer's employment as a result of: (i) acts or omissions involving unacceptable performance or conduct (examples of which include, but are not limited to: failure or refusal to perform assigned duties or to follow Company policies, as determined in the sole discretion of the Company; commission of sexual harassment; excessive absenteeism; unlawful use or possession of drugs or misuse of legal drugs or alcohol; misappropriation of a Company asset or opportunity; the offer, payment, solicitation or acceptance of any bribe or kickback with respect to the Company's business; the assertion, representation or certification of any false claim or statement to a Company customer; or indictment or conviction for any felony whatsoever or for any misdemeanor involving moral turpitude); (ii) inability for any reason to perform the essential functions of the position; or (iii) other conduct deemed by the Company to be inappropriate for an officer or harmful to the Company's interests or reputation. (b) Method of Exercise. This Option shall be exercisable from time to time as to all or any portion of the Shares as to which this Option is then exercisable by written notice in the form attached hereto (the "Notice"). The Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company or such other person as may be designated by the Company. The Notice shall be accompanied by payment of the aggregate Option exercise price. Such payment of the aggregate Option exercise price shall be by cash, check or such other consideration and method of payment as may be approved by the Board or authorized by this Option. The certificate or certificates for the Shares as to which this Option shall be exercised shall be registered in the name of the Optionee and shall bear any legend required under Section 14 hereof and/or applicable Blue Sky or other laws. (c) Restrictions on Exercise. This Option may not be exercised if the issuance of the Shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. The Company shall not be obligated to take any affirmative action in order to cause the exercise of this Option or the issuance of shares pursuant thereto to comply with such laws or regulations. As a condition to the exercise of this Option, the Company may require the Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. This Option may not be exercised for a fraction of a Share. (d) Effect of Exercise. Exercise of this Option in any manner shall result in a decrease in the number of Shares which thereafter may be available for sale under this Option by the number of Shares as to which this Option is exercised. 6. No Rights as Stockholder. Until this Option is properly exercised in whole or in part in accordance with the terms of Section 5 hereof, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect 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 this Option is exercised, except as provided in Section 10 hereof. 91 7. Delivery of Share Certificates. As soon as practicable after any proper exercise of this Option, the Company shall, without transfer or issue tax to the Optionee, 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 this Option shall have been exercised. The time of issuance and delivery of the certificate(s) representing the Shares for which this 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 applicable listing requirements of any national or regional securities exchange or any law or regulation applicable to the issuance or delivery of such Shares. 8. Termination of Status as an Employee. If the 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 Continuous Status as an Employee, the Optionee shall have the right to exercise this Option at any time within three months after the date of such termination to the extent that the Optionee was entitled to exercise this Option at the date of such termination. If the Optionee ceases to serve as an Employee due to death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), this Option may be exercised at any time within six months after the date of death or termination of employment due to disability, in the case of death, by the Optionee's estate or by a person who acquired the right to exercise this Option by bequest or inheritance, or, in the case of disability, by the Optionee, but in any case only to the extent the Optionee was entitled to exercise this Option at the date of such termination. To the extent that the Optionee was not entitled to exercise this Option at the date of termination, or to the extent this Option is not exercised within the time specified herein, this Option shall terminate. Notwithstanding the foregoing, this Option shall not be exercisable after the expiration of the term set forth in Section 3 hereof. 9. Nontransferability of Option. This Option 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, and may be exercised during the lifetime of the Optionee only by the Optionee. Subject to the foregoing, the terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 10. Reservation of Shares. The Company covenants and agrees that during the term of this Option the Company will at all times have authorized and reserved for the purpose of the issue upon exercise of this Option at least the maximum number of shares of Common Stock as are issuable upon the exercise of this Option. 11. Continuation of Employment. This Option shall not confer upon the Optionee any right to continue in the employment of the Company or any of its Subsidiaries or limit in any respect the right of the Company to discharge the Optionee at any time, with or without cause and with or without notice. 12. Withholding. The Company reserves the right to withhold, in accordance with any applicable laws, from any consideration payable to Optionee any taxes required to be withheld by federal, state or local law as a result of the grant or exercise of this Option or the sale or other disposition of the Shares issued upon exercise of this Option. If the amount of any consideration payable to the Optionee is insufficient to pay such taxes or if no consideration is payable to the Optionee, upon the request of the Company, the Optionee shall pay to the Company an amount sufficient for the Company to satisfy any federal, state or local tax withholding requirements it may incur, as a result of the grant or exercise of this Option or the sale or other disposition of the Shares issued upon the exercise of this Option. 13. Legends. Each certificate representing the Shares shall contain such legends as may be required under applicable blue sky laws. Unless an appropriate registration statement is filed and becomes effective pursuant to the Securities Act of 1933, as amended, with respect to the Shares, each certificate representing such Shares shall also have endorsed thereon a legend substantially as follows: 92 "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 14. Action by the Company. The existence of this Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding. 15. Interpretation. As a condition to the granting of this Option, the Optionee and each person who succeeds to the Optionee's rights hereunder, agrees that any dispute or disagreement which shall arise under or as a result of or pursuant to this Option shall be determined by the Board in its sole discretion, and that any such determination or interpretation of the terms of this Option by the Board shall be final, binding and conclusive. 16. Notices. Any notice to be given to the Company pursuant to this Option shall be addressed to the Company in care of its Secretary (or such other person as the Company may designate from time to time) as its principal office, and any notice to be given to the Optionee shall be delivered personally or addressed to him at the address given beneath his signature set forth below, or at such other address as the Optionee may hereafter designate in writing to 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 deposited, postage and registry or certification fee prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. 17. Invalid Provisions. In the event that any provision of this Option 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. 18. Governing Law. This Option shall be governed by and construed in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, this Option Agreement has been duly executed on behalf of the Company by an authorized representative of the Company and by the Optionee and is dated as of the Grant Date. GTSI Corp. Optionee: Thomas Mutryn By: Signature: --------------------------------- -------------------------- Name: M. Dendy Young Address: ------------------------------ ---------------------------- Title: Chairman & CEO ----------------------------------------------- 93 GTSI Corp. NOTICE OF EXERCISE OF STOCK OPTION (Please print legibly or type) I, Thomas Mutryn, ("Optionee"), hereby agree, represent and warrant to GTSI Corp. (the "Company") as follows: 1. On January 28, 2003, I was granted a Nonqualified Stock Option (the "Option") pursuant to which I was granted the right to purchase 125,000 shares of the Company's Common Stock, subject to adjustment in accordance with the Nonqualified Stock Option Agreement evidencing said Option (the "Optioned Shares"). 2. I am eligible to exercise the Option to the extent that I am exercising the Option. 3. I hereby elect to exercise the Option to purchase __________ of such Optioned Shares (the "Shares") under the Nonqualified Stock Option Agreement evidencing said Option at $11.30 per Share, for an aggregate purchase price of $__________. 4. This Notice of Exercise of Stock Option is accompanied by payment in full for the Shares and withholding tax in the form of cash, a check or any combination thereof. 5. In connection with my exercise of the Option, I have received a copy of the Nonqualified Stock Option Agreement relating to the Company's Common Stock issuable under the Option. Dated:____________________________ _________________________________________ Signature of Optionee __________________________________ _________________________________________ Social Security Number Address ___________________________________________________ City, State, Zip ================================================================================ Received on behalf of GTSI Corp. on _________________________. Signature: __________________________________ Print Name: _________________________________ 95 EX-23.1 20 ex23-1_d12322.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 File Numbers 333-44363, 333,55090, 333-29439, 333-62681, 333-78199, 333-44922, 333-59478, 333-88360) of our report dated January 30, 2003, with respect to the consolidated financial statements of GTSI Corp. Included in the Annual Report (Form 10-K) for the year ended December 31, 2002. /s/ ERNST & YOUNG, LLP McLean, Virginia March 28, 2003 96 EX-23.1 21 ex23-2_d12322.txt EXHIBIT 23.2 INFORMATION REGARDING CONSENT OF ARTHUR ANDERSEN Section 11(a) of the Securities and Exchange Act of 1933, as amended (the "Securities Act"), provides that if part of a registration statement at the time it becomes effective contains an untrue statement of a material fact, or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant as such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may assert a claim against, among others, an accountant who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement. GTSI Corp. dismissed Arthur Andersen LLP ("Andersen") as its independent auditors, effective July 11, 2002. For additional information, see GTSI Corp.'s current report on Form 8-K dated July 16, 2002. After reasonable efforts, GTSI Corp. has been unable to obtain Andersen's written consent to the incorporation by reference into GTSI Corp.'s registration statements (File Nos. 33-44363, 33-55090, 333-29439, 333-62681, 333-78199, 333-44922, and 33-59478) of Andersen's audit report with respect to GTSI Corp.'s consolidated financial statements as of December 31, 2001, and for the two years in the period then ended. Under these circumstances, Rule 437a under the Securities Act permits GTSI Corp. to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statements, without consents from Andersen. As a result, with respect to transactions in GTSI Corp. securities pursuant to the Registration Statement that occur subsequent to the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, Andersen will not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statement audited by Andersen or any omissions of a material fact required to be stated therein. Accordingly, you would not be unable to assert a claim against Andersen under Section 11(a) of the Securities Act. 97 EX-99.1 22 ex99-1_d12322.txt Exhibit 99.1 CERTIFICATION CERTIFICATION PURSUANT TO SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chairman and Chief Executive Officer of GTSI Corp. (the "company") does hereby certify that to the best of the undersigned's knowledge: 1) the company's Annual Report on Form 10-K for the year ending December 31, 2002 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the company's Report fairly presents in all material respects, the financial condition and results of operations of the company. Dated: March 28, 2003 _______________________ M. Dendy Young Chairman and Chief Executive Officer 98 EX-99.2 23 ex99-2_d12322.txt Exhibit 99.2 CERTIFICATION CERTIFICATION PURSUANT TO SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chairman and Chief Executive Officer of GTSI Corp. (the "company") does hereby certify that to the best of the undersigned's knowledge: 1) the company's Annual Report on Form 10-K for the year ending December 31, 2002 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the company's Report fairly presents in all material respects, the financial condition and results of operations of the company. Dated: March 28, 2003 _________________________ Thomas A. Mutryn Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----