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UNITED
STATES OMB APPROVAL SECURITIES
AND EXCHANGE COMMISSION OMB Number: 3235-0059 Washington,
D.C. 20549 Expires: January 31, 2008 SCHEDULE
14A Estimated average burden
hours per response... 14
Proxy
Statement Pursuant to Section 14(a) of
the Securities Payment of Filing Fee (Check
the appropriate box): NOTICE OF ANNUAL MEETING AND PROXY STATEMENT March 31, 2010 The Annual Meeting of
the Stockholders of GTSI Corp., a Delaware corporation (GTSI or the Company), will be held at
10:00 a.m., local time, on Wednesday, April 21, 2010, at the Companys headquarters located at 2553 Dulles View
Drive, Suite 100, Herndon, Virginia (the Meeting) to consider and act on the following matters: 1. To
elect four Class 1 directors to serve until our 2013 Annual Meeting of Stockholders and one Class 2 director to serve
until our 2011 Annual Meeting of Stockholders, until their successors are elected and qualified; and 2. To transact such other business as may properly come before the Meeting or any adjournment(s) thereof. If you are a holder of
record of the Companys common stock as of the close of business on March 3, 2010, you will be entitled to notice
of, and vote at, the Meeting and at any adjournment(s) thereof. All stockholders are cordially invited to attend the
Meeting in person. You can vote your shares in one of four ways: 1. Visit the web-site noted on your proxy card to vote via the internet; 2. Use the toll-free telephone number on your proxy card to vote by telephone; 3. Sign, date and return your proxy card in the enclosed envelope to vote by mail; or 4. Attend the meeting in person to ensure your representation at the Meeting. Please mark, sign, date and return your proxy card as promptly as possible. Stockholders are invited to visit the Corporate Governance section of our web-site in the Investors section of GTSI.com. By Order of the Board of Directors Charles E. De Leon SVP, General Counsel & Corporate Secretary TABLE OF CONTENTS INFORMATION CONCERNING SOLICITATION AND VOTING 1 General 1 Voting and Solicitation 1 PROPOSAL 1 2 ELECTION OF DIRECTORS 2 Introduction 2 Class 1 Nominees for a Three-Year Term Expiring in 2013 2 Other Information 4 Class 2 Nominee for a One-Year Term Expiring in 2011 4 Class 2 Directors Term Expiring in 2011 5 Class 3 Directors - Term Expiring in 2012 5 BOARD LEADERSHIP STRUCTURE, RISK
OVERSIGHT, EXECUTIVE SESSIONS OF NONEMPLOYEE DIRECTORS, AND COMMUNICATIONS BETWEEN STOCKHOLDERS AND THE BOARD 6 COMPENSATION OF DIRECTORS 11 EXECUTIVE COMPENSATON AND RELATED INFORMATION 14 Compensation Discussion and Analysis 14 SUMMARY COMPENSATION TABLE 26 EXECUTIVE OFFICERS 34 AUDIT FEES 44 IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 21, 2010 The Notice of Annual
Meeting of Stockholders, Proxy Statement and Form of Proxy regarding the Annual Meeting of GTSIs stockholders and
GTSIs Annual Report on Form 10-K for the fiscal year ended December 31, 2009 are available at www.GTSI.com
and can be accessed through the home page by clicking on Investors in the upper right hand corner. Once on
the Investor page, go to the left-hand column and near the bottom click on SEC Filings. On this page, you
will find our Annual Report on Form 10-K, Notice of Annual Meeting of Stockholders, Form of Proxy and Proxy Statement
pursuant to SEC Schedule 14A (Proxy Statement). The Annual Meeting of
Stockholders will be held at 10:00 a.m., local time, on Wednesday, April 21, 2010, at the Companys headquarters
located at 2553 Dulles View Drive, Suite 100, Herndon, Virginia. For directions on
attending the meeting and voting in person, please contact Paul Liberty at 703-502-2540 or via email at
paul.liberty@gtsi.com; alternatively please go to our website at www.GTSI.com. On the upper left-hand
corner of our homepage, roll your mouse over About GTSI and click on Directions and follow the
appropriate instructions. At the
Annual Meeting, you will be asked to vote on the matter of electing four Class 1 directors to serve until our 2013
Annual Meeting of Stockholders and one Class 2 director to serve until our 2011 Annual Meeting of Stockholders and any
other business as may properly come before the Meeting or any adjournment(s) thereof. Details on voting are
set out in the Notice of Annual Meeting and Proxy Statement on the cover page, and additional details and background on
the matters to be considered are set out in the Proxy Statement. PROXY STATEMENT INFORMATION CONCERNING SOLICITATION AND VOTING General The enclosed proxy is solicited by and on behalf
of the Board of Directors of GTSI Corp., a Delaware corporation (GTSI or the Company), for use
at the Annual Meeting of Stockholders to be held on April 21, 2010 at 10:00 a.m., local time, or at any adjournment(s)
thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders (the
Meeting). The Meeting will be held at the Companys
principal executive offices located at 2553 Dulles View Drive, Suite 100 in Herndon, Virginia 20171. The
Companys telephone number is (703) 631-3333. This Proxy Statement and the accompanying notice of the Meeting and
form of proxy are first being sent or given to stockholders entitled to notice of, and to vote at, the Meeting on or
about March 31, 2010. The Companys annual report for the fiscal
year ended December 31, 2009, which contains consolidated financial statements and other information of interest to
stockholders, accompanies this Proxy Statement, but it is not part of the Companys proxy soliciting material. Only stockholders of record at the close of
business on March 3, 2010 (the Record Date) are entitled to notice of, and to vote at, the Meeting. At
the Record Date, 10,119,038 shares of the Companys common stock, par value $0.005 per share (Common
Stock), were issued and, excluding 326,052 shares held in treasury, 9,792,986 shares were outstanding for voting
purposes. None of the Companys 680,850 shares of authorized preferred stock is outstanding. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before its use by delivering to the Companys Secretary a written
notice of revocation or a duly executed proxy bearing a later date or by attending the Meeting and voting in person. Voting and Solicitation As to all matters to be voted upon at the Meeting,
each stockholder is entitled to one vote for each share of Common Stock held. The presence in person or by proxy
of a majority of the outstanding Common Stock entitled to vote constitutes a quorum for the conduct of business at the
Meeting. With respect to Proposal 1, if a quorum is present
at the Meeting, the four nominees for Class 1 directors and the one nominee for Class 2 director, receiving the highest
number of affirmative votes of Common Stock present in person or by proxy and entitled to vote on the election of
directors will be elected. In the election of directors, votes may be cast in favor or withheld with respect to
any and all nominees; votes that are withheld may be excluded entirely from the vote and will have no effect on the
outcome of the vote. Broker non-votes (proxies that indicate that brokers or nominees have not received
instructions from the beneficial owner of shares) are counted as shares that are present and entitled to vote for
purposes of determining a quorum. If a broker indicates on the proxy that it does not have discretionary authority
to vote on a particular matter as to certain shares, those shares will be counted for pur
poses of determining the presence of a quorum but will not be treated as present and entitled to vote with respect to that matter. 1 If a stockholder returns a proxy and no
instructions are given, the Common Stock represented thereby will be voted as recommended by the Companys Board of
Directors (the Board), including FOR the election of the five nominees for directors, as listed
below under Election of Directors. The cost of this solicitation of proxies will be
borne by the Company. Proxies will be solicited by certain of the Companys directors, officers and regular
employees, without additional compensation, personally or by telephone, email or fax. In addition, the Company may
reimburse brokerage firms and other persons representing beneficial owners of Common Stock for their expenses in
forwarding solicitation materials to such beneficial owners. PROPOSAL 1 ELECTION OF DIRECTORS Introduction The Company currently
has a classified Board currently consisting of four Class 1 directors, three Class 2 directors and three Class 3
directors. The current terms of Class 2 and Class 3 directors continue until the annual meeting of stockholders to
be held in 2011 and 2012, respectively, and until their respective successors are elected and qualified. There are
currently ten Board members. At each annual
stockholders meeting, directors are elected for a full term of three years to succeed those directors whose term expires
at the annual meeting date. At the Meeting, the
holders of Common Stock as of the Record Date will elect four Class 1 directors for three-year terms and one Class 2
director for a one-year term to fill the vacancy created by James Letos retirement from the Board as of April 21,
2010. Unless otherwise instructed, proxy holders will vote the proxies received by them for the election of the
Companys four nominees named below for Class 1 directors, all of whom are currently directors of the Company and
the nominee named below for Class 2 director. If any of the Companys nominees is unable or declines to serve
as a director at the time of the Meeting, the proxies will be voted for a nominee who will be designated by the current
Board to fill the vacancy. It is not, however, expected that any of the nominees will be unable or will decline to
serve as a director. Except for the relationship between James J. Leto and Todd Leto described in the section
entitled Certain Relationships and Related Transactions below, there is no family relationship between any
director, nominee for election as a director or executive officer of the Company and any other director, nominee for
election as a director or executive officer of the Company. Class 1 Nominees for a Three-Year Term Expiring in 2013 Following are
summaries of the background, business experience and descriptions of the principal occupations of the nominees, as well
as the specific qualifications, attributes or skills that led to the conclusion that these individuals should serve as
directors of the Company. Name Age Position(s) with the Company Daniel R. Young 76 Director Joseph Keith Kellogg, Jr. 61 Director Lloyd Griffiths 68 Director Linwood (Chip) Lacy, Jr. 64 Director 2 Daniel R. Young, age
76, has served as a director since 2001. From 1977 until 2000, Mr. Young had been a senior executive officer of
Federal Data Corporation, a provider of information technology products and services to government agencies, including
serving since 1995 as President and Chief Executive Officer and since 1998 as Vice Chairman of the Board of Directors of
Federal Data Corporation. Mr. Young is also a director of Halifax Corporation, an enterprise maintenance solutions
company, and NCI Corp., an information technology, systems engineering and integration company. Mr. Young served as a
director for Analex Corp. from 2004 to 2007. As a result of these and other professional experiences, Mr. Young
possesses particular knowledge and experience in strategic planning and leadership of information technology based
organizations that strengthen the Boards collective qualifications, skills and experience. Joseph
Keith Kellogg, Jr., age 61, has served as a director since April 2004 and previously was a Board member from
October 29, 2003 until he resigned on December 8, 2003 to provide temporary service to the Federal Government. During
this temporary service, General Kellogg served as Chief Operating Officer of the Coalition Provisional Authority in
Baghdad, Iraq. General Kellogg was a member of the U.S. Army from 1971 to 2003, when he retired as a Lieutenant General
and a highly decorated war veteran. From September 2003 until January 2005, General Kellogg served as Senior Vice
President for Homeland Security Solutions for Oracle Corp. From January 2005 until July 2009, General Kellogg was
employed by CACI International Inc., as an Executive Vice President, Research and Technology Systems. Since June
2009, General Kellogg has been employed by Cubic Defense Applications, Inc. as Senior Vice President of Ground
Operations. As a result of these and other professional experiences, Mr. Kellogg possesses particular knowledge and
experience in governmental organization, strategic planning and leadership that strengthen the Boards collective
qualifications, skills and experience. Lloyd Griffiths, age
68, has served as a director since April 2008. He is the current Dean of The Volgenau School of IT & Engineering at
George Mason University, Fairfax, Virginia since 1997. Prior to joining George Mason, Dr. Griffiths was Chair of
the Electrical and Computer Engineering Department at the University of Colorado from 1994 to 1997; and Associate Dean
for Research and Administration in the School of Engineering for nine years at the University of Southern California.
Dr. Griffiths is on the board of directors of Information Systems Laboratories, Inc., a private engineering firm; and
also serves as a Member of the Advisory Board of Geographic Services, Inc., a provider of geospatial systems; a Member
of the Advisory Board of Vangard Voice Systems, a provider of voice technology for mobile enterprise; and a Member of
the Technical Advisory Board of The Centre Tecnològic de Telecomunicacions de Catalunya (CTTC) in Barcelona, Spain.
Dr. Griffiths holds M.S. and Ph.D. degrees in Electrical Engineering from Stanford University. As a result of these and
other professional experiences, Mr. Griffiths possesses particular knowledge and experience in technology, engineering,
and design, innovation that strengthen the Boards collective qualifications, skills and experience. Linwood (Chip) Lacy,
Jr., age 64 has served as a director since November 4, 2009. Since 2008, Mr. Lacy has been an operating partner at
Council Ventures, a private equity firm that makes investments in healthcare companies. Previously, he served as the
President and Chief Executive Officer of Micro Warehouse Incorporated from October 1996 to October 1997. Mr. Lacy served
as the Chief Executive Officer of Ingram Industries Inc., from June 1995 to April 1996 and President from December 1993
to June 1995. He served as the Co-Chairman and Chief Executive Officer of Ingram Micro, Inc., from 1985 to May 1996. He
has held executive positions with Best Products and Zale Corporation's Catalogue Showroom Division. He has been a
Director of NETGEAR Inc. since September 2002 and its Lead Independent Director since April 2006. He has been Chairman
of MailExpress, Inc. since September 23, 2008. Mr. Lacy serves as a Director of Ingram Industries Inc., and Confidex OY.
He is a Director of New Day Pharmacy Corporation since, May 27, 2009. He served as a Director of
pcOrder.com, Inc. since August 1998 and as a Director of Modus Media, Inc. (Formerly, Modus Media International
Holdings, 3 Inc.) since August
1998. He served as Director of EarthLink Network from June 1996 to February 2000 and as a Director of EarthLink Inc.
from February 2000 to May 2008 when EarthLink Network merged with MindSpring. He previously served as a director for
Evault, Inc., Marketworks Inc., Ingram Micro, Inc., CashConductor.com, ModusLink Corporation, SemEquip, Inc. and
Auctionworks, Inc. He was inducted into the CRN Computer Museum Industry Hall of Fame in 1997. Mr. Lacy received both a
B.S. degree in Chemical Engineering and an M.B.A. in Business from the Darden Graduate School of Business Administration
at the University of Virginia. As a result of these and other professional experiences, Mr. Lacy possesses particular
knowledge and experience in technology sales, operations and distribution that strengthen the Boards collective
qualifications, skills and experience. The Board recommends a vote FOR the election of the four nominees listed above. Class 2 Nominee for a One-Year Term Expiring in 2011 The name of the nominee for Class 2 director and certain information about him are set forth below: Name Age Position(s) with the Company Scott W. Friedlander 50 President and Chief Executive Officer The Board recommends a vote FOR the election of the nominee listed above. Other Information Securities and Exchange Commission (the
SEC) regulations require the Company to describe material legal proceedings, including bankruptcy and
insolvency filings, involving nominees for the Board of directors or companies of which a nominee was an executive
officer. The Boards Nominating & Governance Committee is not aware of any nominee involved in any of the
foregoing types of legal proceedings during the past 10 years. _________________ Following are summaries of the background,
business experience and descriptions of the principal occupations of the directors not currently up for election, as
well as the specific qualifications, attributes or skills that led to the conclusion that these individuals should serve
as directors of the Company. 4 Class 2 Directors Term Expiring in 2011 Lee Johnson, age 82,
has served as a director since 1996. Since 1984, Mr. Johnson has been the President of Federal Airways
Corporation, a provider of highly modified, special mission high altitude aircraft to civilian and defense agencies.
From 1986 to 1994, Mr. Johnson served as Chairman of the Board of Directors of Falcon Microsystems, Inc., a
government microcomputer reseller that was acquired by the Company in 1994. As a result of these and other professional
experiences, Mr. Johnson possesses particular knowledge and experience in the information technology market, and the
Companys internal operations, and governmental organization that strengthen the Boards collective
qualifications, skills and experience. Thomas L. Hewitt, age 71, has served as a director
since May 2003, and previously served as a director from March 1996 until May 1998. Since January 2000, Mr. Hewitt
has been the Chief Executive Officer of Global Governments, Inc., a strategic planning and marketing company. In
1984, Mr. Hewitt founded Federal Sources, Inc., a market research and consulting firm, where he served as Chief
Executive Officer and Chairman of the Board until 1999. Mr. Hewitt is also a director of Halifax Corporation, an
enterprise maintenance solution company. Mr. Hewitt served as a director for Analex Corp. from 2004 to 2007. As a
result of these and other professional experiences, Mr. Hewitt possesses particular knowledge and experience in
organizational structure, major corporation operations, as well as the technology sector that strengthen the
Boards collective qualifications, skills and experience. Class 3 Directors Term Expiring in 2012 Steven Kelman, Ph.D., age 61, has served as a
director since 1997. Since 1997, he has been the Weatherhead Professor of Public Management at Harvard
Universitys John F. Kennedy School of Government. From 1993 to 1997, Dr. Kelman served as Administrator of
the Office of Federal Procurement Policy at the Office of Management and Budget. From 1986 to 1993, he was
Professor of Public Policy at Harvard Universitys John F. Kennedy School of Government. As a result of these and
other professional experiences, Mr. Kelman possesses particular knowledge and experience in government operations
and policy matters, as well as Federal regulatory insight that strengthen the Boards collective qualifications,
skills and experience. Barry L. Reisig, age 64, has served as a director
since May 2003. Since July 2006, Mr. Reisig has been a business consultant. From 2002 until 2006, Mr. Reisig
was Vice President of Finance of System Planning Corporation, a developer of high technology systems, and President and
Chief Executive Officer of its subsidiary, SPC International. From 1980 to 2002, Mr. Reisig was a partner of
Arthur Andersen LLP, involved principally in tax matters. Mr. Reisig served as a board member for Healthaxis, Inc.
from 2005 to 2008. As a result of these and other professional experiences, Mr. Reisig possesses particular
knowledge and experience in business operations and accounting, finance, and capital structure that strengthen the
Boards collective qualifications, skills and experience. John M. Toups, age 84, has served as a director
since 1997 and as Chairman of the Board since May 2007. From 1978 until his retirement in 1987, Mr. Toups was
President and Chief Executive Officer of PRC, Inc. Mr. Toups is also a director of NVR, Inc., a homebuilding and
mortgage banking company, Halifax Corporation, an enterprise maintenance solutions company, and Wildan Group, a civil
engineering services company. Mr. Toups possesses particular knowledge and experience of and board practices of other
major corporations, and finance, and capital structure that strengthen the Boards collective qualifications,
skills and experience. 5 BOARD
LEADERSHIP STRUCTURE, RISK OVERSIGHT, EXECUTIVE SESSIONS OF NONEMPLOYEE DIRECTORS, AND COMMUNICATIONS BETWEEN
STOCKHOLDERS AND THE BOARD Board Leadership Structure There are currently 10
Board members. With the exception of Mr. Lee Johnson and Mr. Jim Leto (who intends to retire from the Board as of the
Annual Meeting), all of our current directors are independent as defined by the applicable rule of The
Nasdaq Stock Market, Inc. (Nasdaq). We believe that the number of independent, experienced directors that
make up our Board, along with the independent oversight of the Companys Chairman, benefits GTSI and its
stockholders. GTSIs President and Chief Executive Officer, Scott Friedlander, who is a nominee for election as a
director, would not be an independent director under the Nasdaq rule. The independent directors regularly have the
opportunity to meet without Mr. Johnson and Mr. Leto in attendance, and, as discussed below, the Board has had since
2004 the position of lead independent director (Lead Independent Director). In 2007, Mr. Toups, the
designated Lead Independent Director was elected to the Chairman of the Board role, and as a result, the Lead
Independent Director role has been incorporated into the Chairman role for his tenure. During 2009, there were
four regular Board meetings and two special meetings. During 2009 no director attended (in person or by telephone)
less than 75% of the aggregate of (a) all Board meetings and (b) all meetings of Board committees of which he was a
member. The Company does not have a specific policy regarding attendance of directors at the annual stockholder
meeting. All directors, however, are encouraged to attend if available, and the Company tries to ensure that at
least one independent director is present at the annual meeting and available to answer any stockholder questions.
Messrs. Jim Leto, John Toups, Tom Hewitt, Lee Johnson, Steven Kelman, Keith Kellogg, Barry Reisig and Daniel Young were
present at last years annual stockholders meeting (the 2009 Annual Meeting). Lead Independent Director The Lead Independent
Director role was created in 2004, to assist the Chairman of the Board and the other Board members in assuring effective
corporate governance. The Lead Independent Directors responsibilities also include assisting the Chairman in
reviewing the functions of Board committees and recommending the creation or discontinuance of committees, considering
questions of potential conflicts of interest, acting as a resource on corporate governance matters, and acting as the
spokesperson for the Company if the Chairman is absent. For this service, the Lead Independent Director is to
receive a yearly retainer of $10,000. Mr. Toups was initially appointed as Lead Independent Director on April 29,
2004, and served in this role until his election to Chairman of the Board in May 2007. At that time, the role of Lead
Independent Director was incorporated into the Chairman role for Mr. Toups tenure. Chairman of the Board In February 2006, the
Board separated the duties of the Chairman of the Board and the Companys Chief Executive Officer. Mr. Toups,
who is the current Chairman of the Board, has been Chairman since the 2007 annual meeting of GTSIs stockholders.
GTSI recognizes that
different board leadership structures may be appropriate for companies in different situations and believes that no one
structure is suitable for all companies, and that the Companys current Board leadership structure of separating
the Chairman and the Companys Chief Executive Officer (CEO) is optimal for the Company because it
demonstrates to GTSIs employees, vendors, customers 6 and other stakeholders
that GTSI is under balanced leadership, with these separate functions handled by separate individuals, providing
for appropriate prioritization and individual focus, while maintaining strong governance methods. The Board and the CEO believe that GTSI, like many U.S. companies, has been well-served by this
leadership structure. Risk Oversight Our Board is responsible
for overseeing GTSIs risk management process. The Board considers GTSIs general risk management strategy,
the most significant risks facing GTSI, and works to ensure that appropriate risk mitigation strategies are considered
by management. The Board is also apprised by our senior management of particular risk management matters in connection
with the Boards general oversight and approval of corporate matters. The Board has delegated to
the Audit Committee oversight of GTSIs risk management process. Among its duties, the Audit Committee reviews with
management (a) GTSI policies with respect to certain risk areas that may be material to GTSI, (b) GTSIs
system of disclosure controls and system of internal controls over financial reporting, and (c) GTSIs
compliance with legal and regulatory requirements. Management primarily reports known or potential risk to the Audit
Committee, however other Board committees also consider and address risks as they perform their respective committee
responsibilities. All committees report to the full Board as appropriate, including when a matter rises to the level of
a material or enterprise level risk. GTSIs management is
responsible for day-to-day risk management. Our Treasury, Compliance and Internal Control areas serve as the primary
monitoring and testing function for company-wide policies and procedures, and manage the day-to-day oversight of the
risk management strategy for the ongoing business of GTSI. This oversight includes identifying, evaluating, and
addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and
reporting levels. We believe the division of
risk management responsibilities described above is an effective approach for addressing the risks facing GTSI and that
our Board leadership structure supports this approach. Executive Sessions of Nonemployee Directors The Board holds executive sessions of its
nonemployee directors generally at each regularly scheduled meeting. The Chairman of the Board serves as the chairperson
for these executive sessions. Communications between Stockholders and the Board Interested parties, including stockholders, may
communicate directly with the Chairman of the Board or specific individual directors may do so by direct mail to the
following address: GTSI Corp., 2553 Dulles View Drive, Suite 100, Herndon, Virginia 20171, attn: General Counsel. GTSI's
General Counsel will receive and review the communications and has been instructed by the Board to promptly forward all
such communications to the director or directors indicated on the communications, unless the communication is clearly
more appropriately addressed by other departments, such as customer service or accounts payable, in which case the
communication will be forwarded by the General Counsel to the appropriate department. When reporting a concern, interested parties are
asked to supply sufficient information so that the matter may be addressed properly, and encouraged to identify
themselves to assist GTSI in effectively 7 addressing the concern. The interested party may
choose to remain anonymous, and GTSI will use its reasonable efforts to protect the partys identity to the extent
appropriate or permitted by law. COMMITTEES AND TRANSACTIONS WITH RELATED PARTIES Committees The Board has an Audit
Committee, a Compensation Committee and a Nominating and Governance Committee. The current charters of each of
these committees, as well as the duties of the Lead Independent Director, are available on the Companys Internet
website, www.GTSI.com (located on the About Us web page, under Investors/Corporate
Governance). Also posted on such website is a description of the process for stockholders to send communications
to the Board or to one or more particular Board members, as noted above. Audit Committee The primary purpose of
the Audit Committee is to oversee the Companys accounting and financial reporting processes and the audits of its
financial statements. The Audit Committee is directly responsible for, among other things, the appointment,
compensation, retention and oversight of the Companys independent auditor. Since the 2009 Annual
Meeting, the Audit Committee has been composed of Messrs. Reisig (Chairman), Hewitt, Kellogg and Kelman. All of
the Audit Committee members during the past year, and all of the members who will be appointed for the current year, are
independent in accordance with applicable rules of the SEC and Nasdaq. Each current member is able to read and
understand fundamental financial statements, including the Companys balance sheet, statement of operations and
statement of cash flow. The Board has determined that Mr. Reisig is an audit committee financial
expert as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC under the Securities Exchange Act
of 1934, as amended (the Exchange Act). During 2009, the Audit Committee met four times. Compensation Committee The primary purpose of
the Compensation Committee is to provide assistance to the Board in fulfilling its responsibility with respect to
oversight of the establishment, administration and appropriate functioning of stock, compensation and related matters
for the Companys employees. The Committee reviews the salaries and bonuses to be paid to the Companys Chief
Executive Officer and the Companys other principal executive officers (Chief Financial Officer and President), and
make recommendations to the Board on such salaries and bonuses. The Compensation Committee reviews and approves
the salaries and bonuses for the Companys other officers, reviews and approves the compensation discussions and
analysis, and administers the Companys stock option and stock incentive plans. Since the 2009 Annual
Meeting, the Compensation Committee has been composed of Messrs. Young (Chairman), Griffiths and Toups. Each of
the committee members is independent in accordance with applicable Nasdaq rules. During 2009, the Compensation
Committee formally met seven times. Nominating and Governance Committee The primary purpose of
the Nominating and Governance Committee (Nominating Committee) is to provide assistance to the Board in
fulfilling its responsibility with respect to oversight of the appropriate and effective governance of the Company, as
well as identify and recommend individuals to be presented 8 to the stockholders
for election or re-election as Board members. Since the 2009 Annual Meeting, the Nominating Committee has been
composed of Messrs. Toups (Chairman), Reisig and Young, all of whom are independent in accordance with applicable Nasdaq
rules. During 2009, the Nominating Committee formally met one time. Transactions with Related Persons We may occasionally
participate in transactions with certain related persons. Related persons include our executive
officers, directors, director nominees, the beneficial owners of more than 5% of our common stock, immediate family
members of these persons, and entities in which one of these persons has a direct or indirect material interest.
In 2003, we adopted a written policy as part of our audit committee charter that provides for the review and, if
applicable, approval at each regularly scheduled meeting any related party transaction as required by Nasdaq. Under this
policy, the Audit Committee is responsible for the review and approval of each related person transaction exceeding
$120,000. The Audit Committee, or the Chairman, considers all relevant factors when determining whether to approve a
related person transaction including, without limitation, whether the proposed transaction is on terms and made under
circumstances that are at least as favorable to the Company as would be available in comparable transactions with or
involving unaffiliated third parties. Among other relevant factors, they consider the following: · the size of the transaction and the amount of consideration payable to the related
person(s); · the nature of the interest of the applicable director, director nominee, executive
officer or 5% stockholder, in the transaction; and · whether we have developed an appropriate plan to monitor or otherwise manage the
potential for a conflict of interest. Based on all relevant
facts and circumstances, taking into consideration our contractual obligations, the Audit Committee determines whether
it is in our and our stockholders best interest to continue, modify or terminate the related person transaction.
In 2009, other than as discussed below under the caption Certain Relationships and Related Transactions the
Audit Committee did not identify any related person transaction. DIRECTOR NOMINATIONS AND QUALIFICATIONS The Nominating
Committee will consider nominees for director recommended by stockholders with respect to elections to be held at an
annual stockholders meeting. In accordance with the Companys Bylaws, to nominate an individual for election
to the Board at an annual stockholders meeting, a stockholder must deliver written notice of such nomination to the
Companys Secretary not fewer than 60 days nor more than 90 days prior to the date of the annual meeting (or if
less than 60 days notice or prior public disclosure of the date of such annual meeting is given or made to the
stockholders, not later than the tenth day following the day on which notice of the date of the annual meeting was
mailed or public disclosure was made). The notice of a stockholders intention to nominate a director must
include: · information regarding the stockholder making the nomination, including name, address and number of GTSI
shares that are beneficially owned by the stockholder; · a
representation that the stockholder is entitled to vote at the meeting at which directors will be elected, and that the
stockholder intends to appear in person or by proxy at the meeting to 9 nominate the person or persons specified in the notice; · the
name and address of the person or persons being nominated and such other information regarding each nominated person
that would be required in a proxy statement filed pursuant to the SECs proxy soliciting rules if the person had
been nominated for election by the Board; · a
description of any arrangements or understandings between the stockholder and such nominee and any other persons
(including their names), pursuant to which the nomination is made; and · the consent of each such nominee to serve as a director if elected. The Chairman of the Board, other directors and
executive officers may also recommend director nominees to the Nominating Committee. The committee will evaluate
nominees recommended by stockholders against the same criteria that it uses to evaluate other nominees. These
criteria include the candidates experience, skills and personal accomplishments, including: intelligence,
integrity, strength of character, and commitment. Nominees should also have the sense of timing required to assess and
challenge the way things are done and recommend alternative solutions to problems; the independence necessary to make an
unbiased evaluation of management performance and effectively carry out responsibilities of oversight; an awareness of
both the business and social environment in which todays corporation operates; and a sense of urgency and spirit
of cooperation that will enable them to interact with other Board members in directing the future, profitable growth of
GTSI. Desired experience for director nominees include: at least 10 years of experience in a senior executive role with
a major business organization, preferably, as either chief executive officer or chairman (equivalent relevant experience
from other backgrounds such as academics or government may also be considered); a record of accomplishment and line
operating (or equivalent) experience; first-hand experience with government contracting; a working knowledge of
corporate governance issues and the changing role of the Board; and exposure to corporate programs designed to create
stockholder value, while balancing the needs of all stakeholders. The foregoing is in addition to the other factors that
are listed as an appendix to the Nominating Committee charter, which is posted on the Companys Internet website,
www.GTSI.com (located on the About Us web page, under
Investors/Corporate Governance), as noted above. The committee has not in the past retained any third party to
assist it in identifying nominees. Director nominees should not be employed by or
affiliated with any organization that has competitive lines of business or that may otherwise present a conflict of
interest. The composition, skills and needs of the Board change over time and will be considered in establishing the
profile of desirable candidates for any specific vacancy on the Board. The Nominating Committee does not have a formal
policy with respect to diversity; however, the Nominating Committee has determined that it is desirable for the Board to
have a variety of differences in viewpoints, professional experiences, educational background, skills, race, gender, age
and national origin, and considers issues of diversity and background in its selection process. The Nominating Committee utilizes a variety of
methods for identifying and evaluating nominees for director. The committee periodically assesses the appropriate size
of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. If vacancies are
anticipated, or otherwise arise, the Nominating Committee will consider various potential candidates for director.
These candidates are evaluated at regular or special meetings of the Nominating Committee, and may be considered
at any point during the year. As described above, the Nominating Committee will consider properly submitted
stockholder nominations for candidates for the Board. Following verification of the stockholder status of persons
proposing candidates, recommendations will be aggregated and considered by the Nominating Committee at a meeting.
If any materials are provided by a stockholder in connection 10 with the nomination of a director candidate, such
materials will be forwarded to the Nominating Committee. Such committee also will review materials provided by
professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. In
evaluating such nominations, the Nominating Committee seeks to achieve a balance of knowledge, experience, and
capability on the Board. DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS Proposals of stockholders that are intended to be
presented by such stockholders at the annual meeting of stockholders to be held in 2011, including the nomination of
persons to serve on the Board, must be received by the Companys Secretary not later than December 1, 2010, for
inclusion in the proxy statement for that annual meeting. Stockholders who wish to present a proposal at the
annual meeting of stockholders to be held in 2011, which has not been included in the Companys proxy materials,
must submit such proposal in writing to the Company in care of the Companys Secretary. Any such proposal
received by the Companys Secretary after January 23, 2011, shall be considered untimely under the provisions of
the Companys bylaws governing nominations and the proposal of other business to be considered by the
Companys stockholders at that annual meeting. As discussed above, the Companys bylaws contain further
requirements relating to timing and content of the notice that stockholders must provide to the Companys Secretary
for any nomination or other business to be properly presented at an annual meeting of stockholders. It is
recommended that stockholders submitting proposals direct them to the Companys Secretary by certified mail, return
receipt requested, to ensure timely delivery. No stockholder proposals were received with respect to the
Meeting. Stockholders submitting proposals must have
continuously held at least $2,000 in market value, or one percent (1%), of the Companys securities entitled to be
voted on the proposal for at least one year prior to submitting the proposal. The stockholders proposal and
accompanying supporting statement cannot exceed 500 words. Stockholders may not submit more than one proposal per
year. CODE OF ETHICS The Company has
adopted a Code of Ethics that applies to all of its directors, officers (including principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions) and
employees. The Code of Ethics was updated in 2009, and a notice via an 8-K filing was made. The Code of Ethics is
posted on the Companys Internet website, www.GTSI.com (located on the Investor Relations web page).
The Company intends to satisfy the disclosure requirements under Item 5.05 of SEC Form 8-K regarding any amendment
to or waiver of the Code of Ethics with respect to the Companys principal executive officer, principal financial
officer, principal accounting officer or controller and persons performing similar functions, by posting such
information on the Companys Internet website. COMPENSATION OF DIRECTORS Each non-employee
director of the Company (other than Mr. Lacy, who has requested not to be compensated) is compensated by the payment of
an annual retainer of $25,000 (without proration thereof in the event of a partial quarter of service). The Chairs
of the Compensation and Audit Committees receive a $3,500 annual retainer, and each member of the Compensation and Audit
Committees receives $1,500 per meeting attended in person or via telephone. In addition, each Board member
receives $1,500 for each Board meeting attended in person and $750 for each Board meeting attended via telephone. Each
11 non-employee director
also receives compensation in the form of a long-term incentive award, which may be restricted stock or stock options.
In 2009, the non-employee directors received awards of restricted stock. Under the Amended and Restated 2007 Stock Incentive Plan, each eligible non-employee
director is granted such restricted stock, restricted stock units, or other forms of long-term compensation available
under the Plan, as the Board shall determine based on Compensation Committee recommendations using information provided
by an independent executive compensation consultant. Grants of restricted stock or restricted stock units are
based on the closing price of Common Stock on Nasdaq on the date of grant. Non-employee directors of the Company
are not eligible to participate in the Companys other stock option plans or the Companys Employee Stock
Purchase Plan. The Lead Independent Director receives an additional annual retainer of $10,000. In 2007, Mr.
Toups, the designated Lead Independent Director, was elected to the Chairman of the Board role, and as a result, the
Lead Independent Director role he held has been incorporated into the Chairman role for his tenure. During 2009, the
non-employee Chairman of the Board received an annual fee of $40,000. Except as discussed
above, directors of the Company do not receive any other compensation for their service on the Board or any committee
thereof, but are reimbursed for their reasonable expenses incurred in association with the performance of their duties.
In addition, Mr. Johnson received compensation for his services as a consultant to the Company (see section
entitled Certain Relationships and Related Transactions below for information regarding this
compensation. DIRECTOR COMPENSATION Name (a) Fees (b) Stock (c) Option (d) All (e) Total (f) Lloyd Griffiths 38,500 13,999 0 0 52,499 Thomas L. Hewitt 40,000 13,999 0 15,000(2) 68,999 Lee Johnson 32,500 13,999 0 195,000(3) 241,499 Joseph Keith Kellogg, Jr. 37,750 13,999 0 0 51,749 Steven Kelman, Ph.D. 38,500 13,999 0 0 52,499 Linwood Chip Lacy, Jr. (4) 0 0 0 0 0 James J. Leto (5) - - - - - Barry L. Reisig 42,000 13,999 0 0 55,999 John M. Toups 78,500 13,999 0 0 92,499 Daniel R. Young 43,500 13,999 0 0 57,499 12 (1) Amount
reflects the grant date fair value of the award computed in accordance with FASB ASC Topic 718. Each director with
an amount in this column received a restricted stock award of 3,333 shares of restricted stock. (2) Mr. Hewitts compensation is for services on the Professional Services Advisory Board. (3) Mr.
Johnsons compensation is shown in the section entitled Certain Relationships and Related
Transactions. (4) Mr. Lacy is not receiving any compensation or stock awards as a director. (5) Mr. Letos compensation as Chief Executive Officer is shown in the Summary Compensation Table. 13 As of December 31, 2009, each director had the following amounts of options and restricted stock: DIRECTORS OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END Name Option Shares Restricted Stock Lloyd Griffiths 0 3,333 Thomas L. Hewitt 20,000 3,333 Lee Johnson 60,100 3,333 Joseph Keith Kellogg, Jr. 10,000 3,333 Steven Kelman, Ph.D. 60,000 3,333 Linwood Chip Lacy, Jr. (1) 0 0 James J. Leto (2) - - Barry L. Reisig 20,000 3,333 John M. Toups 62,000 3,333 Daniel R. Young 50,000 3,333 (1) Mr. Lacy is not receiving Equity Awards as a director. (2) Mr. Letos equity awards as Chief Executive Officer are shown in the Outstanding Equity Awards at Fiscal Year-End Table. Executive Compensation and Related Information Background At GTSI we recognize and
understand that our people drive our success. GTSI operates in an innovative and progressive segment of the
systems integration industry. Our employees our human capital are central to the value that GTSI
creates for our clients and stockholders. We believe that our key investments in our human capital management
programs and practices have significantly improved our employees commitment, engagement, performance and
retention. We also believe this investment and improvement in employee engagement will continue to significantly
improve our overall business performance. Why human capital is such an important component GTSIs business
involves several different, but related, elements: the creation and delivery of customized solutions that enable
our clients to achieve their performance and business goals; and the management of 14 complex services and solutions. Our success as a
technology and strategic consulting services / solutions company is highly dependent on our employees. We believe
we have successfully developed a culture focused on embracing strategic human capital programs as well as our core
values of Integrity, Trust, Teamwork, Accountability, Customer Focus and Fun. We reinforce these key principles
regularly in our training, our talent acquisition process/programs, performance management systems and internal
communications. Our compensation structure
is designed to provide the framework for rewarding our human capital our employees for their contribution
to our success. The essential nature of their role in value creation is reflected in the industrys
compensation policies and levels, which tend to be highly incentive-driven and reflect generally high levels of
compensation for many employees and, in particular, for key executives and producers. Just as we strive to deliver profitability and
competitive returns on our human capital, our compensation framework must also remain competitive to attract, retain and
develop talented employees to serve client and stockholder interests. Compensation Discussion and Analysis This discussion describes and analyzes GTSIs
compensation program for GTSIs named executive officers as of December 31, 2009. These include: GTSIs
Chief Executive Officer, GTSIs Chief Financial Officer, and the three most highly compensated executive officers
(other than the Chief Executive Officer and the Chief Financial Officer) in fiscal 2009. At the time this report
was completed, the three additional most highly compensated executives were the President and Chief Operating Officer,
the Senior Vice President of Sales and Marketing, and the Senior Vice President of Professional Services. In this section we first
cover GTSIs compensation philosophy and objectives, the foundation of which is compensating for performance.
Next we review the process the Compensation Committee follows in deciding how to compensate GTSIs named
executive officers and provide a brief overview of the components of GTSIs compensation program. Finally, we
engage in a detailed discussion and analysis of the Compensation Committees specific decisions about the
compensation of the named executive officers for fiscal 2009. The Compensation
Committees Charter can be found on GTSIs internet web-site under the corporate governance section. For
the fiscal year 2009, the Compensation Committee had seven formal meetings. Compensation Philosophy and Objectives GTSIs executive compensation program is
overseen by the Boards Compensation Committee, the basic responsibility of which is to review the performance and
development of GTSIs management in achieving corporate goals/objectives and to assure that GTSIs executive
officers are compensated effectively in a manner consistent with GTSIs strategy, competitive practice, sound
corporate governance principles and stockholder interests. The Compensation Committee believes that the
compensation programs for GTSIs executive officers should be designed to attract, motivate and retain talented
executives responsible for the success of GTSI and should be determined within a framework that rewards performance.
Within this overall philosophy, the Compensation Committees key objectives are to: · Offer a total compensation
program that is fair, flexible, and competitive and takes into consideration the compensation practices of a group of
peer companies identified based on an 15 objective set of criteria (the Compensation Peer Group). · Offer performance based,
quarterly and annual variable short-term cash incentive awards based on GTSIs achievement of designated quarterly
and annual objectives. These incentive awards are designed to comprise a significant portion of the
executives total compensation. · Align the financial interests
of executive officers with those of stockholders by providing appropriate long-term, equity-based incentives and
retention awards that encourage a culture of ownership and retention. · Provide differentiated pay based on the executives skills, role in the organization, and contribution to performance. The core of GTSIs
executive compensation philosophy is to pay for performance. The Compensation Committee reviews GTSIs
compensation philosophy each year. There are four major components of the compensation of our named executive officers:
1) base salary, 2) short-term variable cash incentive awards, 3) long-term, equity-based incentive awards and 4)
insurance, retirement and other employee benefits. The weighting among the first three major components is
structured heavily towards performance-based components such as attainment of earnings before tax EBT. The target baseline mix (which is subject to
individual discretionary factors) for base salary, short-term variable cash incentive awards and long-term, equity-
based incentive awards for 2009 are shown in the chart below. As determined by the recently completed executive
compensation analysis and benchmarking study facilitated through Mercer, the current mix of pay analysis for total
direct compensation is aligned with the market and the peer companies identified below. This is clearly evident in
the below summary graphics. These baseline amounts only serve as targets, and for individual executives the mix
may vary depending upon individual performance, compensation history, scope of responsibility, internal equity, the
external market and experience level. Reflects Actual Annual Incentive Base Annual Incentive Long Term Incentive GTSI Executives Total Direct Compensation 48% 11% 41% Market 25th Percentile Total Direct Compensation 36% 25% 39% Market 50th Percentile Total Direct Compensation 36% 18% 46% Reflects Target Annual Incentive Base Annual Incentive Long Term Incentive GTSI Executives Total Direct Compensation 48% 11% 41% Market 25th Percentile Total Direct Compensation 38% 26% 37% Market 50th Percentile Total Direct Compensation 35% 21% 44% 16 Compensation Process In its process for deciding how to compensate
GTSIs named executive officers, the Compensation Committee begins by considering the competitive market data
provided by its independent compensation consultant (Mercer). The Compensation Committee engages an independent
compensation consultant, to provide advice and recommendations on competitive market practices and specific compensation
decisions. For purposes of evaluating competitive practices, the Compensation Committee, with assistance from their
independent compensation consultant, identified criteria to select a list of companies that constitute GTSIs
Compensation Peer Group. The Compensation Peer Group is reviewed annually and was last updated during late fiscal
2009. GTSIs Compensation Peer Group consists of publicly traded companies, of similar size, that provide services,
solutions and/or product to the federal and state and local governments. With this in mind, we also research and retain
information about competitive pay levels through relevant and specific executive salary surveys. The Compensation
Peer Group data prepared by Mercer as well as key selected survey instruments is used for year-end compensation
benchmarking. The Compensation Peer Group was changed in 2010 to better align with the companys current,
on-going and future evolution to a systems integrator. The members of the Compensation Peer Group (as of December 31, 2009) are as follows: Companies ScanSource Inc SRA International CIBER Incorporated Stanley, Incorporated EnPointe Technologies ePlus Incorporated MAXIMUS, Incorporated Sapient Corporation References to the
Compensation Peer Group below refer to the Compensation Peer Group in effect at the time of the point of
reference. The Company provides named executive officers and
other employees with base salary to compensate them for services rendered during the fiscal year. Base salary
usually represents 40% to 50% of the executives total compensation and is intended to compensation the executive
for the base market value of the position. Base salary ranges and total target compensation (base salary plus
annual short-term incentive opportunity) for named executive officers are determined for each executive based on his or
her position and responsibility by using the following weighted formula: 1. 50% = Comparison of the
positions of GTSIs named executive officers to their counterpart positions in the Compensation Peer Group,
plus 2. 50% = Comparison of the
positions of GTSIs named executive officers in select executive compensation salary surveys. Specific
surveys used including: Mercer, Watson Wyatt, Radford, and Culpepper. During its review of base salaries for executives, the Committee primarily considers: · Market data provided by our outside consultant; · Internal review of the executives compensation, both individually and relative to other officers; and · Individual performance and contribution of the executive. For competitive
benchmarking purposes, the positions of GTSIs named executive officers were compared to their counterpart
positions in the Compensation Peer Group, and the compensation levels for comparable positions in the Compensation Peer
Group were examined for guidance in determining base 17 salaries, annual
cash incentives, total cash compensation, long-term incentive grant values and total compensation. The
Compensation Committee considers the value of each item of compensation, both separately and in the aggregate. The Compensation
Committees Charter can be found on GTSIs internet web-site under the corporate governance section. For
the fiscal year 2009, the Compensation Committee had seven formal meetings. The Compensation
Committee retains and does not delegate any of its exclusive power to determine all matters of executive compensation
and benefits, although the Chief Executive Officer and the Human Resources Department present industry-specific
competitive market data, proposals and recommendations to the Compensation Committee. The Compensation Committee
reports to the Board on the major items covered at each Compensation Committee meeting. The independent
compensation consultant works directly with the Compensation Committee (and not on behalf of management) to assist the
Compensation Committee in satisfying its responsibilities and will undertake no projects for management except at the
request of the Compensation Committee chair and in the capacity of the Compensation Committees agent. To
date, Mercer has not undertaken any projects for management. Compensation Components To attract and retain key executives, GTSI follows
a best practices pay model of providing total compensation to its named executive officers consisting of base salaries,
short-term variable cash incentive awards and long-term, equity-based incentive awards. Under this pay model, cash
compensation is generally modest such that salary ranges for a given position will be between 40% and 50% of the
midpoint of the base salary/ total target compensation (TTC) range established for each position. The three major
elements of GTSIs executive officer compensation continue to be: (a) base salary, (b) short-term variable cash
incentive awards, and (c) long-term, equity-based incentive awards. For named executive officers, the Compensation
Committee aims to set individual base salaries and at-target annual cash compensation with reference to the
25th - 50th percentile of the Compensation Peer Group and salary survey pool. The total
value of long-term, equity-based incentive awards is targeted with reference to the 50th percentile of the
Compensation Peer Group and salary survey pool which, when combined with the 50th percentile-based target for
cash compensation, results in an overall total target compensation at approximately the 50th percentile of
the Compensation Peer Group and salary survey pool for these named executive officers.
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For the Annual Meeting of Stockholders
to be held April 21, 2010
Scott W.
Friedlander, age 50, has been President and CEO since February 16, 2010. From December 1, 2007 until February 15,
2010, he was President and Chief Operating Officer of GTSI. Joining GTSI in 2001, Mr. Friedlander built a number of
Enterprise Technology Practices as Vice-President. Mr. Friedlander's career in sales, marketing, enterprise solutions,
operations and services spans nearly 25 years in the information technology industry. Prior to joining GTSI, he spent 19
years with Xerox Corporation in positions of ascending responsibility, culminating as Vice President/General Manager of
Public Sector Operations for North America Solutions Group. In that role, he was responsible for revenues generated from
seven Xerox Business Units, including the Federal, State and Local, Higher Education and the K-16 market place. Mr.
Friedlander holds a BS Degree in Finance from the University of Maryland, College Park, Smith School of Business. As a
result of these and other professional experiences, Mr. Friedlander possesses particular knowledge and experience of the
Companys structure and requirements, along with sales and operations experience that strengthen the Boards
collective qualifications, skills and experience.
Earned or
Paid in
Cash
($)
Awards
($) (1)
Awards
($)
Other
Compensation
($)
($)
(#)
Shares
(#)
The Compensation Peer Group was changed for 2010 to better align with the Companys current, on-going and future evolution to a systems integrator.
These target percentiles are subject to the Compensation Committees discretion to pay below or above the stated percentiles based on recruiting needs, retention requirements, individual or company performance, succession planning, etc. The following outlines how each compensation element accomplishes the above stated objectives and how the elements, in total, support GTSIs compensation philosophy.
Base Salary
The Compensation Committee believes that the Company pays base salaries to its executive officers that are set conservatively and near the 25th percentile, compared with executive officers of the Compensation
18
Peer Group and salary survey pool. This is a change from the historical practice of paying base compensation at or near the 50% percentile. As the Company has improved its stability and business performance as well as changed its peer company comparison group it has been determined that the 25th percentile is equitable for the current corporate performance and is competitive at this stage of the companys evolution to a systems integrator. As outlined above, base salaries are intended to comprise a relatively small portion of the executives total compensation. The Committee, among other things, reviews and recommends to the Board the annual salaries of the Companys principal named executive officers (Chief Executive Officer, President/Chief Operating Officer and Chief Financial Officer). The Committee, with input from the Chief Executive Officer, has been delegated by the Board the authority to set the annual base salaries of the remaining, less senior executive officer positions. The Committee does not receive input from the Chief Executive Officer with regard to the Senior Vice President Sales, Todd Leto.
Salary levels are typically considered annually as part of the Companys performance review process as well as upon a promotion or other significant change in job responsibility. Merit based increases to salaries of executive officers are based on the Committees assessment of the individuals performance and contributions in a given year. Reviews for all executives are usually made in February of each year. Any adjustments are made effective as of the start of the then current year thereby giving the named executive officer a potential adjustment opportunity each twelve months. Individual base salaries also reflect differences in individual performance, scope of responsibilities, internal equity, and experience level.
The following changes were made to base salary compensation for fiscal 2009:
Executive | Base Salary Change - Fiscal 2009 |
James Leto | 0% |
Scott Friedlander | 0% |
Peter Whitfield | 0% |
Todd Leto | 12.0% |
Charles DeLeon | 4.2% |
Short-Term Variable Cash Incentive Awards
The Compensation Committee believes that the primary portion of the annual cash compensation of each named executive officer should be in the form of short-term variable cash incentive pay. By tying a significant portion of the executives compensation to short-term variable cash awards, GTSI seeks to align the executives interests with both short-term and long-term gains, as well as individual and company goals that align with stockholder interests. GTSIs pay philosophy is to target annual total compensation with reference to the 25th - 50th percentile of the Compensation Peer Group, with the opportunity to earn annual incentives in excess of that level based on achieving performance superior to the objectives the Compensation Committee has determined to reward. Annual cash incentives are paid to reward achievement of critical short-term operating, financial and strategic goals that are expected to contribute to stockholder value creation over time.
19
The annual short-term incentive awards for named executive officers for fiscal 2009 were determined under GTSIs Executive Incentive Plan (EIP) and are intended to comply with the exception for performance-based compensation under Internal Revenue Code Section 162(m). Under the EIP, cash incentive awards are based on GTSIs achievement of established financial performance goals (earnings before tax EBT). EBT is used as a performance measure because we believe that it currently represents the best measurement of our operating earnings. The annual short-term incentive is intended to be paid or not paid primarily based on actions and decisions taken for that fiscal year which directly affect earnings. Taxes are excluded because tax payments are not related to annual decisions on business operations. The Compensation Committee established the financial performance goals so that they are consistent with the goals in GTSIs fiscal 2009 business plan established by the Board.
The actual formula applied to each eligible executive officer is based on the executives overall market compensation analysis and is tied to overall Company performance, a result that is not within the individual executives control. Individual bonuses are calculated as a percentage of base salary and range from 30% to 75% in the case of officers generally, other than the Chief Executive Officer. Under his 2006 Employment Agreement, as approved by the Board, in 2009 Mr. James Leto was entitled to a short-term incentive opportunity of $525,000 at 100% payout and $1,050,000 at 200%, payable periodically in accordance with the Companys then senior bonus plan. The maximum payout on the incentive plan, on an annual basis, is 350% following the guidelines outlined below.
The Short-Term Incentive Plan is an annual program set up to reward executives for attaining significant stretch profitability goals throughout the calendar year. Bonus payments are payable in the ratio of the percentage of the goal achieved upon attainment of EBT (adjusted, if necessary, for Board-approved one-time charges). The program is measured in four quarterly segments (except for the CEO who has an annual plan), and weighted in the following manner: 1/4th (Q1), 1/4th (Q2), 1/4th (Q3), 1/4th (Q4). The Short-Term Incentive Plan has a minimum threshold (70% performance against the quarterly EBT goal), that needs to be met for a payout to be awarded and has a maximum payout of 350% of the Executives eligible incentive. For goals attained between 125% and 224.9%, 100% of the amount earned over 100% attainment is deferred to year end. For goals attained between 225% and 350%, the award is given in restricted stock assuming the annual goal is achieved.
Goal Attainment | % Deferred to Year End |
125% - 224.9% | 100% |
225% - 350% | Restricted stock |
At the end of the year the Company will release any and all deferred variable incentive (cash and restricted stock) if the Company is successful in attaining its annual performance goal of at least the 125% level. Any earned restricted stock award is given with a market price set at the first Board meeting after the start of the next year (i.e., January 30, 2010). The EIP does include a favorable look-back provision throughout the year and at year end.
Favorable Look-Back Provision
The nature of GTSIs business consistently delivers some revenue fluctuations between quarters. In each quarter significant deals may be delayed in being awarded due to funding delays at the client level. When this happens the incentive awarded as measured by quarterly EBT results may not adequately reflect the actual performance or work accomplished. The favorable look-back provision applied at both the end of
20
each quarter (i.e.: YTD) and again at the end of the year allows the Company to reward the executives for overall performance and not be penalized by the quarterly unevenness. For example: if at the end of Q2 the cumulative annual Earnings Before Taxes, or EBT, goal is attained at the 100% level and the Company had only awarded a Q1 award of 70%, the Company would pay out both the current quarter at 100% and the previous quarter (Q1) at 100%.
In general, the following methodology was applied in setting the profitability goals/executive incentive targets:
The probability of hitting the 100% profitability/incentive goal is 75% of the time
The probability of hitting the 150% profitability/incentive goal is 50% of the time
The probability of hitting the 200% profitability/incentive goal is 25% of the time
The Board establishes the EBT goals at the beginning of each year. In 2009, bonuses were earned by executive officers based on the application of the Short-Term Incentive Plans formula. The Chief Executive Officer additionally employs the occasional use of spot bonuses in recognition of extraordinary performance.
Each of the named executive officers for the fiscal year ended December 31, 2009 received the following payments under the Short-Term Incentive Plan in 2009, and in February 2010 for fiscal 2009 Q4 performance.
Named Executive Officer | Base Salary | 2009 Target Award Percentage | 2009 EBT Target Achieved | 2009 EIP Payment |
James Leto | $525,000 | 100% | 125% | $656,250 |
Scott Friedlander | $340,000 | 75% | 125% | $318,750 |
Peter Whitfield | $250,000 | 50% | 125% | $156,250 |
Todd Leto | $280,000 | 70% | 125% | $245,000 |
Charles DeLeon | $250,000 | 50% | 125% | $156,250 |
The cumulative awards made in 2009 to named executive officers under the Short-Term Incentive Plan for performance in 2009 are reflected in column (g) of the Summary Compensation Table on page 26.
Long-Term, Equity-Based Incentive Awards
Similar to the market, GTSI has gradually shifted to restricted stock and stock settled appreciation rights (SSARs) as the primary equity component of executive officer compensation through GTSIs long-term incentive plan (LTIP).
These are GTSIs primary vehicles for offering long-term incentives to its executives. GTSI believes these components provide our executives with incentives to achieve long-term corporate performance, help to create a culture of ownership, and work to directly align interests with those of our stockholders.
GTSIs Long-Term, Equity-Based Incentive Awards assist the Company in:
21
| |
| enhancing the link between the creation of stockholder value and long-term executive incentive compensation; |
| |
| maintaining and improving long-term retention of key personnel; |
| |
| ensuring the company provides a very competitive total compensation program for its key personnel; |
| |
| provides an opportunity for increased equity ownership by executives; and |
| |
| maintains competitive levels of total compensation. |
Long-Term Incentive Plan
In 2004, the Board and stockholders approved the GTSI Long-Term Incentive Plan (the LTIP). The purpose of the LTIP is to encourage behavior that creates superior financial performance and to strengthen the commonality of interests between LTIP participants and the Companys owners in creating superior stockholder value. The LTIP is designed and intended to comply, to the extent applicable, with Section 162(m) of the Internal Revenue Code.
The awards, in the form of cash incentive compensation, may be granted to officers of the Company and its subsidiaries in the Compensation Committees sole discretion, taking into account such factors as the Committee deems relevant in connection with accomplishing the purposes of the LTIP. Prior to 2007, GTSI made no awards under the LTIP. In February 2007, the Board approved an LTIP Program for 2007 that was disclosed in GTSIs 2007 proxy soliciting material, with subsequent awards made to the executives.
For 2009, there are currently 17 officers eligible to participate in the LTIP. There were no awards granted under the LTIP in 2009 to those officers who received awards in 2007. Ms. Gillespie (Vice President, Professional Services) did receive an LTIP award in October 2009, and Mr. Stucke (Vice President, Accounting and Corporate Controller) did receive an LTIP award in November 2009.
Amendment to LTIP
In May 2007, the stockholders approved amendments to the LTIP authorizing in addition to cash awards, the issuance of restricted stock awards and stock-settled appreciation rights (SSARs) under GTSIs Amended and Restated 2007 Stock Incentive Plan (the 2007 Incentive Plan). Under the 2007 Incentive Plan, the Committee approved awards providing each executive with a market competitive grant of long-term incentives (50% restricted stock and 50% SSARs by value on the date of grant) with stock price appreciation to determine the value of the award. The LTIP program that was approved in 2007 for all GTSI executives is described below:
a.
The LTIP award amount is intended to be market competitive based upon the position and experience of the individual as benchmarked to the market and to internal positions as described above in the discussion of setting base salary.
b.
With the addition of the 50% SSARs component, the LTIP is substantially based upon improving stock price over time (award is weighted 50% restricted stock and 50% SSARs).
c.
The value of the SSARs component of the LTIP awards was based upon realistic stock price appreciation assumptions.
d.
The program length is five years with an equal amount of award being available to each eligible executive each year (except for the second year), contingent on the Companys then annual performance and the executives contribution in the measurement year.
22
e.
All awards will have a five-year vesting schedule. A qualified change of control will immediately vest all awards (stock options, restricted stock and SSARs).
f.
For the first plan year (2007), the Board approved accelerating the 2008 award thereby providing two years worth of awards (2007 and 2008) in 2007 to all eligible participants for the following reasons:
Ø
To minimize the charge to earnings for restricted stock and SSARs as opposed to annual stock awards made in future years at a potentially higher stock price.
Ø
The motivation to increase the stock price quicker will be accelerated with the leverage of two years worth of awards.
Ø
To improve the retention value via a multiple year grant in 2007.
The restricted stock awards and SSARs awards made under the LTIP 2007 program were issued under the 2007 Incentive Plan. This Plan is part of the Companys stock option and stock incentive programs, under which the Company may, separate from the LTIP, make stock awards to employees and non-employee directors as discussed below.
Stock Option and Stock Incentive Programs
Stock Option Program
Separate from the Companys LTIP program, options to purchase Common Stock are a component of the Companys executive long-term, equity based compensation programs. The Committee views the grant of stock options as an incentive that serves to align the interests of executive officers with the Companys goal of enhancing stockholder value.
The Committee reviews and acts upon recommendations by the Chief Executive Officer with regard to the grant of stock options to executive officers (other than to himself and Todd Leto). Stock option award levels are determined based on market data, vary among participants based on their positions, performance and contribution, and responsibilities within the Company and previous stock option grants (if any) and are granted at the Committees regularly scheduled April meeting. On occasion, options are awarded at other times throughout the year for exceptional performance. Newly hired or promoted executives, other than executive officers, receive their award of stock options on either their first day of regular employment or the day the award is approved by the Compensation Committee. The Compensation Committee does not time grants.
Options are awarded at the Nasdaq exchanges closing price of the Common Stock on the date of the grant and reflect fair market value (FMV). Options will only have value to an executive officer if the stock price increases over the exercise price. The Committee has never granted options with an exercise price that is less than the closing price of the Common Stock on the grant date nor has it granted options which are priced on a date other than the grant date. The majority of the options granted by the Committee vest at a rate of 25% per year on each of the first four anniversaries of the date of grant, provided that the option holder is a GTSI employee on the vesting date. The option term is typically seven years. Vesting ceases upon termination of employment and vested options can be exercised within three months of termination. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights or dividends.
Stock Incentive Program
Given the recent industry trend to move away from stock options as a key component of an executive compensation program, in 2005 the Committee initiated a review of other stock incentive programs from Longnecker. As a result, in 2005 stockholders approved the addition of a stock incentive program to the Companys then existing 1996 Stock Option Plan (which was changed to the title 1996 Stock Incentive
23
Plan), that provides for options and alternative incentive programs to encourage performance and improve retention of key executives.
The Board, in February 2007, approved the amendment to the 1996 Stock Incentive Plan to provide for stock appreciation rights as a component of the stock incentive program and as a component of the 2007 LTIP program and stockholders approved the Boards action at the 2007 annual stockholders meeting. A full description of the Plan, as amended by the 2007 Incentive Plan, was provided in GTSIs 2007 proxy soliciting material.
Under the 2007 Incentive Plan, the Company may, upon approval by the Compensation Committee (except for awards made to the Chief Executive Officer that requires the Boards approval) make stock awards in the form of restricted stock, restricted stock units, or performance awards to select participants, including the named executive officers, whose annual non-equity incentive compensation represents a portion of their total annual compensation. Under the stock incentive program, participants may be awarded a number of shares based on the individuals performance or as part of the annual review of the executives compensation portfolio.
On August 5, 2009, the Company granted in the aggregate 145,000 stock option awards to its named executive officers with a vesting rate of 33 1/3% per year on each of the first three anniversaries of the date of grant, provided that the option holder remains a GTSI employee on the vesting date. The stock option awards were issued with an exercise price of $6.40 per share, the closing market price per share on August 5, 2009.
Also on August 5, 2009, the Company granted in the aggregate 145,000 performance-based stock option awards to its named executive officers. The performance-based stock option awards are conditioned on the Company meeting a cumulative target of earnings before taxes for the three years ending December 31, 2011. Upon the Compensation Committees determination that the Company has met the cumulative target of earnings before taxes on or before December 31, 2011, the performance-based stock option awards will vest at a rate of 33 1/3% per year on each of the first three anniversaries of such determination date. If the cumulative target of earnings before taxes is met, the performance-based stock option awards will have an exercise price of $6.40 per share, the closing market price per share on August 5, 2009. On the grant date, the Compensation Committee did not believe that it was probable that the Company would meet the cumulative target of earnings before taxes on or before December 31, 2011.
Insurance, Retirement and other employee benefits
GTSIs named executive officers generally do not receive any special benefits. GTSI offers broad based benefits to all its employees and executives are eligible to participate on the same basis. The Company does not offer a retirement program. However the Company does provide certain named executive officers with perquisites and other personal benefits that the Company and the Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. The Committee periodically reviews and benchmarks the levels of perquisites and other personal benefits provided to named executive officers via its external executive consultant.
The named executive officers are provided annual executive physicals (by a certified third party), supplemental disability insurance and long-term care insurance. During 2009, the Companys Chief Executive Officer, Mr. Leto, had the following additional benefits: $15,000 annual car allowance (plus gross up for taxes which was announced on February 15, 2008); $50,000 (plus gross up for taxes which was announced on February 15, 2008) annual long-term extended-stay residence in the Northern Virginia
24
area; and $50,000 annual budget for travel to and from Mr. Letos primary residence and his Northern Virginia long-term extended-stay residence. Additionally GTSI pays for various strategic business club memberships.
Severance and Change of Control Provisions for Named Executive Officers
See disclosure on page 35 titled: EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS.
Tax and Accounting Implications
Deductibility of Executive Compensation
As part of its role, the Committee reviews and considers the deductibility of executive compensation under Internal Revenue Code Section 162(m), which provides that a publicly held corporation such as the Company will not be allowed a federal income tax deduction for compensation paid to the chief executive officer or one of the four most highly compensated officers (other than the chief executive officer) to the extent that compensation (including stock-based compensation) paid to each such officer exceeds $1 million in any year unless such compensation was based on performance goals. The 2007 Incentive Plan is designed so that amounts realized on the award of shares and the exercise of options granted thereunder may qualify as performance-based compensation that is not subject to the deduction limitation of Section 162(m). The Committee intends to evaluate other elements of compensation in light of Section 162(m) but may enter into arrangements that do not satisfy exceptions to Section 162(m), as the Committee determines to be appropriate.
Accounting for Stock-Based Compensation
Beginning on January 1, 2006, the Company began accounting for stock-based payments including its LTIP, stock option and stock incentive programs, in accordance with the requirements of FASB ASC 718, Compensation Stock Compensation.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Executive Compensation and Related Information above, which includes the Compensation Discussion and Analysis, with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Executive Compensation and Related Information be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
Daniel R. Young, Chairman
Lloyd Griffiths
John Toups
25
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the year ended December 31, 2009 concerning compensation paid or accrued by the Company to or on behalf of: (a) the Companys Chief Executive Officer (CEO), and (b) the Companys Chief Financial Officer (CFO), and (c) the three most highly compensated executive officers other than the CEO and CFO whose compensation during 2009 exceeded $100,000 (collectively, the Named Executive Officers). Discussion about this table and the Grants of Plan-Based Awards table (below) are set out in the above Compensation Discussion and Analysis section.
SUMMARY COMPENSATION TABLE | |||||||||
Name and Principal Position | Year | Salary ($)(1) | Bonus | Stock Awards ($) (4) (e) | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(5) (i) | Total ($) |
James Leto (6) CEO | 2009 2008 2007 | 525,000 524,439 497,727 | 0 0 0 | 0 0 951,386 | 54,144(7) 0 1,443,899 | 656,250 802,058(9) 642,500 | 0 0 0 | 126,067(8) 125,594(10) 123,882(11) | 1,361,461 1,452,091 3,659,394 |
Scott Friedlander President and COO | 2009 2008 2007 | 340,000 340,000 301,705 | 0 0 0 | 0 0 378,175 | 81,216(12) 0 573,948 | 318,750 399,771(14) 215,642 | 0 0 0 | 8,225(13) 7,850(15) 7,878(16) | 748,191 747,621 1,477,348 |
Peter Whitfield Senior Vice President and CFO | 2009 2008 | 250,000 199,623 | 0 17,500(20) | 0 29,981 | 81,216(17) 85,087 | 159,456(18) 144,431 | 0 0 | 8,225(19) 5,750 | 498,897 482,372 |
Todd Leto Senior Vice President | 2009 2008 | 279,375 250,000 | 0 0 | 0 0 | 135,360(21) 0 | 245,000 295,714(23) | 0 0 | 13,927(22) 9,169(24) | 673,662 554,883 |
Charles DeLeon Senior Vice President and General Counsel | 2009 | 249,792 | 0 | 0 | 40,608(25) | 156,250 | 0 | 8,225(26) | 454,875 |
1
Includes amounts, if any, deferred by the Named Executive Officer pursuant to the Companys 401(k) plan.
2
Bonuses and Incentives under any Executive Bonus Plan are based on corporate and individual performance. See Compensation Discussion and Analysis.
3
For Year 2007, includes incentive earned in 2007, but paid in 2008; for Year 2008, includes incentive earned in 2008, but paid in 2009; and for Year 2009, includes incentive earned in 2009, but paid in 2010.
4
Amount reflects the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718. For a discussion of the assumptions used in the calculations of these amounts see Note 10 to the Companys audited consolidated financial statements for the fiscal year ended December 31, 2009, included in the Companys Annual Report on Form 10-K.
5
All other Compensation includes Company contribution to 401(k), if any, which in each is less than $10,000 per person.
6
Mr. Leto resigned as CEO on February 15, 2010; he remains as an employee until May 31, 2010.
7
The grant date fair value of the performance-based stock option award based on the probable outcome is $0 and based on the maximum outcome is $71,424.
8
Amount includes housing allowance ($50,000), car allowance ($15,000), and commuting allowance ($50,000). Other perquisites include club membership, physical exam, and supplemental disability insurance.
9
A portion of the 2008 non-equity incentive award was paid in restricted shares which were issued and vested immediately on 1/30/2009. A total of 2,848 shares were issued totaling $16,376.
26
10
Amount includes housing allowance ($50,000), car allowance ($15,000), and commuting allowance ($50,000). Other perquisites include club memberships, physical exam, and supplemental disability insurance.
11
Amount includes housing allowance ($50,000), car allowance ($15,000), commuting allowance ($50,000), and relocation ($2,084). Other perquisites include club memberships, physical exam, and supplemental disability insurance.
12
The grant date fair value of the performance-based stock option award based on the probable outcome is $0 and based on the maximum outcome is $107,136.
13
Amount includes perquisites of physical exam, and supplemental disability insurance.
14
A portion of the 2008 non-equity incentive award was paid in restricted shares which were issued and vested immediately on 1/30/2009. A total of 1,355 shares were issued totaling $7,791.
15
Amount includes perquisites of physical exam, and supplemental disability insurance.
16
Amount includes perquisites of physical exam, and supplemental disability insurance.
17
The grant date fair value of the performance-based stock option award based on the probable outcome is $0 and based on the maximum outcome is $107,136.
18
Amount includes an MBO payment.
19
Amount includes perquisites of physical exam, and supplemental disability insurance.
20
Amount reflects bonus for duties as Interim CFO and year-end audit.
21
The grant date fair value of the performance-based stock option award based on the probable outcome is $0 and based on the maximum outcome is $178,560.
22
Amount reflects perquisites of club membership, physical exam, and supplemental disability insurance.
23
A portion of the 2008 non-equity incentive award was paid in restricted shares which were issued and vested immediately on 1/30/2009. A total of 996 shares were issued totaling $5,727.
24
Amount includes perquisites of club membership, physical exam, and supplemental disability insurance.
25
The grant date fair value of the performance-based stock option award based on the probable outcome is $0 and based on the maximum outcome is $53,568.
26
Amount includes perquisites of physical exam, and supplemental disability insurance.
NOTE: Stock Award compensation is included in Option Exercises and Stock Vested table
27
| GRANTS OF PLAN-BASED AWARDS | ||||||||||||
Name | Grant Date | Approval Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (7) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stocks or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards | |||||
Threshold ($) | Target | Maximum ($) | Threshold (#) | Target | Maximum (#) | ||||||||
James Leto | 8/5/09 8/5/09 | 525,000 | 1,050,000 | 20,000 | 20,000(2) | 6.40 6.40 | 54,144 0 | ||||||
Scott Friedlander | 8/5/09 8/5/09 | 255,000 | 510,000 | 30,000 | 30,000(3) | 6.40 6.40 | 81,216 0 | ||||||
Peter Whitfield | 8/5/09 8/5/09 | 125,000 | 250.000 | 30,000 | 30,000(4) | 6.40 6.40 | 81,216 0 | ||||||
Todd Leto | 8/5/09 8/5/09 | 196,000 | 392,000 | 50,000 | 50,000(5) | 6.40 6.40 | 135,360 0 | ||||||
Charles DeLeon | 8/5/09 8/5/09 | 130,000 | 260,000 | 15,000 | 15,000(6) | 6.40 6.40 | 40,608 0 |
(1)
All grants were made under the 2007 Amended and Restated Stock Incentive Plan.
(2)
Shares vest as follows: 6,666 on 8/5/2010, 6,667 on 8/5/2011, and 6,667 on 8/5/2012.
(3)
Shares vest as follows: 10,000 on 8/5/2010, 10,000 on 8/5/2011, and 10,000 on 8/5/2012.
(4)
Shares vest as follows: 10,000 on 8/5/2010, 10,000 on 8/5/2011, and 10,000 on 8/5/2012.
(5)
Shares vest as follows: 16,667 on 8/5/2010, 16,666 on 8/5/2011, and 16,667 on 8/5/2012.
(6)
Shares vest as follows: 5,000 on 8/5/2010, 5,000 on 8/5/2011, and 5,000 on 8/5/2012.
(7)
Target represents attainment of 100% of Annual Short Term Incentive Plan; maximum represents attainment of 200% of Annual Short Term Incentive Plan.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
||||||||||||||||||
OPTION AWARDS |
|
STOCK AWARDS |
||||||||||||||||
Name |
|
Number of Securities
Underlying Unexercised Options |
|
Number of Securities Underlying
Unexercised Options |
|
Equity Incentive Plan
Awards: Number of Securities Underlying Unexercised Unearned Options |
|
Option Exercise Price |
|
Option Expiration Date |
|
Number of Shares or Units
of Stock That Have Not Vested |
|
Market Value of Shares or
Units of Stock That Have Not Vested |
|
Equity Incentive Plan
Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |
|
Equity Incentive Plan
Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That
Have Not Vested |
James Leto |
|
15,000 0 |
|
0 20,000(4) |
|
0
0 |
|
6.20
6.40 |
|
5/15/2011
8/5/2016 |
|
|
|
|
|
0 |
|
0 |
Scott Friedlander |
|
33,006 0 |
|
49,510(9) 30,000(11) |
|
0 0 |
|
9.60
6.40 |
|
2/2/2014 8/5/2016 |
|
4,620(8)
|
|
22,915
|
|
0 |
|
0 |
Peter Whitfield |
|
7,500 6,250
|
|
18,750(16)
|
|
0
|
|
5.55
|
|
10/29/2015
|
|
4,322(18) |
|
21,437 |
|
0 |
|
0 |
Todd Leto |
|
20,000
15,000 0 |
|
0
5,000(23) 50,000(26) |
|
0 0 |
|
6.75 6.40 |
|
4/28/2013 8/5/2016 |
|
14,755(25) |
|
73,185 |
|
0 |
|
0 |
Charles DeLeon |
|
5,000 0 |
|
0 15,000(32) |
|
0 |
|
6.40 |
|
8/5/2016 |
|
10,860(31) |
|
53,866 |
|
0 |
|
0 |
29
(1)
Shares vest as follows: 132,000 on 4/28/2010.
(2)
SSARs vest as follows: 41,517 on 2/2/2010, 41,518 on 2/2/2011 and 41,518 on 2/2/2012.
(3)
Shares vest as follows: 15,739 on 2/2/2010, 15,738 on 2/2/2011 and 15,739 on 2/2/2012.
(4)
Shares vest as follows: 6,666 on 8/5/2010, 6,667 on 8/5/2011 and 6,667 on 8/5/2012.
(5)
Assuming the performance condition is met, the award will vest at a rate of 33 1/3% per year on each of the first three anniversaries of the date the Compensation Committee determines that the performance condition has been met. See Compensation Discussion and Analysis Stock Incentive Program.
(6)
Shares vest as follows: 26,400 on 7/21/2010.
(7)
Shares vest as follows: 10,000 on 4/28/2010.
(8)
Shares vest as follows: 2,310 on 7/20/2010 and 2,310 on 7/20/2011.
(9)
SSARs vest as follows: 16,503 on 2/2/2010, 16,503 on 2/2/2011 and 16,504 on 2/2/2012.
(10)
Shares vest as follows: 6,256 on 2/2/2010, 6,256 on 2/2/2011 and 6,256 on 2/2/2012.
(11)
Shares vest as follows: 10,000 on 8/5/2010, 10,000 on 8/5/2011 and 10,000 on 8/5/2012.
(12)
Assuming the performance condition is met, the award will vest at a rate of 33 1/3% per year on each of the first three anniversaries of the date the Compensation Committee determines that the performance condition has been met.
(13)
Shares vest as follows: 3,750 on 3/22/2010 and 3,750 on 3/22/2011.
(14)
SSARs vest as follows: 3,633 on 2/2/2010, 3,633 on 2/2/2011 and 3,633 on 2/2/2012.
(15)
Shares vest as follows: 1,377 on 2/2/2010, 1,377 on 2/2/2011 and 1,378 on 2/2/2012.
(16)
Shares vest as follows: 6,250 on 10/29/2010, 6,250 on 10/29/2011 and 6,250 on 10/29/2012.
(17)
SSARS vest as follows: 3,113 on 10/29/2010, 3,113 on 10/29/2011, 3,115 on 10/29/2012 and 3,115 on 10/29/2013.
(18)
Shares vest as follows: 1,080 on 10/29/2010, 1,080 on 10/29/2011, 1,081 on 10/29/2012 and 1,081 on 10/29/2013.
(19)
Shares vest as follows: 10,000 on 8/5/2010, 10,000 on 8/5/2011 and 10,000 on 8/5/2012.
(20)
Assuming the performance condition is met, the award will vest at a rate of 33 1/3% per year on each of the first three anniversaries of the date the Compensation Committee determines that the performance condition has been met.
(21)
Shares vest as follows: 1,650 on 7/21/2010.
(22)
Shares vest as follows: 2,310 on 7/20/2010 and 2,310 on 7/20/2011.
(23)
Shares vest as follows: 5,000 on 4/28/2010.
(24)
SSARS vest as follows: 12,974 on 2/2/2010, 12,974 on 2/2/2011 and 12,975 on 2/2/2012.
(25)
Shares vest as follows: 4,918 on 2/2/2010, 4,918 on 2/2/2011 and 4,919 on 2/2/2012.
(26)
Shares vest as follows: 16,667 on 8/5/2010, 16,666 on 8/5/2011 and 16,667 on 8/5/2012.
(27)
Assuming the performance condition is met, the award will vest at a rate of 33 1/3% per year on each of the first three anniversaries of the date the Compensation Committee determines that the performance condition has been met.
(28)
Shares vest as follows: 4,950 on 7/21/2010.
(29)
Shares vest as follows: 5,000 on 4/28/2010.
(30)
SSARS vest as follows: 9,549 on 2/2/2010, 9,549 on 2/2/2011 and 9,549 on 2/2/2012.
(31)
Shares vest as follows: 3,620 on 2/2/2010, 3,620 on 2/2/2011 and 3,620 on 2/2/2012.
(32)
Shares vest as follows: 5,000 on 8/5/2010, 5,000 on 8/5/2011 and 5,000 on 8/5/2012.
(33)
Assuming the performance condition is met, the award will vest at a rate of 33 1/3% per year on each of the first three anniversaries of the date the Compensation Committee determines that the performance condition has been met.
30
OPTION EXERCISES AND STOCK VESTED | ||||
| OPTION AWARDS | STOCK AWARDS | ||
Name (a) | Number of (b) | Value (c) | Number of (d) | Value (e) |
Jim Leto | 30,000 | 64,680 | 18,586 | 90,494 |
Scott Friedlander | 0 | 0 | 9,991 | 49,371 |
Peter Whitfield | 0 | 0 | 2,457 | 16,050 |
Todd Leto | 0 | 0 | 9,944 | 50,967 |
Charles DeLeon | 0 | 0 | 4,304 | 20,815 |
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about Common Stock that has been issued as restricted stock and that may be issued upon future grants of stock incentive awards and future exercise of options under the Companys equity compensation plans as of December 31, 2009, including the Companys 1997 Stock Option Plan, Amended and Restated 2007 Stock Incentive Plan (formerly the 1996 Stock Incentive Plan), 1994 Stock Option Plan and the Companys Employee Stock Purchase Plan.
Plan Category | Number of Shares to be Issued upon Exercise of Outstanding Options/ Restricted Stock (a) | Weighted Average Exercise Price of Outstanding Options/ Restricted Stock (b) | Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (excluding shares reflected in column (a)) (c) |
Equity compensation plans approved by stockholders | 2,388,028 | $8.25 | 133,570 |
Equity compensation plans not approved by stockholders1 | 9,000 | $9.14 | N/A |
Total | 2,397,028 | $4.35 | 133,570 |
1
Represents an aggregate of shares issuable under options granted from time to time to persons not previously employed by the Company, as an inducement essential to such persons entering into offer letters or employment agreements with the Company.
31
COMMON STOCK OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of Common Stock as of February 21, 2010 (except as noted otherwise) by: (a) each person who is known by the Company to own beneficially more than 5% of the outstanding Common Stock; (b) each of the Companys directors who owns Common Stock; (c) each of the executive officers named in the Summary Compensation Table; and (d) all current directors and executive officers of the Company as a group.
| Shares | Percent |
Name of Beneficial Owner1 | Beneficially Owned | of Class |
Linwood A. (Chip) Lacy, Jr. 2 c/o Solomon, Ward, Seidenwurm & Smith 401 B Street Suite 1200 San Diego, CA 92101 | 1,419,600 | 14.5% |
T. Rowe Price 100 Light Street Baltimore, MD 21202 | 950,000 | 9.7% |
Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 | 833,541 | 8.5% |
M. Dendy Young c/o Charles Schwab & Co. ATTN: Thomas Farley Bethesda, MD 20814 | 783,284 | 8.0% |
Franklin Advisors 1 Franklin Parkway San Mateo, CA 94402 | 625,000 | 6.4% |
James J. Leto3 | 545,920 | 5.3% |
Lee Johnson4 | 194,265 | 2.0% |
Scott Friedlander5 | 181,609 | 1.8% |
John M. Toups6 | 118,665 | 1.2% |
Todd Leto7 | 110,674 | 1.1% |
Steven Kelman, Ph.D.8 | 102,446 | 1.0% |
Daniel R. Young9 | 86,665 | * |
Charles DeLeon10 | 83,087 | * |
Thomas L. Hewitt11 | 45,665 | * |
Peter Whitfield12 | 44,364 | * |
Barry L. Reisig13 | 39,665 | * |
Joseph Keith Kellogg, Jr.14 | 26,665 | * |
Lloyd Griffiths15 | 6,666 | * |
All Directors and Executive Officers as a group (14 persons)16 | 3,005,956 | 27.7% |
*Less than one percent.
1
Such persons have sole voting and investment power with respect to all Common Stock shown as being beneficially owned by them, subject to community property laws, where applicable, and the information contained in the footnotes to this table.
32
2
Excludes 399,514 shares owned by the Linwood A. Lacy, Jr. 2004 Charitable Lead Annuity Trust; Mr. Lacy has no beneficial interest in such shares.
3
Includes 437,552 shares for which options/SSARs are exercisable or become exercisable within 60 days after February 21, 2010.
4
Includes 60,100 shares for which options are exercisable or become exercisable within 60 days after February 21, 2010 and 3,333 restricted shares.
5
Includes 148,109 shares for which options/SSARs are exercisable or become exercisable within 60 days after February 21, 2010.
6
Includes 62,000 shares for which options are exercisable or become exercisable within 60 days after February 21, 2010 and 3,333 restricted shares.
7
Includes 78,922 shares for which options/SSARs are exercisable or become exercisable within 60 days after February 21, 2010.
8
Includes 60,000 shares for which options are exercisable or become exercisable within 60 days after February 21, 2010 and 3,333 restricted shares.
9
Includes 50,000 shares for which options are exercisable or become exercisable within 60 days after February 21, 2010 and 3,333 restricted shares.
10
Includes 68,697 shares for which options/SSARs are exercisable or become exercisable within 60 days after February 21, 2010.
11
Includes 20,000 shares for which options are exercisable or become exercisable within 60 days after February 21, 2010, and 3,333 restricted shares.
12
Includes 31,511 shares for which options/SSARs are exercisable or become exercisable within 60 days after February 21, 2010.
13
Includes 20,000 shares for which options are exercisable or become exercisable within 60 days after February 21, 2010 and 3,333 restricted shares.
14
Includes 10,000 shares for which options are exercisable or become exercisable within 60 days after February 21, 2010 and 3,333 restricted shares.
15
Includes 3,333 restricted shares.
16
Includes 1,073,555 shares, comprising of shares for which options/SSARs are exercisable or become exercisable within 60 days after February 21, 2010 and restricted shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Exchange Act Section 16(a) requires the Companys directors and officers, and persons who own more than 10% of the Common Stock, to file with the SEC reports concerning their beneficial ownership of the Companys equity securities. Directors, officers and greater than 10% beneficial owners are required by SEC regulations to furnish the Company with copies of all such SEC reports they file. Pursuant to Item 405 of SEC Regulation S-K, the Company is required in this Proxy Statement to provide disclosure of insiders who do not timely file such reports. Based solely on a review of Forms 3 and 4 and amendments thereto furnished to the Company during 2009, Lloyd Griffiths, Thomas Hewitt, Lee Johnson, Joseph Keith Kellogg, Steven Kelman, Barry Reisig, John Toups, and Daniel Young failed to file timely a Form 4 regarding a grant of restricted stock, which was filed promptly thereafter. Scott Friedlander, James Leto, Todd Leto and Peter Whitfield failed to file timely a Form 4 regarding a grant of restricted stock. Thereafter their Form 4s were filed. Todd Leto failed to file timely a Form 3 and thereafter his Form 3 was filed.
33
EXECUTIVE OFFICERS
The Companys executive officers, and certain information about each of them, are as follows:
Name | Age | Title |
Scott Friedlander Peter Whitfield Todd Leto Charles DeLeon | 50 51 42 45 | President and Chief Executive Officer Senior Vice President and Chief Financial Officer Senior Vice President, Sales, Marketing and Operations Senior Vice President, General Counsel and Corporate Secretary |
Officers are appointed by and serve at the discretion of the Board, except that officers at the Vice President level are appointed by and serve at the discretion of the Chief Executive Officer.
For information concerning Mr. Leto, see Election of Directors.
Mr. Friedlander joined the Company in 2001 as Vice President, Sales, Technology Teams. He was promoted in 2003 to Group Vice President, Sales, Enterprise Technology Practices. In July 2005 he was promoted to Executive Vice President, Sales; to President and Chief Operating Officer as of December 1, 2007; and to President and Chief Executive Officer February 16, 2010. From February 2000 until June 2001, he served as Executive Vice President of Sideware Corp., an internet customer service system company. From 1982 until 2000, Mr. Friedlander was employed by Xerox Corp.¸ where he was promoted to Vice President/General Manager.
Mr. Whitfield joined the Company in March of 2007 as Division Vice President, Internal Audit and Process. He was promoted to Vice President, Financial Planning, Analysis and Internal Audit in June of 2008. In September of 2008, he was appointed Vice President and Interim CFO and in October of 2008, he was promoted to Senior Vice President and CFO. From October 2003 to June 2004, he served as a consultant for Worldcom, Inc. From June to September 2004, he served as Sr. Director of Procurement for Inphonic, Inc., then from September 2004 until May 2005, he served as Vice President of Fulfillment and from May 2005 until July 2006, he served as Sr. Vice President of Operations. From August 2006 until March 2007, he served as a Financial Consultant for GTSI Corp.
Mr. James Todd Leto joined the Company in August of 2002 as Vice President, Integrator Solutions Group. He was promoted to Senior Vice President, Sales in January 2005. From February 2001 until July 2002, he served as a Senior Director, State & Local Sales, for Peregrine Systems, a software company. Additionally, he spent seven years at Oracle Corporation in positions of ascending responsibility culminating with Regional Sales Manager where he was responsible for one-third of Oracles federal practice.
Mr. DeLeon joined the Company in 2001 as Deputy General Counsel. He was promoted to General Counsel in 2004, Vice President in 2004, Senior Vice President and General Counsel in 2007. Mr. DeLeon supervises the Contracts & Legal Department. Prior to joining GTSI, Mr. DeLeon served as General Counsel, CyBiz, Inc., and as a Senior Counsel, PSINet Inc. Mr. DeLeon was also Federal Counsel, EDS Federal Director, and prior to that worked for the Federal Government.
34
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the 2009 fiscal year were: Daniel Young (Chairperson) for all of fiscal 2009; Thomas Hewitt through April 2009; Steven Kelman through April 2009; Lloyd Griffiths from April 2009 through December 2009; and John Toups from April 2009 through December 2009. No member of this committee was at any time during the 2009 fiscal year or at any other time an officer or employee of the Company, and no member of this committee had any relationship with GTSI requiring disclosure under Item 404 of SEC Regulation S-K. No executive officer of GTSI has served on the board of directors or compensation committee of any other entity that has or has had one of more executive officers who served as a member of the Board or its Compensation Committee during the 2009 fiscal year.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
AND CHANGE OF CONTROL ARRANGEMENTS
Employment Agreements, Severance Agreements and Change-of-Control Arrangements
The following is a description of the employment agreements and change-of-control arrangements with respect to each named executive officer. The amount of compensation payable to each named executive officer upon termination without cause, termination for good reason and various change-of-control scenarios is shown below. The amounts shown assume that such termination was effective as of December 31, 2009, and thus includes amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executives separation from the Company.
James Leto
Effective as of February 16, 2006, the Company entered into an employment agreement with Mr. Leto. The agreement had an initial term of one year and thereafter its term would be automatically extended for a period of 12 months commencing on the first anniversary of the effective date and on each successive anniversary, unless either party gave notice that the agreement would not be renewed.
Mr. Leto resigned as CEO effective February 15, 2010. In connection with his retirement, Mr. Letos employment agreement terminated and he and the Company entered into a transition agreement dated as of January 20, 2010 under which Mr. Leto will receive (a) a base salary at his current rate of $525,000 per annum through March 31, 2010, and (b) a base salary at the rate per annum of $393,750 from April 1, 2010 to May 31, 2010, his last day as an employee. As an employee, Mr. Leto is eligible to receive all applicable Company employee benefits through May 31, 2010, including the rights to any vesting of options to purchase GTSI common stock and awards of GTSI common stock currently held by Mr. Leto under the companys Stock Incentive Plan.
Mr. Leto will provide consulting services to the Company during the period from June 1, 2010 until December 31, 2010. As a consultant, he will be paid an aggregate consulting fee of $131,250, to be paid over the seven-month period.
If the Company terminates Mr. Letos employment before May 31, 2010 or consulting services before December 31, 2010 for non-performance, Mr. Leto will be entitled to receive only payment of accrued but unpaid base salary or, as the case may be, consulting fees, and any other payments required by applicable law. If Mr. Letos employment or consulting services terminate because of his death or
35
disability, his estate or he will continue to be entitled to receive the above-referenced compensation and benefits.
The following table sets forth the estimated payments and benefits that would be provided to Mr. Leto if his employment had been terminated on December 31, 2009, by the Company without cause or Mr. Leto for good reason.
Annual Base | Prior 12 month short term incentive earned ($) 2 | Total |
525,000 | 656,250 | 1,181,250 |
____________________________
1 In 2009, Mr. Leto was entitled to a base salary of $525,000.
2 The amount represents Mr. Letos historical 12 month short term incentive earned as of December 31, 2009.
CEO Change of Control
Under his employment agreement (which was terminated in February 2010), Mr. Leto would have been entitled to the benefits set forth in the table above if he had terminated his employment agreement for good reason after any of the following events (a Change of Control), had occurred:
Ø
Any person, including a group, as such terms are defined in Sections 13(d) and 14(d) of the Exchange Act and the rules promulgated thereunder, other than Linwood A. Lacy, Jr. and his affiliates or a trustee or other fiduciary holding the Companys voting securities under any employment benefit plan, becomes the beneficial owner, as defined under the Exchange Act, directly or indirectly, whether by purchase or acquisition or agreement to act in concert or otherwise, of 35% or more of the outstanding Companys voting securities;
Ø
The Companys stockholders approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Companys voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being exchanged for securities of the surviving entity) more than 50% of the combined voting power of the Company or such surviving entity outstanding immediately after such merger or consolidation; or
Ø
The Companys stockholders approve an agreement to merge, consolidate, liquidate, or sell all or substantially all of the Companys assets.
Under his employment agreement, good reason included the assignment of duties materially inconsistent with his position and status with the Company prior to the Change of Control, without Mr. Letos consent.
Mr. Leto and the Company also entered into a Change of Control Agreement providing, in addition to the change of control payments and benefits noted above, for the immediate vesting of unvested stock options awarded in 2006, and subsequent awards if any, upon a change of control. Under the Change of Control Agreement (which has terminated), the equity vesting would have occurred if Mr. Leto was terminated without cause or he terminated his employment for good reason. The definition of change of control and good reason were the same as above under the heading CEO Change of Control. Mr. Leto was
36
also entitled to a tax gross up payment if excise taxes were payable on these benefits after the change of control.
2009 Annual | Historical 12 | Equity vesting | Restricted share | Total |
525,000 | 656,250 | 0 | 234,191 | 1,415,441 |
____________________________
1 Lump sum one year base salary (2009) payable under the Employment Agreement.
2 The amount represents historical 12 month short term incentive earned as of December 31, 2009 payable under the Employment Agreement.
3 The amount represents the value of stock options and SSARs that would vest automatically pursuant to the Change of Control Agreement using the stock price of $4.96 per share on December 31, 2009 payable under the Change of Control Agreement.
4 The amount represents the value of restricted shares that would vest automatically pursuant to the Change of Control Agreement using the stock price of $4.96 per share on December 31, 2009 payable under the Change of Control Agreement.
If Mr. Leto had been terminated for cause, the Company would have had no obligations to Mr. Leto other than reimbursement of expenses incurred prior to such termination.
Scott Friedlander, Peter Whitfield, Todd Leto and Charles DeLeon
The Company has entered into Change of Control Agreements and Severance Agreements with certain key employees, including the named executive officers, including Mr. Scott Friedlander. The Change of Control Agreements and Severance Agreements are designed to promote stability and continuity of senior management. Information regarding applicable payments under the Change of Control Agreements for the named executive officers is provided under the heading Change of Control.
Severance Agreements
As of March 2006, each of the named executive officers and two other officers also have a Severance Agreement.
The Company entered into a Severance Agreement with Messrs. Todd Leto and Charles DeLeon; each of whom are referred to as an executive for purposes of this discussion. Mr. Friedlander and Mr. Whitfield, each have an Employment Agreement (as discussed below), with severance provision as described below.
The agreement with each executive entitles the executive to a severance package if they are terminated by GTSI without cause, or are notified of one of the following conditions, and as a result, resign from GTSI within 30 calendar days of such notice (resignation):
Ø
The executives annual base salary is reduced by more than 20% from its then current amount;
Ø
The executives duties, responsibilities, authority, reporting structure, title (excluding any minor or inadvertent action which is remedied by the Company immediately after notice by the executive) are significantly or meaningfully, as reasonably determined by the Company, reduced by the Company;
37
Ø
The Company asks the executive to permanently relocate to a different GTSI work site that would increase the executives one-way commute distance by more than 35 miles from their then principal residence.
In the event of the executives termination or resignation, the Company will pay the executive a severance payment in an amount equal to six months of the executives then current annual base salary (12 months for Scott Friedlander) (the Severance Compensation). The lump sum payment will be subject to standard withholdings and deductions.
The Companys obligation to pay this Severance Compensation is subject to an effective release from the executive.
In the case of a Change of Control, as defined below, the terms of the Change of Control Agreement will supersede the terms of the executives Severance Agreement.
The following table sets forth the estimated payment to the executive if the Severance Agreement had been invoked on December 31, 2009:
Name | Cash Benefit ($) |
Scott Friedlander | 340,0001 |
Peter Whitfield | 125,0002 |
Todd Leto | 140,0002 |
Charles DeLeon | 125,0002 |
_________________________
1 The amount represents twelve months of base salary, paid out in a lump sum.
2 The amount represents six months of base salary, paid out in a lump sum.
Employment Agreements
2008
The Company and Mr. Whitfield entered into an employment agreement pursuant to which Mr. Whitfield has agreed to serve as Chief Financial Officer effective October 29, 2008. Pursuant to the agreement, the Company pays Mr. Whitfield a salary at the annual rate of $250,000 and during the term of the agreement, Mr. Whitfield will have a targeted annual incentive of up to $125,000 at 100% achievement, or $250,000 at 200% achievement, subject to the Companys then existing incentive plan attainment level.
The Company will also provide Mr. Whitfield with a severance payment equal to six months of base salary for a termination without cause, as defined in the agreement, and in the case of termination without cause under a change of control occurrence (as defined in the agreement), a severance equal to 15 months of total targeted compensation. In addition, the Company will provide Mr. Whitfield with the employee benefits accorded other senior executive officers of the Company.
As part of Mr. Whitfields employment agreement, he received 25,000 options under the Companys Amended and Restated 2007 Stock Incentive Plan in October 2008, and 5,402 restricted stock shares and 15,569 stock settled appreciation rights under the Companys Long-Term Incentive Plan. Such awards are
38
subject to the Companys standard vesting periods. Descriptions of these plans are located in the Companys previous definitive proxy statement filed with the SEC on March 31, 2008.
2007
The Company and Mr. Friedlander entered into an employment agreement, effective December 1, 2007, pursuant to which Mr. Friedlander agreed to serve as President and Chief Operating Officer (the Agreement). Pursuant to the Agreement, the Company was to pay Mr. Friedlander an annual base salary of $340,000 and a targeted incentive up to $255,000, subject to the Companys then existing incentive plan attainment level. In January 2010, the Board appointed Mr. Friedlander as CEO effective as of February 16, 2010 and agreed to pay Mr. Friedlander an annual salary of $400,000, and a targeted incentive up to $450,000.
The Company will also provide Mr. Friedlander with a severance payment equal to 12 months of annual base salary for a termination without cause, as defined in the Agreement, and in the case of termination without cause under a change of control occurrence (as defined in the Agreement), a severance equal to 18 months of total targeted compensation. In addition, the Company provides Mr. Friedlander with the employee benefits accorded other senior executive officers of the Company.
Change of Control
The Compensation Committee and the Board have approved change of control agreements with the current four named executive officers, other than Mr. Scott Friedlander, and nine other officers. These agreements provide that if, within six months prior to or 18 months following a change of control, such officer is terminated as an employee of the Company other than for cause, or the officer resigns because his or her compensation is reduced, his or her responsibilities are substantively diminished, or he or she is required to relocate, he or she will receive specific payments based on his or her then current annual base salary and targeted annual bonus. Each of Messrs. Whitfield, Todd Leto and DeLeon are referred to as an executive for purposes of this discussion.
The Change of Control Agreement provides, without changing the nature of the at-will employment relationship, that in connection with a Change of Control, the executive will be entitled to the cash benefits, health insurance benefits, gross-up benefits as well as immediate vesting of any outstanding stock options, restricted stock or SSARs, as described below.
If during or following a Change of Control, the executive is terminated for Cause, the Company will have no obligations to such executive other than reimbursement of expenses incurred prior to such termination. If an executive resigns (other than for Good Reason), he will not be entitled to further compensation except as may be provided by the terms of any benefit plans of the Company in which he participates and for salary accrued but unpaid through the date of resignation and reimbursement of expenses incurred prior to such date.
Change of Control Termination Benefits. If an executive's employment with the Company is terminated without Cause, or the executive resigns for Good Reason during the Change of Control Period, or events leading to executive's resignation for Good Reason are effected in anticipation of a Change of Control, including an attempt to avoid the Companys or its successor's obligations under the Change of Control Agreement, the following will occur:
(a) As of December 31, 2009, the Company was obligated to provide to the executives a severance payment equal to a set amount of the executive's then annual total target compensation as set forth in the table below. In the case of Mr. Friedlander the amount is based on 18 months, and for Mr. Whitfield, Mr.
39
Todd Leto and Mr. DeLeon, the amount is based on 15 months. This amount will be paid in a lump sum within 30 days. In addition, the Company will provide the executive, at the Companys expense, with continued group health insurance benefits (medical, dental and vision) for executive and executive's eligible dependents under COBRA for a period of up to six months following the effective date of executives termination without Cause or resignation for Good Reason; or the executive is gainfully employed at another place of work, whichever is sooner.
(b) Any unvested stock awards issued to executive will have their vesting accelerated in full so as to become fully vested and immediately exercisable as of the date of such termination.
(c) Payment is contingent on an effective release from the executive.
"Cause" means the executive's
(i) willful and continued failure to substantially perform his/her duties with the Company or willful and continued failure to substantially follow and comply with the specific and lawful directives of the Chief Executive Officer, as reasonably determined by the Chief Executive Officer (other than any such failure resulting from incapacity due to physical or mental illness or any such actual or anticipated failure after notice of resignation), after a written demand for substantial performance is delivered to the executive by the Chief Executive Officer, which demand specifically identifies the manner in which the Chief Executive Officer believes that the executive has not substantially performed his/her duties,
(ii) conviction of any felony involving moral turpitude;
(iii) engaging in illegal business practices or other practices contrary to the written policies of the Company;
(iv) misappropriation of assets of the Company;
(v) continual or repeated insobriety or drug use;
(vi) continual or repeated absence for reasons other than disability or sickness;
(vii) fraud; or
(viii) embezzlement of Company funds.
"Change of Control" includes:
(i) the acquisition by any individual or entity resulting in the control of 50% or more of outstanding shares of GTSI;
(ii) a change in a majority of the Company Board of Directors (other than through an act of God) and clearly related to the acquisition if the change occurred during any 12 consecutive months, and the new directors were not elected by the Companys 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 (and the consummation thereafter), other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto
40
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.
"Change of Control Period" means the period of time starting six months prior to the date the Change of Control is effected and ending 24 months following such Change of Control.
"Good Reason" means any one of the following events (so long as executive tenders his resignation to the Company within 60 days after the occurrence of the event which forms the basis for any termination for Good Reason and clearly related to the Change of Control event):
(i) any reduction of the executive's then existing annual base salary or annual bonus target;
(ii) any material reduction in the package of benefits and incentives, taken as a whole, provided to the executive (except that employee contributions may be raised to the extent of any cost increases imposed by third parties as applied to the Company as a whole) or any action by the Company which would materially and adversely affect the executive's participation or reduce the executive's benefits under any such plans, except to the extent that such benefits and incentives are reduced as to be made equivalent to the benefits and incentives of all other executive officers of the Company and/or its successor or assign;
(iii) any diminution of the executive's duties, responsibilities, authority, reporting structure, titles or offices, excluding for this purpose an isolated, insubstantial or inadvertent action not taken in bad faith which is remedied by the Company immediately after notice thereof is given by the executive;
(iv) request that the executive relocate to a work site that would increase the executive's one-way commute distance by more than 35 miles from his then principal residence, unless the executive accepts such relocation opportunity;
(v) any material breach by the Company of its obligations under the agreement; or
(vi) any failure by the Company to obtain the assumption of the agreement by any successor or assign of the Company.
For six months following the termination of employment, each executive agrees not to disclose any confidential information obtained by him while in the employ of the Company with respect to the companys business. In addition, each executive has agreed that during the term of his employment agreement and for six months thereafter, he generally will not (i) engage in any business in North America that is substantially identical to the business of GTSI or (ii) hire any employee, consultant or director of GTSI or encourage any such person to leave his or her job with GTSI or (iii) induce any client of GTSI to terminate its business relationship with the Company.
If it is determined that any payment or distribution by the Company to or for the benefit of the executive in connection with a Change of Control would be subject to the excise tax imposed by Internal Revenue Code Section 4999, the executive will be entitled to receive an additional payment (a "Gross-up Payment") in an amount such that, after payment by the executive of the excise tax imposed by Code Section 4999 on the Gross-up Payment, the executive retains an amount of the Gross-up Payment equal to the excise tax imposed upon the Change of Control payments.
41
The following table sets forth the established payments and benefits that would be provided to each executive if their employment is severed or materially changed by a Change of Control as of December 31, 2009 if the executive had been terminated without cause or had terminated for good cause:
Name | Base salary benefit ($) | Annual Short Term Incentive Benefit ($) | Health Insurance Benefits | Option/SSARs Awards ($)2 | Restricted Share Awards ($)3 | Total ($)8 |
Scott Friedlander4 | 510,000 | 382,500 | 12,000 | 0 | 116,004 | 1,020,504 |
Peter Whitfield5 | 312,500 | 156,250 | 12,000 | 0 | 41,981 | 522,731 |
Todd Leto6 | 350,000 | 245,000 | 12,000 | 0 | 104,284 | 711,284 |
Charles DeLeon7 | 312,500 | 156,250 | 12,000 | 0 | 53,866 | 534,616 |
______________________________
1 The amount represents an estimate of 6 months of health insurance benefits at the current 2010 rate
2 The amount represents fair market value of option and SSARs awards at the closing price on December 31, 2009 ($4.96)
3 The amount represents fair market value of restricted share awards at the closing price on December 31, 2009 ($4.96)
4 Mr. Friedlander is eligible for 18 months of total target compensation
5 Mr. Whitfield is eligible for 15 months of total target compensation
6 Mr. Todd Leto is eligible for 15 months of total target compensation
7 Mr. DeLeon is eligible for 15 months of total target compensation
8 Does not include gross up payments based upon determination that the amounts shown would not be subject to the excise tax imposed by Code Section 4999
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Federal Airways Corporation, a company of which Mr. Johnson is the owner and president, are parties to a consulting agreement, which began in 1997. In January of 2009, a new consulting agreement was executed and will continue until Mr. Johnson ceases to be a director of the Company or either party terminates the agreement. Under the agreement, if the Company calls upon Mr. Johnson to provide services in respect of Company matters, the Company pays Mr. Johnson a fee of $2,000 per day for his services and reimburses his related out-of-pocket expenses. During 2009, the Company paid Federal Airways Corporation $195,000, plus reimbursement of related out-of-pocket expenses of $7,583, for a total of $202,583 for services performed by Mr. Johnson during the year. During 2000 and 2001, the Company provided substantial equipment financing to a customer that was not otherwise affiliated with the Company or Mr. Johnson. In 2002 this customer was acquired by a Fortune 100 company for which the Company continues to provide equipment and services. During 2004 the Company obtained additional contracts from this customer for five new locations. Since 2000 the Company has provided this customer approximately $350 million of equipment and services, and Mr. Johnson continues to assist the Company in the support of this customer. In 2006, Mr. Johnson informed the Company of his desire to substantially reduce his consulting activity; and in January 2009, the Company and Mr. Johnson entered into a new agreement that further reduces his consulting activity.
Former Chief Executive Officer James J. Letos son, Todd Leto, serves as Senior Vice President, Sales and Marketing, a division of the Company. For 2009, refer to the Summary Compensation Table on page 26. During 2007, Mr. Todd Leto received a salary of $249,432, an incentive of $188,475, country club initiation fee of $15,000, and club membership of $2,603. By agreement between the Company and James
42
J. Leto, Mr. James Leto did not participate in any decision making at GTSI with respect to Mr. Todd Letos performance or compensation.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD
The following Report of the Audit Committee of the Board (the Audit Committee) does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates this Report by reference in any of those filings.
The Board adopted a written Audit Committee Charter, a copy of which is posted on the Companys Internet website, www.GTSI.com (located on the Investor Relations web page). The Board and the Audit Committee believe that the Audit Committee members are and were at the time of the actions described in this report independent as independence is defined in Nasdaq Rule 4200(a)(15).
In overseeing the preparation of the Companys financial statements, the Audit Committee met with both management and the Companys independent registered public accounting firm, PricewaterhouseCoopers LLP to review and discuss significant accounting issues.
The Audit Committee members have reviewed and discussed with the Companys management the Companys audited consolidated financial statements as of and for the year ended December 31, 2009. Management advised the Audit Committee that all of the Companys consolidated financial statements as of and for the fiscal year ended December 31, 2009 were prepared in accordance with U.S. generally accepted accounting principles and the Audit Committee discussed such financial statements with both management and PwC.
Prior to the commencement of the audit, the Audit Committee discussed with Companys management and PwC the overall scope and plans for the audit. Subsequent to the audit and each of the quarterly reviews, the Audit Committee discussed with PwC, with and without management present, the results of their examinations or reviews, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of specific judgments and the clarity of disclosures in the consolidated financial statements.
The Audit Committee members review included discussion with PwC of matters required to be discussed pursuant to Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
With respect to the Companys independent registered public accounting firm, members of the Audit Committee, among other things, discussed with PwC matters relating to its independence, including the written disclosures and letter received by the Audit Committee as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants communications with the audit committee concerning independence. The Audit Committee reviewed and pre-approved the non-audit services described below provided by PwC during 2009. The Audit Committee has considered whether the provision by PwC of non-audit services to the Company is compatible with maintaining PricewaterhouseCoopers independence and concluded it was compatible with maintaining the requisite independence.
The Audit Committee also works with the internal auditor that reports directly to the Audit Committee and the Chief Financial Officer.
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Management determined that the Company was a non-accelerated filer for its 2009 fiscal year since its float fell below the required threshold of $50 million for non-affiliates as of the last business day of its most recently completed second fiscal quarter. During the course of closing the fiscal year ended December 31, 2009, management completed the documentation, testing and evaluation of the Companys system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act and related regulations. The Audit Committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. The Audit Committee reviewed the report of management contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC, as well as the independent registered public accounting firms Report of Independent Registered Public Accounting Firm included in the Companys Annual Report on Form 10-K related to its audit of the consolidated financial statements and the effectiveness of internal control over financial reporting. The Company requested that PwC complete their assessment of the effectiveness of internal controls over financial reporting even though the requirement is not required for non-accelerated filers.
On the basis of the reviews and discussions referred to above, the Audit Committee recommended to the Board that the Board approve the inclusion of the Companys audited consolidated financial statements referred to above in the Companys Annual Report on Form 10-K for the year ended December 31, 2009, for filing with the SEC.
Audit Committee members for the year ended December 31, 2009:
Barry L. Reisig, Chairman
Thomas Hewitt
Joseph Keith Kellogg, Jr.
Steven Kelman
AUDIT FEES
The following table shows the fees paid or incurred by the Company for the audit and other services provided by PricewaterhouseCoopers LLP for 2009 and 2008.
|
2009 |
| 2008 | |||
Audit Fees | $ | 1,119,103 |
| $ | 1,308,500 | 1 |
Audit Related Fees | $ | 0 |
| $ | 80,000 |
|
Tax Fees | $ | 55,000 |
| $ | 20,000 |
|
All Other | $ |
6,500 |
| $ |
1,500 |
|
Total | $ |
1,180,603 |
|
$ |
1,410,000 |
|
1
Includes fees for audit of consolidated financial statements, audit of internal controls over financial reporting, quarterly reviews, advisory services related to Form S-8 registration statements, and/or advisory services related to certain accounting issues.
Effective May 6, 2003, GTSI was required to obtain pre-approval by our Audit Committee for all audit and permissible non-audit related fees incurred with our independent registered public accounting firm. The Audit Committee has adopted additional pre-approval policies and procedures. All audit and tax fees were approved in advance by the Audit Committee. When it is efficient to do so, we use third parties other than our auditors to perform non-audit work, such as tax work, on behalf of the Company.
44
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Due to timing reasons, the Board has not yet selected the independent registered public accounting firm for the Companys year ending December 31, 2010, but is expected to select the independent registered public accounting firm at the next Board Meeting. The Company, through the Audit Committee and Board confirmation engaged PricewaterhouseCoopers LLP as its independent registered public accounting firm since June 6, 2007, and the Firm has continued as its independent registered public accounting firm through December 31, 2009. It is expected that the Board will select PricewaterhouseCoopers, LLP to continue as the Companys independent registered public accounting firm for the year ended December 31, 2010
A representative of PricewaterhouseCoopers LLP, who is expected to be present at the Meeting, will have an opportunity to make a statement if he or she so desires, and is expected to be available to respond to appropriate questions.
45
ANNUAL REPORT
A copy of the Companys 2009 Annual Report to Stockholders is being delivered to each stockholder as of the Record Date. The Companys Annual Report on Form 10K for the year ended December 31, 2009, as filed with the SEC, is also available free of charge to all stockholders of record as of the Record Date by writing to the Company at 2553 Dulles View Drive, Suite 100, Herndon, Virginia, 20171-5219, Attention: Investor Relations.
HOUSEHOLDING
Approved by the Securities and Exchange Commission, Householding allows companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports by delivering only one package of stockholder proxy materials to any household at which two or more stockholders reside. If you and other residents at your mailing address own shares of our common stock in street name, your broker or bank may have notified you that your household will receive only one copy of our proxy materials. Once you have received notice from your broker that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of the proxy statement and wish to receive only one, please notify your broker if your shares are held in a brokerage account. If you hold shares of our common stock in your own name as a holder of record, householding will not apply to your shares.
We will deliver promptly upon written or oral request a separate copy of our annual report and/or proxy statement to a stockholder at a shared address to which a single copy of either document was delivered. For copies of either or both documents, stockholders should write to the Company at 2553 Dulles View Drive, Suite 100, Herndon, Virginia 20171-5219, Attention: Investor Relations, or call (703) 631-3333.
OTHER MATTERS
The Company currently knows of no matters to be submitted at the Meeting other than those described herein. If any other matters properly come before the Meeting, the proxies will vote the Common Stock they represent as they deem advisable. The persons named as attorneys-in-fact in the proxies are officers of the Company.
By Order of the Board of Directors
Charles E. DeLeon
Secretary
Herndon, Virginia
March 31, 2010
46
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GTSI CORP.
2010 Annual Meeting of Stockholders
The undersigned stockholder(s) of GTSI Corp., a Delaware corporation (the Company), hereby acknowledges receipt of the Companys Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 31, 2010, and Annual Report for the fiscal year ended December 31, 2009, and hereby appoints Scott W. Friedlander and Charles E. De Leon, and each of them, proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Annual Meeting of Stockholders of the Company to be held at 10:00 A.M., local time, on April 21, 2010, at the Companys headquarters located at 2553 Dulles View Drive, Suite 100, Herndon, Virginia, and at any adjournment(s) thereof, and to vote all Common Stock to which the undersigned would be entitled, if then and there personally present, on the matters set forth below and as more particularly described in the Companys above-mentioned Proxy Statement:
1.
Election of Directors.
For All Nominees Listed Below
Withhold Authority to Vote
(except as marked to the contrary below)
For All Nominees Listed
(Instruction: To withhold the authority to vote for any individual nominee, mark the box next to that nominees name below.)
Name of Nominees for election as Class 1 directors of the Company:
Daniel R. Young
Joseph Keith Kellogg
Lloyd Griffiths
Linwood (Chip) Lacy, Jr.
Name of Nominee for election as Class 2 director of the Company:
Scott W. Friedlander
2.
Other Business.
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the Annual Meeting or any adjournment(s) thereof.
Any one of such attorneys-in-fact or substitutes as shall be present and shall act at said Annual Meeting or any adjournment(s) thereof shall have and may exercise all powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED IN PROPOSAL 1 ABOVE AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated:
__________________, 2010
_____________________________
Signature
_____________________________
Signature
This Proxy should be marked, dated and signed by each stockholder exactly as his or her name appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both parties should sign.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
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