-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JuPsuh1opsHt64zBqmooZ3hlzGmSjapByUlmqqKzEGwf+fA64X+/nw7Ul93HfRqR FQCs4GHDlTNxFkJIHJG9hA== 0000928385-96-000288.txt : 19960411 0000928385-96-000288.hdr.sgml : 19960411 ACCESSION NUMBER: 0000928385-96-000288 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19960410 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000310624 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 540856778 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-09233 FILM NUMBER: 96545680 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 DEF 14A 1 DEF PROXY STATEMENT SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [x] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [x] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) N/A - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (3) Filing Party: (2) Form, Schedule or Registration Statement No.: (4) Date Filed: AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 Legato Road Fairfax, Virginia 22033 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED will be held at 4050 Legato Road, Fairfax, Virginia 22033 on Friday, May 10, 1996, at 10:00 a.m. local time, for the following purposes: To elect ten (10) directors to hold office until the next Annual Meeting of Shareholders of American Management Systems, Incorporated and until their successors are elected and qualified; To approve Stock Option Plan F; To approve a performance-based incentive compensation plan for executive officers; and To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof. Only shareholders of record at the close of business on March 22, 1996, will be entitled to notice of, and to vote at, the meeting or any adjournment thereof. Shareholders are cordially invited to attend the meeting in person. IF YOU WILL NOT BE ABLE TO ATTEND THE MEETING IN PERSON, PLEASE INDICATE YOUR CHOICE ON THE MATTERS TO BE VOTED UPON, DATE AND SIGN THE ENCLOSED PROXY, AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. By Order of the Board of Directors, Frank A. Nicolai Secretary April 11, 1996 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 Legato Road Fairfax, Virginia 22033 PROXY STATEMENT Annual Meeting of Shareholders May 10, 1996 Table of Contents Page ---- General................................................................. 1 Voting Procedure........................................................ 1 Election of Directors................................................... 2 Information Concerning Nominees for Director............................ 2 Information Concerning Executive Officers............................... 7 Principal Stockholders.................................................. 7 Compliance with Section 16(a) of the Securities Exchange Act of 1934.... 10 Executive Compensation.................................................. 10 Compensation Committee Report of Executive Compensation................. 12 Shareholder Return Performance Graph.................................... 16 Committees of the Board of Directors.................................... 17 Compensation Committee Interlocks and Insider Participation............. 18 Certain Transactions.................................................... 18 Proposal to Approve Stock Option Plan F................................. 18 Proposal to Approve the Performance-Based Incentive Compensation Plan for Executive Officers..................................................... 23 Other Matters........................................................... 29 Annual Report........................................................... 29 American Management Systems, Incorporated Stock Option Plan F....Exhibit A American Management Systems, Incorporated 1996 Incentive Compensation Plan for Executive Officers.....................................Exhibit B American Management Systems, Incorporated 1995 Financial Report.Appendix 1 GENERAL The enclosed Proxy is being solicited by the Board of Directors of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the "Company" or "AMS") in connection with the annual meeting of shareholders of the Company to be held May 10, 1996 (the "Annual Meeting"), or any adjournment or adjournments thereof. The entire expense of solicitation of proxies will be borne by the Company. Solicitation will be primarily by mail. However, directors, executive officers, and employees of the Company may also solicit by telephone or personal contact. The Company will reimburse brokers and other persons holding shares in their names, or in the names of nominees, for their expenses of sending proxy materials to beneficial owners and obtaining their proxies. It is anticipated that the Proxy Statement and Proxy first will be mailed to shareholders on or about April 11, 1996. Any shareholder giving a Proxy has the power to revoke it at any time before it is voted by giving notice of revocation to the Secretary of the Company. If you attend the Annual Meeting, you may, if you wish, revoke your Proxy by voting in person. Proxies solicited herein will be voted, and if the person solicited specifies in the Proxy a choice with respect to matters to be acted upon, the shares will be voted in accordance with such specification. If no choice is indicated, the Proxy will be voted for the election of the nominees listed on pages 2 to 6 under the caption "Information Concerning Nominees for Director"; for the approval of the AMS Stock Option Plan F ("Stock Option Plan F" or "Plan F"); and for the approval of the AMS 1996 Incentive Compensation Plan for Executive Officers (the "IC Plan"). On December 4, 1995, the Company announced a 3-for-2 split of its Common Stock, $0.01 par value per share (the "Common Stock"), effective January 5, 1996, for shareholders of record on December 15, 1995. Except as otherwise noted, all numbers of shares and options to purchase shares of Common Stock appearing in this Proxy Statement reflect this stock split. VOTING PROCEDURE As of March 22, 1996, there were outstanding 40,471,879 shares of Common Stock. Each share of Common Stock is entitled to one vote at the Annual Meeting. Only shareholders of record at the close of business on March 22, 1996 will be entitled to vote at the Annual Meeting. Votes cast in person or by Proxy at the Annual Meeting, abstentions and Broker Non-votes (as defined below) will be tabulated by the election inspectors appointed for such Meeting and will be counted for purposes of determining whether a quorum is present. Each matter submitted to a vote at the Annual Meeting will be approved by the affirmative vote of the holders of a majority of the shares present (in person or represented by Proxy) and entitled to vote on such matter, with the exception of the proposal to approve the IC Plan, which will be approved by the affirmative vote of the holders of a majority of the votes cast with respect to such Plan (as required by Internal Revenue Service ("IRS") regulations). The election inspectors will treat abstentions on a particular matter as shares that are present and entitled to vote for purposes of determining the approval of such matter. Abstentions, therefore, will have the same effect as a vote against a particular matter. Notwithstanding the foregoing, with respect to the proposal to approve the IC Plan, the election inspectors will not treat abstentions as votes cast for purposes of determining the approval of such Plan (as required by IRS regulations). If a broker submits a Proxy indicating that it does not have discretionary authority as to certain shares to vote on a particular matter (a "Broker Non-vote"), those shares will not be treated as present and entitled to vote for purposes of determining the approval of such matter and will not be treated as votes cast for purposes of determining the approval of the IC Plan. 1 ELECTION OF DIRECTORS Ten directors are to be elected at the Annual Meeting, each to hold office until the next annual meeting of shareholders of the Company and until his or her successor is elected and qualified. The directors will be elected by the affirmative vote of the holders of a majority of the shares present in person or represented by Proxy and entitled to vote on the election of directors. Unless otherwise directed, it is the intention of the persons named in the Proxy to vote such Proxy for the election of the nominees listed on pages 2 to 6. All of the nominees are now directors of the Company. In the event that any nominee should be unable to accept the office of director, which is not anticipated, it is intended that the persons named in the Proxy will vote for the election of such other person in the place of such nominee for the office of director as the Board of Directors may recommend. Descriptive information as to each nominee is set forth below under the caption "Information Concerning Nominees for Director." INFORMATION CONCERNING NOMINEES FOR DIRECTOR
Year First Elected Name Age Position Director Background ---- --- -------- --------- ---------- Charles O. Rossotti........ 55 Chairman of 1970 Mr. Rossotti is one of the founders the Board of of the Company and was elected Directors Chairman of the Board of Directors and Director in February 1989. He has served as a member of the Board of Directors since 1970, and as Chief Executive Officer from 1982 to September 1993. He served as President from 1970 to October 1992. He is also a director of Intersolv, Inc., a publicly held corporation. Patrick W. Gross........... 51 Vice Chairman 1974 Mr. Gross is one of the Company's of the Board of founders and has served AMS Directors continuously as an executive officer and Director since 1970. He was elected Vice Chairman of the Board of Directors in February 1989 and was Chairman of the Executive Committee from 1983 until 1989. He is a director of Capital One Financial Corporation, which is a publicly held entity. He is also Chairman of the Board of Directors of Baker & Taylor Holdings, Inc. and a director of Anthem Financial Corporation, which are both non-publicly held entities.
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Year First Elected Name Age Position Director Background ---- --- -------- --------- ---------- Paul A. Brands............. 54 Vice Chairman 1992 Mr. Brands has served as Vice of the Board Chairman of the Board of Directors of Directors, and a member of the Board of Directors Chief Executive since October 1992. He was designated Officer, and Chief Executive Officer in September 1993. Director He supervised the Federal Consulting and Systems Group from 1977 to 1992; Data Base Management, Inc. from 1990 to 1992; and the Company's interest in Bell Atlantic Systems Integration Corporation from 1989 to 1992. Mr. Brands joined the Company in 1977. Philip M. Giuntini......... 49 President 1992 Mr. Giuntini has served as President and Director and a member of the Board of Directors since October 1992. He supervised the business units responsible for the energy market from 1989 to 1992, the business units responsible for the telecommunications market from 1985 to 1992, and the business units responsible for other systems integration and services markets from 1982 to 1992. Mr. Giuntini joined the Company in 1970. Frank A. Nicolai........... 54 Executive 1974 Mr. Nicolai is one of the Company's Vice founders and has served continuously President, as an executive officer since 1970. Secretary, He was elected Treasurer in 1980 Treasurer, and Secretary in 1987. and Director
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Year First Elected Name Age Position Director Background ---- --- -------- -------- ---------- Daniel J. Altobello........ 55 Director 1993 Mr. Altobello has been Chairman and Director of ONEX Food Services, Inc. since September 1995 and President of Caterair International Corporation since December 1989. He served as Chairman of the Board and Chief Executive Officer of Caterair International Corporation from December 1989 through September 1995. From April 1988 through December 1989, Mr. Altobello was Executive Vice President of Marriott Corporation and President of Marriott Airport Operations. He currently serves as a director of Blue Cross and Blue Shield of Maryland, Inc. and a member of the Advisory Board of Thayer Capital Partners, a merchant bank. Neither of these entities is publicly held. James J. Forese............ 60 Director 1989 Mr. Forese is currently Executive Vice-President, Chief Operating Officer, and Director of ALCO Standard Corporation. From 1993 to 1995 he served as General Manager of IBM Customer Financing and Chairman of IBM Credit Corporation. He served as IBM Vice President, Finance from 1990 to 1993 and IBM Vice President and Group Executive, IBM World Trade Americas Group, from 1988 to 1990. He currently serves as a director of NUI Corporation, which is a publicly-held corporation. He joined ALCO in 1996.
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Year First Elected Name Age Position Director Background ---- --- -------- -------- ---------- Dorothy Leonard-Barton..... 54 Director 1991 Dr. Leonard-Barton has been a Professor at the Harvard University Graduate School of Business Administration since 1993. Prior to this, she served as an Associate Professor from 1989 to 1993, and an Assistant Professor from 1983 to 1989, at the Harvard University Graduate School of Business Administration. Dr. Leonard-Barton also serves as an independent industrial consultant to various companies including, among others, AT&T Bell Laboratories, Digital Equipment Corporation, and IBM Corporation. W. Walker Lewis............ 51 Director 1995/(1)/ Mr. Lewis has been a Senior Advisor with Dillon, Read & Co., Inc. since January 1995. He was Managing Director, Strategic Services, and a member of the Management Committee of Kidder, Peabody & Co., Inc. from April 1994 to December 1994. From April 1992 through December 1993 he served as President of Avon North America, and from March 1992 to December 1992 he served as Executive Vice President of Avon Corporate. He currently serves as a director of Owens Corning Fiberglass and Unilab Corporation, which are publicly-held corporations, and Health Benefits America and Marakon Associates, which are non-publicly held entities.
/(1)/ Mr. Lewis was elected to the Board of Directors in December 1995 to fill a vacancy on the Board that resulted from the death of Steven R. Fenster in June 1995. Mr. Lewis previously served as a director of AMS from February 1981 through May 1992. 5
Year First Elected Name Age Position Director Background ---- --- -------- -------- ---------- Frederic V. Malek.......... 59 Director 1985 Mr. Malek has been Chairman of Thayer Capital Partners, a merchant bank, since March 1993. He also is Co-Chairman, CB Commercial Real Estate Group (a real estate brokerage and management firm), having served in such capacity since April 1989. He was Campaign Manager for the re-election campaign of President Bush and Vice President Quayle from December 1991 to November 1992. He was Vice Chairman of Northwest Airlines from 1990 until December 1991, and was President of Northwest Airlines from 1989 to 1990. From 1988 to 1989 he was Senior Advisor to The Carlyle Group (investment bank), and from 1981 to 1988 he was President of Marriott Hotels and Resorts. Mr. Malek also serves as a director of Automatic Data Processing, Inc.; National Education Corporation various Paine-Webber mutual funds; FPL Group; ICF Kaiser, Inc.; Northwest Airlines; Intrav, Inc.; and Manor Care, Inc., all of which are publicly-held entities; Avis, Inc.; and CB Commercial Real Estate Group, which are non-publicly held entities.
6 INFORMATION CONCERNING EXECUTIVE OFFICERS Information concerning Charles O. Rossotti, Chairman; Patrick W. Gross, Vice Chairman; Paul A. Brands, Vice Chairman and Chief Executive Officer; Philip M. Giuntini, President; and Frank A. Nicolai, Executive Vice President, Secretary, and Treasurer, is set forth above under the caption "Information Concerning Nominees for Director."
Name Age Position Background ---- --- -------- ---------- Fred L. Forman............. 52 Executive Dr. Forman is a key Vice President participant in overall corporate management and currently heads the Company's Achieving Breakthrough Performance business reengineering initiative. He was in charge of the Corporate Technology Group from 1986 until 1994. He joined the Company in 1971.
PRINCIPAL STOCKHOLDERS The following table sets forth, as of March 22, 1996, the number and percentage of outstanding shares of Common Stock beneficially owned by (i) all persons known by the Company to own 5% or more of such shares, (ii) each director, (iii) each executive officer, and (iv) all executive officers and directors as a group. Unless otherwise noted below, each person or entity named in the table has sole voting and sole investment power with respect to each of the shares beneficially owned by such person or entity.
Amount of Percent of Beneficial Class of Name and Address of Beneficial Owner Ownership(1) Outstanding Shares(2) - ------------------------------------ --------- ------------------ Daniel J. Altobello(3)(5) .......... 13,217 Common-0.0% 6550 Rock Spring Drive Bethesda, MD 20817 Paul A. Brands(3)(4) ............... 488,041 Common-1.2% 4050 Legato Road Fairfax, VA 22033 James J. Forese(3) ................. 60,622 Common-0.1% 825 Duportail Road Wayne, PA 19087 Fred L. Forman(4) .................. 257,045 Common-0.6% 4050 Legato Road Fairfax, VA 22033 Philip M. Giuntini(3)(4)(6) ........ 460,246 Common-1.1% 4050 Legato Road Fairfax, VA 22033 Patrick W. Gross(3)(4)(7) .......... 678,606 Common-1.7% 4050 Legato Road Fairfax, VA 22033
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Amount of Percent of Beneficial Class of Name and Address of Beneficial Owner Ownership(1) Outstanding Shares(2) - ------------------------------------ --------- ------------------ Dorothy Leonard-Barton(3)............. 9,280 Common-0.0% The Harvard University Graduate School of Business Administration 522 Soldiers Field Road Boston, MA 02163 W. Walker Lewis(3).................... 748 Common-0.0% 535 Madison Avenue New York, NY 10022 Frederic V. Malek(3).................. 29,216 Common-0.1% 901 15th Street, N.W. Suite 300 Washington, D.C. 20005 Frank A. Nicolai(3)(4)(8)............. 527,654 Common-1.3% 4050 Legato Road Fairfax, VA 22033 Charles O. Rossotti(3)(4)(9).......... 1,431,678 Common-3.5% 4050 Legato Road Fairfax, VA 22033 FMR Corp.(10)......................... 2,906,700 Common-7.2% 82 Devonshire Street Boston, MA 02109 William Blair & Company, L.L.C.(11)... 2,016,588 Common-5.0% 222 West Adams Street Chicago, IL 60606 All executive officers and directors.. 3,956,353 Common-9.8% as a group (eleven persons)
/(1)/ Amount of beneficial ownership includes stock options granted to directors and executive officers which have vested and are or will become exercisable within 60 days of March 22, 1996. Accordingly, Mr. Altobello has 9,842 options vested and exercisable; Mr. Brands has 33,917 options vested and exercisable; Mr. Forese has 3,747 options vested and exercisable; Dr. Forman has 25,060 options vested and exercisable; Mr. Giuntini has 30,874 options vested and exercisable; Dr. Leonard-Barton has 2,250 options vested and exercisable; Mr. Lewis has 748 options vested and exercisable; Mr. Malek has 7,123 options vested and exercisable; and Messrs. Nicolai, Gross, and Rossotti have no options vested and exercisable. In addition, Mr. Giuntini's beneficial ownership includes 31,340 vested and exercisable options granted to Donna E. Deeley, his spouse and a Vice President of the Company. All executive officers and directors as a group (eleven persons) have beneficial ownership of 144,901 options vested and exercisable within 60 days of March 22, 1996. 8 /(2)/ All amounts and percentages of Common Stock were calculated to include stock options vested and exercisable for those individual directors and executive officers who had such stock options. The number of shares of Common Stock was calculated as of March 22, 1996. /(3)/ Indicates a director of the Company. /(4)/ Indicates an executive officer of the Company. /(5)/ Includes 1,125 shares beneficially owned by Mr. Altobello's daughter-in- law, who has the sole power to vote and dispose of such shares. Mr. Altobello disclaims beneficial ownership with respect to the shares owned by his daughter-in-law. /(6)/ Amount of beneficial ownership includes 84,263 shares and 31,340 options owned by Mr. Giuntini's spouse, a Vice President of the Company, who has the sole power to vote and dispose of such shares. /(7)/ Includes 172,125 shares beneficially owned by Mr. Gross' wife, both individually and as a custodian for her children, with respect to which shares Mr. Gross disclaims beneficial ownership. Mrs. Gross has the sole power to vote and dispose of those shares beneficially owned by her. /(8)/ Includes 64,124 shares beneficially owned by Ms. Nicolai with respect to which she has sole voting and dispositive power. Mr. Nicolai disclaims beneficial ownership with respect to the shares owned by Ms. Nicolai. /(9)/ Includes 182,250 shares each owned by two trusts, totaling 364,500 shares, for the benefit of Mr. Rossotti's daughter and son, respectively, of which Mr. and Mrs. Rossotti are co-trustees. Mr. and Mrs. Rossotti share joint power to vote and dispose of those shares. Also includes 964,803 shares jointly owned by Mr. and Mrs. Rossotti, who share joint power to vote and dispose of such shares. /(10)/ Based solely on the February 14, 1996 filing on Schedule 13G of FMR Corp. ("FMR"), it is the Company's understanding that (i) FMR is a parent holding company, (ii) the amount of beneficial ownership includes 1,603,900 shares beneficially owned by Fidelity Management & Research Company, a wholly-owned subsidiary of FMR and a registered investment adviser, for the benefit of its clients, (iii) the amount of beneficial ownership includes 333,900 shares beneficially owned by Fidelity Management Trust Company, a wholly-owned subsidiary of FMR and a bank, for the benefit of its clients, and (iv) FMR has sole dispositive power over all of the reported shares and sole voting power over 333,900 of the reported shares. /(11)/ Based solely on the March 6, 1996 filing on Schedule 13G of William Blair & Company, L.L.C. ("Blair"), it is the Company's understanding that (i) Blair is a registered investment adviser, and (ii) Blair has sole dispositive power over all of the reported shares and sole voting power over 361,647 of the reported shares. 9 COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company's directors, executive officers, and persons who own more than 10% of a registered class of the equity securities of the Company ("reporting persons") file with the Securities and Exchange Commission initial reports of ownership, and reports of changes in ownership, of shares of stock, and options to purchase such shares, of the Company. Reporting persons are required by Securities and Exchange Commission rules to furnish the Company with copies of all Section 16(A) reports they file. Based solely upon a review of Section 16(a) reports furnished to the Company for the fiscal year ended December 31, 1995 (the "1995 fiscal year"), and representations by reporting persons that no other reports were required for the 1995 fiscal year, all Section 16(a) reporting requirements were met. EXECUTIVE COMPENSATION Summary Compensation Table The following table summarizes the compensation paid or accrued by the Company during the three fiscal years ended December 31, 1995 to the Company's executive officers.
Annual Compensation Long-Term Compensation Awards ------------------- ----------------------------- Payouts ------- Shares Underlying Options (No. LTIP All Other Name and Principal Position Year Salary Bonus/(1)/ of Shares)/(2)/ Payout/(3)/ Compensation/(4)/ - --------------------------- ---- ------ ----- -------------- ---------- ---------------- Charles O. Rossotti 1995 $250,000 $250,000 0 $ 0 $ 7,904 Chairman of the Board of 1994 251,917 250,000 0 0 8,382 Directors and Director 1993 303,500 0 0 0 9,739 Patrick W. Gross 1995 270,833 192,500 4,050 577,500 7,904 Vice Chairman of the Board 1994 248,767 175,000 1,350 0 7,924 of Directors and Director 1993 242,600 0 16,538 0 11,739 Paul A. Brands 1995 282,917 287,000 8,100 598,500 7,904 Vice Chairman of the Board 1994 260,417 262,500 0 0 8,211 of Directors, Chief Executive 1993 242,167 0 12,825 0 9,739 Officer, and Director Philip M. Giuntini 1995 282,917 287,000 8,100 598,500 7,904 President and Director 1994 260,417 262,500 0 0 7,924 1993 242,167 0 28,556 0 9,739 Frank A. Nicolai 1995 249,167 177,100 4,050 354,200 7,904 Executive Vice President, 1994 226,667 161,000 0 0 8,292 Secretary, Treasurer, 1993 207,200 0 1,350 0 9,739 and Director Fred L. Forman 1995 270,333 192,500 4,050 385,000 7,904 Executive Vice President 1994 246,667 175,000 0 0 7,924 1993 226,000 69,000 20,336 0 9,739
10 /(1)/ All amounts were awarded based on the achievement of annual performance goals under single or multi-year incentive compensation plans. /(2)/ Each of these awards of Common Stock are associated with performance under individual incentive compensation plans and were made by the appropriate Board committee pursuant to a shareholder-approved stock option plan. /(3)/ All amounts represent the final cash payment awarded for successful completion of multi-year performance indicators of individual incentive compensation plans. /(4)/ These amounts represent the Company's contribution to special individual retirement accounts pursuant to the AMS Simplified Employee Pension Plan. In the case of Mr. Gross for fiscal 1993, the amount includes a 20-year anniversary award of $2,000. These numbers also include other miscellaneous compensation in immaterial amounts for several officers (less than $1,000 per person). Option Grants in Fiscal 1995 Shown below is information concerning stock option grants to the Company's executive officers who were granted options on Common Stock during the Company's 1995 fiscal year.
Individual Grants ---------------------------------------------------------- Potential Realizable Value at Assumed Annual Rates Number of % of Total of Stock Price Appreciation Shares Options for Option Term Underlying Granted to Exercise or Compounded Annually Options Employees Base Price Expiration ---------------------------- Name Granted(1) in Fiscal 1995 ($/Share) Date 5% 10% ----- --------- --------------- --------- ---------- ------- -------- Charles O. Rossotti........ 0 0.0% N/A N/A $ 0 $ 0 Patrick W. Gross........... 4,050 0.6% $13.625 2/28/00 15,236 33,665 Paul A. Brands............. 8,100 1.1% 13.625 2/28/00 30,472 67,331 Philip M. Giuntini......... 8,100 1.1% 13.625 2/28/00 30,472 67,331 Frank A. Nicolai........... 4,050 0.6% 13.625 2/28/00 15,236 33,665 Fred L. Forman............. 4,050 0.6% 13.625 2/28/00 15,236 33,665
/(1)/ Each option grant is associated with a performance-based individual incentive compensation plan for 1994-1995 and was made by the appropriate Board committee pursuant to a shareholder-approved stock option plan. The option award will become exercisable one day prior to the stated expiration date. In accordance with each incentive compensation plan, the exercise date of an option award may be accelerated to June 30 or August 31 of the year following the end of the performance period covered by the plan if the Compensation Committee determines that the executive successfully completed the plan. /(2)/ Each option grant was awarded with an exercise price equal to the market value of the Common Stock on the date of grant. 11 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values Shown below is information with respect to exercises by the Company's executive officers during the Company's 1995 fiscal year of options to purchase shares of Common Stock pursuant to the 1992 Amended and Restated Stock Option Plan E, as amended (the "1992 Stock Option Plan E" or "1992 Plan E"), and earlier stock option plans. Also shown is information with respect to certain unexercised options to purchase shares of Common Stock held by the Company's executive officers as of the end of the Company's 1995 fiscal year.
Number of Number of Shares Underlying Value of Unexercised Shares Unexercised Options at In-the-Money Options at Acquired End of Fiscal Year End of Fiscal 1995/(2)/ Name on Value --------------------- --------------------- ---- Exercise Realized/(1)/ Exercisable Unexercisable Exercisable Unexercisable --------------- ---------- ----------- ------------- ----------- ------------- Charles O. Rossotti........ 0 $ 0 0 0 $ 0 $ 0 Patrick W. Gross........... 4,725 44,450 0 64,462 0 788,725 Paul A. Brands............. 0 0 46,674 10,802 605,877 83,168 Philip M. Giuntini......... 6,259 54,713 56,628 10,801 701,050 83,153 Frank A. Nicolai........... 8,437 89,375 0 5,400 0 41,569 Fred L. Forman............. 0 0 36,703 5,401 451,698 41,585
/(1)/ Based on the market value of the Common Stock on date of exercise (as measured by the NASDAQ closing bid price), minus the option's exercise price. /(2)/ Based on the market value of the Common Stock on the last trading day of 1995 (as measured by the NASDAQ closing bid price of $20.00), minus the exercise price. Long-Term Incentive Plan Awards in Last Fiscal Year No awards were made to the Company's executive officers during the Company's 1995 fiscal year under long-term incentive plans. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this Proxy Statement, in whole or in part, the following report and the Performance Graph shall not be incorporated by reference into any such filings. COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION Composition and Responsibilities of Compensation Committee The Compensation Committee of the Board of Directors is responsible for developing and making recommendations to the Board of Directors with respect to the Company's compensation policies generally. It is composed entirely of outside directors who have never served as officers of the Company or its affiliates (the "Outside Directors"). The Compensation Committee approves the compensation plans for the Company's executive officers, including the Chief Executive Officer (the "CEO"), and on an annual basis determines the compensation to be paid to the executive officers. The Compensation Committee is responsible for the granting and administration of stock options and incentive compensation granted to the executive officers. 12 The Compensation Committee has furnished the following report for fiscal 1995: Compensation Objectives and Philosophy The objectives of the Company's executive compensation program are to provide a level of compensation that will attract and retain executives capable of achieving long-term success for the Company's shareholders and to structure their compensation packages such that a significant portion generally is tied to the achievement of multi-year targets for pre-tax income. Executive Officer Compensation The Company's executive compensation program consists of three main components: (i) annual base salary, (ii) potential for an annual cash bonus and awards of stock options based on Company pre-tax income, the profit contribution of a particular business unit, individual performance, or some combination of these factors, and (iii) the opportunity to earn long-term cash and stock-based incentives which are intended to encourage the achievement of superior results over time and to align executive officer and shareholder interests. In addition to research and recommendations furnished by the Company's senior management, the Compensation Committee has relied, inter alia, on information furnished through executive compensation surveys by a recognized compensation consulting firm, and information known to various members of the Board of Directors. The Compensation Committee compares salaries and other elements of executive compensation with the compensation paid to executives in technology and consulting firms which are actual competitors of the Company. Few of these companies are in the Hambrecht & Quist Technology Stock Index, the peer index chosen by the Company for comparison in the "Shareholder Return Performance Graph" below, because their shares are not publicly traded. They include, for example, the consulting divisions of certain Big 6 accounting firms, other prominent consulting firms which are wholly owned subsidiaries of publicly traded companies, and other software firms that are privately held. The executive officers, including the CEO, are eligible for the same benefits, including group health and life insurance and participation in the Company's Simplified Employee Pension/IRA Plan, as are available generally to the Company's professional staff, except that the executive officers do not participate in the Company's Profit-Sharing Plan or Employee Stock Purchase Plan. The Company does not provide material perquisites to any of its executive officers. Annual Base Salary. The Compensation Committee determines the annual base salary of each of the Company's executive officers, including the CEO. Changes in base salary are generally made effective on March 1. The same principles are applied in setting the salaries of all executive officers to ensure that salaries are competitively established. Salaries are determined by considering the officer's potential duties and responsibilities within the Company and his or her business unit, and the officer's potential impact on the operations and profitability of the Company. Unlike with respect to the Company's incentive compensation arrangements, the Compensation Committee does not consider achievement of specific corporate performance factors in establishing base salaries for its executive officers. In general, it is the policy of the Company to set base salaries lower than would be typical for comparable positions in similar firms, and to include more compensation in incentive plans, particularly incentive compensation plans tied to multi-year performance periods. Incentive Compensation Plans. Each executive officer of the Company generally participates in incentive compensation plans of one to three years in duration. These plans are similar to multi-year incentive plans in which other members of the Company's professional staff participate. Under such plans, the officer is eligible for annual cash incentive awards, and cash awards which may be made at the end of the plan if the Compensation Committee determines that the officer has met the specified goals of the executive's programs. Some plans also contemplate awards of stock options under the Company's shareholder-approved stock option plans. Each executive officer has a plan which details the executive officer's goals, the primary or sole element of which is financial performance, including targets for the Company's pre-tax income, or targets for profit contribution by one or more business units, or a combination thereof. Certain executive officers also have plans which include individual, non- financial goals. The annual cash awards under the incentive compensation plans and the cash portion of the award for completion of an incentive compensation plan generally are based on multiples of a percentage of the executive officer's salary for the relevant fiscal period. The number of stock options which may be awarded is determined at the 13 time the performance goals are established. Such number of stock options is not determined by reference to any specific criteria other than the Company's historical practice of awarding stock options in connection with incentive compensation plans for certain executive officers. Such number has been relatively consistent for multi-year plans for executive officers for more than ten years. The exercise price of all options granted in connection with the incentive compensation plans for the executive officers is the fair market value of the shares on the date of grant of the option. Achievement of the specified financial or non-financial goals for plan years earlier than the final plan year in a multi-year plan entitles the executive to specified interim cash payments and stock option grants, all of which are considered advances against the multi- year incentive compensation amounts. Such interim cash payments are significantly less than a ratable percentage of the projected incentive compensation payable on successful completion of a multi-year plan. For example, successful completion of the first year of a two-year plan typically would entitle the executive to payment of 25% of target cash incentive compensation. Stock options in connection with multi-year plans also are granted according to a schedule specified in the plan, typically including a small percentage of options granted at the time the plans are approved by the Compensation Committee. Fiscal 1995 was the second year of two-year incentive compensation plans for Paul A. Brands, Philip M. Giuntini, Frank A. Nicolai, and Fred L. Forman. Charles O. Rossotti and Patrick W. Gross completed one-year incentive compensation plans. All of these plans included the same pre-tax income target as a financial goal. In the cases of Messrs. Nicolai and Forman, the incentive targets also included individual goals based on their respective areas of responsibility, such as achieving operational goals within budget, improving the Company's professional recruitment and training, and new client development. In the case of Mr. Gross, 1995 was also the second year of a two-year incentive plan with individual financial goals based on strategic client development. All plans required that a minimum percentage of the stated goal must be achieved before any portion of the related incentive compensation share was payable. The plans also took into account projected pre-tax income for the year following the performance year just ended in determining whether awards are payable and the amounts thereof. Each plan also included higher award multiples for performance which exceeded the targets by a stated percentage. In February 1996, the Compensation Committee determined that Messrs. Brands, Giuntini, Rossotti, and Gross substantially met their financial goals relative to fiscal 1995, and that Messrs. Nicolai and Forman had substantially met their non-financial performance goals, and determined that each had earned his respective target payments. The Compensation Committee also determined that Mr. Gross had exceeded his target level for his individual non-financial goals and had therefore earned an additional incentive share. These amounts are shown in the Summary Compensation Table under "Annual Compensation -- Bonus" and "Long-Term Compensation Awards -- LTIP Payout." The Compensation Committee in February 1996 also approved the grant of stock options to Messrs. Brands, Giuntini, Gross, Nicolai, and Forman contemplated by their incentive compensation plans and based on achievement of the specified performance goals in their incentive compensation plans. Mr. Rossotti's 1995 compensation plan did not provide for stock options. Also in February 1996, the Compensation Committee approved the 1996 Incentive Compensation Plan for Executive Officers (i.e., the IC Plan) and fixed the pre-tax income target for financial performance contemplated by such Plan. The Company has issued IC agreements ("IC Agreements") under the IC Plan to Messrs. Rossotti, Gross, Brands, Giuntini, Nicolai, and Forman. Policy on Deductibility of Compensation Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the allowable deduction for compensation paid or accrued with respect to persons who as of the end of the year are employed as the chief executive officer and each of the four most highly compensated executive officers of a publicly held corporation is limited to no more than $1,000,000 per year for fiscal years beginning on or after January 1, 1994. This limitation does not apply to compensation consisting of stock options issuable under 1992 Plan E or Plan F, nor to compensation payable under certain performance-based compensation plans approved by shareholders. The Compensation Committee has taken certain actions to minimize the adverse effects of Section 162(m) on the after-tax income of the Company. In particular, as recommended by the Compensation Committee, the Incentive Compensation Plan for Executive Officers was presented to and approved by the shareholders at the 1994 annual meeting of shareholders of the Company, and all new grants to executive officers of incentive compensation based on financial performance are, subject to shareholder approval, being covered by the 1996 Incentive Compensation Plan for Executive Officers. The Compensation Committee also determined to defer payment of $70,000 of Mr. Gross's 1995 incentive compensation award until 1997 to avoid loss of tax deductions. The IC Plan significantly limits the Compensation Committee's discretion regarding the amount of incentive compensation paid to an 14 employee covered by such Plan. Accordingly, not all incentive compensation payable to executive officers is paid pursuant to the IC Plan. The Compensation Committee projects that it is unlikely that deductions will be lost as a result of this practice. The Compensation Committee will continue to monitor whether compensation which is limited by Section 162(m) is likely to exceed the deduction limitations under Section 162(m), and the Compensation Committee is expected to take appropriate actions to reduce the likelihood of a loss of deductions. Chief Executive Officer Compensation The Chief Executive Officer's annual base salary is established by the Compensation Committee using the same criteria as discussed above for the executive officers. Paul Brands, who has served as Chief Executive Officer of the Company since September 1993, received an annual base salary of $287,000 for 1995, which represented an increase of approximately 9% over his base salary for 1994. The Compensation Committee did not base this increase on any specific corporate performance factors. Mr. Brands' annual incentive compensation payments are determined by the Compensation Committee based entirely on targets for the Company's pre-tax income. Mr. Brands met those targets for fiscal years 1994 and 1995, as determined by the Compensation Committee in February 1996, entitling him to payment of $598,500 in bonus for successful completion of his multi-year plan. Based on Mr. Brands' successful completion of his 1994-1995 multi-year plan, the Compensation Committee also determined to grant Mr. Brands 16,200 stock options in February 1996, as contemplated by the incentive compensation program. Frederic V. Malek (Chairman) Daniel J. Altobello James J. Forese Dorothy Leonard-Barton W. Walker Lewis 15 SHAREHOLDER RETURN PERFORMANCE GRAPH The following graph provides a comparison of the cumulative total return on the Common Stock with returns on the Standard & Poor's 500 Composite Index and the Computer Software Sector Index of the Hambrecht & Quist Technology Stock Index.
=================================================================================================== 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 - --------------------------------------------------------------------------------------------------- AMSY Common Stock 100 109 184 164 239 372 - --------------------------------------------------------------------------------------------------- S&P 500 Composite Index 100 130 140 155 157 215 - --------------------------------------------------------------------------------------------------- Hambrecht & Quist Technology/Software 100 193 215 230 278 397 ===================================================================================================
16 COMMITTEES OF THE BOARD OF DIRECTORS The Company has a standing Executive Committee, Stock Option/Award Committee, Compensation Committee, and Audit Committee. The Company does not have a standing Nominating Committee. The Executive Committee is presently composed of five directors, all of whom are executive officers of the Company: Charles O. Rossotti, Patrick W. Gross, Paul A. Brands, Philip M. Giuntini, and Frank A. Nicolai. The Executive Committee generally has the power to authorize all corporate actions that the Board of Directors has the power to authorize, except as may be limited by law. The Executive Committee did not meet during 1995. The Stock Option/Award Committee is presently composed of five directors, all of whom are executive officers of the Company: Charles O. Rossotti, Patrick W. Gross, Paul A. Brands, Philip M. Giuntini, and Frank A. Nicolai. The Stock Option/Award Committee administers the Company's employee stock option plans, except as noted below. These directors are eligible to receive options under the plans, but options, if any, awarded to them are granted and administered by the Compensation Committee. The Stock Option/Award Committee also administers the Company's Profit-Sharing Plan, a stock award plan. Directors and executive officers are not eligible to participate in the Profit-Sharing Plan. The Stock Option/Award Committee meets as required and met three times during 1995. The Compensation Committee is presently composed of five Outside Directors: Daniel J. Altobello, James J. Forese, Dorothy Leonard-Barton, W. Walker Lewis, and Frederic V. Malek. Mr. Malek is Chairman of the Compensation Committee. The Compensation Committee is responsible for developing and making recommendations to the Board of Directors with respect to the Company's compensation policies generally. The Compensation Committee approves the compensation plans for the Company's executive officers, including the Chief Executive Officer, and on an annual basis determines the compensation to be paid to the executive officers. The Compensation Committee alone is responsible for the granting and administration of stock options granted to the executive officers and to the Controller. In 1995, the Compensation Committee met twice. The Audit Committee is presently composed of three Outside Directors: Daniel J. Altobello, James J. Forese, and Dorothy Leonard-Barton. Mr. Forese is Chairman of the Audit Committee. This Committee has the responsibility for making recommendations to the Board of Directors as to the independent accountants of the Company; for reviewing with the independent accountants, upon completion of their audit, the scope of their examination, any recommendations they may have for improving internal accounting controls, management systems, or choice of accounting principles, and other matters; and for reviewing generally the accounting control procedures of the Company. In 1995, the Audit Committee met twice. Also, on the recommendation of the Audit Committee, the Board of Directors has appointed the accounting firm of Price Waterhouse LLP to audit the accounts of the Company for the fiscal year ending December 31, 1996. The Board of Directors met five times during 1995, and all members attended 100% of the meetings of the Board and Committees of the Board on which they serve, except that one director was unable to attend one meeting of the Board of Directors. Outside Directors are currently entitled to receive fees of $5,000 per Board meeting attended, plus travel expenses, and such fees and expenses were, in fact, paid for all meetings attended during fiscal 1995. This fee was increased from $3,000 per meeting, effective with the May 18, 1995 meeting of the Board of Directors. In addition, Outside Directors were paid a retainer of $5,000 per year during fiscal 1995. Under the Company's Outside Directors Stock-for-Fees Plan (the "Stock-for-Fees Plan"), which was approved by shareholders in May 1995, Outside Directors can elect to have the annual meeting fees and retainer, which would otherwise be paid to the Outside Directors in cash, paid in the form of Common Stock. In January 1996, W. Walker Lewis elected, effective six months after such election pursuant to the Stock-for-Fees Plan, to have his annual meeting fees and retainer paid in the form of Common Stock. Outside Directors also receive automatic grants of stock options, which vest over five years, pursuant to the Company's stock option plans. The number of shares subject to grant, and subject to outstanding options, are adjusted when stock splits occur. The numbers of options reported below in this paragraph are the numbers of the original grants and do not give effect to the June 1992, October 1994, or January 1996 stock splits to the extent such splits occurred after the date of grant. All options granted to Outside Directors vest at the rate of 1/60th a month for each month the Outside Director continues to serve as a director. Pursuant to a prior stock option plan, each Outside Director in May 1988 was granted 5,000 options to purchase shares of the Common Stock. James J. Forese, who became a director in November 1989, was granted 5,000 options on November 10, 1989. 17 Dorothy Leonard-Barton, who became a director in September 1991, was granted 5,000 options on September 27, 1991. Under the 1992 Stock Option Plan E, each new Outside Director is automatically granted 5,000 options (such number subject to adjustments for splits) upon first becoming a director. Pursuant to an amendment to 1992 Plan E approved by shareholders in May 1993, each Outside Director is automatically granted an additional 5,000 options (such number subject to adjustments for splits), vesting over 5 years, when any options previously granted have fully vested. Pursuant to 1992 Plan E, Daniel J. Altobello was granted 7,500 options on July 27, 1993 when he first became a director, and Frederic V. Malek was granted 5,000 options in April 1993 because his options granted in 1988 had fully vested. The grant to Mr. Malek was made subject to shareholder approval, which was obtained in May 1993. In addition, under the 1992 Stock Option Plan E, Mr. Forese was granted 7,500 options (after giving effect to the October 1994 stock split) in November 1994 because his options granted in 1988 had fully vested, and W. Walker Lewis was granted 5,000 options on December 1, 1995 when he became a director. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Frederic V. Malek, James J. Forese, and Dorothy Leonard-Barton served as members of the Compensation Committee throughout fiscal 1995. Steven R. Fenster served as a member of the Compensation Committee during 1995 until his death in June 1995. The Compensation Committee is presently composed of Messrs. Malek and Forese, Dr. Leonard-Barton, Daniel J. Altobello, and W. Walker Lewis. Mr. Malek is Chairman of the Compensation Committee. During 1995, there were no Compensation Committee interlocks, and there was no insider participation in the executive compensation decisions of the Company. CERTAIN TRANSACTIONS Shaw, Pittman, Potts & Trowbridge, general counsel to the Company, earned fees and incurred reimbursable expenses totaling approximately $2,579,962 from AMS in connection with legal services performed for the Company during 1995. Barbara M. Rossotti, a member of the firm of Shaw, Pittman, Potts & Trowbridge, is the spouse of Charles O. Rossotti, Chairman of the Board and a director of the Company. PROPOSAL TO APPROVE STOCK OPTION PLAN F Introduction The Board of Directors adopted on April 3, 1996, subject to the approval of the Company's shareholders, the American Management Systems, Incorporated Stock Option Plan F because it is anticipated that all of the options to purchase shares of Common Stock available for issuance under the 1992 Stock Option Plan E will be exhausted in 1996. As of March 22, 1996, 235,575 shares of Common Stock remained available for issuance pursuant to options granted under Plan E. Whether or not Plan F is approved by the shareholders at the Annual Meeting, all options granted or to be granted under Plan E will remain outstanding in accordance with their terms. The purposes of Stock Option Plan F are (i) to offer to those employees who contribute materially to the successful operation of the Company additional incentive and encouragement to remain in the employ of the Company by increasing their personal participation in the Company through stock ownership, (ii) to provide an alternative means of compensating key employees whose performances contribute significantly to the success of the Company, and (iii) to attract and retain directors who have not at any time been officers or employees of the Company (i.e., Outside Directors) and to compensate such Outside Directors for service to the Company. If approved by the shareholders, the aggregate number of shares reserved for issuance under Plan F is 3,800,000 shares, subject to possible adjustment for capital changes. The text of Plan F is set forth in Exhibit A to this Proxy Statement, and the following description of such Plan is qualified by reference to such text. 18 Summary Description of Plan F Stock Option Plan F provides that options to purchase Common Stock may be granted to any key employee (including officers and directors) of the Company and its subsidiaries who meets minimum salary and other requirements established by the Board of Directors. "Outside Directors" also are eligible to receive options under Plan F. Stock Option Plan F defines "Outside Directors" as directors who have not at any time been officers or employees of the Company. As of March 22, 1996, 1,315 key employees (i.e., six executive officers, 123 Vice Presidents, 258 Senior Principals, and 923 Principals, including persons in comparable positions) and five Outside Directors were eligible to participate in Plan F. Stock Option Plan F provides that it shall be administered by the Board of Directors or the Stock Option/Award Committee, except as provided below. The Stock Option/Award Committee currently performs this function. In accordance with the provisions of Stock Option Plan F, the Stock Option/Award Committee has authority to determine the employees to be granted options, whether the options are nonqualified stock options ("NSOs") or incentive stock options ("ISOs"), the times at which options are granted, the exercise prices of the options, the numbers of shares subject to the options, the vesting schedule of the options or whether the options are immediately vested, the times when options terminate, and whether the exercise price will be paid in cash or stock. A committee composed of two or more Outside Directors, each of whom is required to be a "disinterested person" within the meaning of Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Act"), has sole authority to grant options to directors, other than Outside Directors, and to all persons who are "officers" or "ten percent shareholders" of the Company within the meaning of Sections 16(a) and 16(b) of the Act, and to perform all other functions with respect to options granted to those persons, including amendments to Stock Option Plan F or outstanding options which affect such persons. (This group currently consists of the Company's executive officers and Controller.) The Compensation Committee currently performs these functions. Options may be granted to key employees either (a) on the basis of awards earned under the Company's incentive compensation programs for groups of key employees, or (b) as the Board of Directors or the appropriate Committee may determine. If options are granted in connection with the Company's incentive compensation programs, then performance bonuses and options based thereon are earned based on the employee's success in meeting predetermined performance standards during one or more years (the "Performance Period"). Such options are granted, if at all, at the time that the Company determines that the employee has met or will meet the employee's predetermined performance standards for the Performance Period in question. The award of options to Outside Directors under Stock Option Plan F is non-discretionary. NSOs for 5,000 shares would be granted automatically to any new Outside Director on the date of the Outside Director's first election or appointment to the Board. Following completion of five years of service as an Outside Director, each Outside Director would receive an additional grant of 5,000 shares. Dorothy Leonard-Barton will complete five years of service as an Outside Director on September 27, 1996. One sixtieth of such options vest on the date of election or appointment of each such Outside Director to the Board, and 1/60th vest on the last day of each month thereafter for as long as the person continues to serve as a director. Stock Option Plan F provides that options granted to all directors, officers and ten percent shareholders (as defined for purposes of Sections 16(a) and 16(b) of the Act) are not exercisable for a period of at least six months from the date of grant. Stock Option Plan F authorizes the issuance of options to purchase a maximum of 3,800,000 shares, subject to adjustment for future capital changes. Shares subject to options granted under Stock Option Plan F which terminate or expire unexercised are available for the grant of future options. The number of shares which may be subject to options granted under Stock Option Plan F in any single calendar year for awards earned for one-year Performance Periods may not exceed 200,000 shares, subject to possible adjustment for capital changes. There is no annual limitation on options granted with respect to awards earned for Performance Periods of more than one year. However, the maximum number of shares which may be subject to options granted under Plan F to any "covered employee," as defined in Section 162(m) of the Internal Revenue Code, during the life of such Plan is 100,000 shares, subject to adjustment for future capital changes . Under Stock Option Plan F, NSOs are exercisable only to the extent they are vested. For employees, the Board of Directors or the appropriate Committee selects a vesting schedule over a period of up to five years 19 or provides for vesting upon the attainment of specified performance goals or other events. Optionees who receive NSOs are entitled to exercise at any time, or from time to time, all or any portion of a vested NSO; provided, however, that all NSOs expire no later than five years after the date of grant. The exercise price of all NSOs granted under Stock Option Plan F, except those options granted in connection with one-year incentive compensation plans, is the fair market value of the Common Stock on the date of grant of the option. NSOs granted in connection with one-year incentive compensation plans may be granted with exercise prices other than the fair market value of the Common Stock on the date of grant only if the exercise price is determined by a formula selected by the Board (or the appropriate Committee) that is based on the fair market value of the Common Stock, as of a date, or over a period, that is within three months of the date of grant. Under Stock Option Plan F, ISOs are exercisable only to the extent they are vested. ISOs vest over a period of up to seven years. Employees who have been granted ISOs may exercise at any time, or from time to time, all or any portion of a vested ISO. ISOs expire up to eight years after the date they are granted. The exercise price of ISOs is determined by the appropriate Committee and must be at least equal to the fair market value of the Common Stock on the date the ISO is granted (except ISOs granted to ten percent shareholders, in which case the price may not be less than 110% of fair market value). For purposes of Stock Option Plan F, the fair market value of the Common Stock is the closing bid price of the Common Stock as quoted in the National Association of Securities Dealers Automated Quotation System ("NASDAQ") in the national market on the date of grant of the option, or, if there is no trade on such date, on the most recent date upon which the Common Stock was traded. On March 22, 1996, the closing bid price of the Common Stock was $26.25 per share. Options granted to employees may be amended to advance the date on which the option vests. If an option is so amended, the amendment also may provide that the shares which would not have been vested under the original vesting schedule shall be subject to repurchase for a period of time by the Company at the original exercise price upon termination of employment of the employee for any reason. If the Company is merged, consolidated, sold, liquidated, or dissolved, Stock Option Plan F also provides for the automatic acceleration of the vesting of options which would have vested within one year of any such event. An option is exercised by giving written notice to the Company, specifying the full number of shares of Common Stock to be purchased and tendering payment to the Company of the exercise price. Payment for shares issued upon the exercise of an option may consist of cash or delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company the number of sales or loan proceeds required to pay the exercise price. Under Stock Option Plan F, the Board of Directors or the appropriate Committee also has the authority to permit an optionee to pay the exercise price for shares using shares of the Common Stock owned for at least six months, or a combination of cash and such previously- owned stock. An option is not transferable during the lifetime of the optionee, other than by will, by the laws of descent and distribution, or pursuant to a qualified domestic relations order ("QDRO"). Unless transferred under a QDRO, an option is exercisable during the optionee's lifetime only by the optionee. Upon termination of an employee's employment with the Company for any reason whatsoever, all options held by such employee which are not exercisable on the date of such termination shall expire. To the extent nonqualified stock options are exercisable on such date, shares subject to nonqualified stock options held by an employee may be purchased during the "exercise period," after which the nonqualified stock options shall expire and all rights granted under the agreement pursuant to which the options were granted shall become null and void. The "exercise period" for shares subject to nonqualified stock options held by an employee, his or her heirs, legatees or legal representatives, as the case may be, ends on the earlier of (i) the date on which the nonqualified stock option expires by its terms, or (ii) (A) except in the case of death or disability, within thirty days, or (B) in the case of death or disability, within one year after the date of termination of employment. If the Board of Directors or the appropriate Committee determines that an employee has committed certain defined acts of misconduct such as embezzlement, fraud, dishonesty, breach of fiduciary duty or deliberate disregard of the Company's rules resulting in loss, damage or injury to the Company, neither the employee nor his or her estate would be entitled to exercise any option whatsoever. Upon termination of an Outside Director as a member of the Board of Directors for any reason other than certain retirement events, death or disability, all options held by such Outside Director which are not exercisable on the date of such termination shall expire. In the event of termination by reason of death or disability, all options then unvested vest automatically, and all options may be exercised by the Outside Director, his or her heirs, 20 legatees, or legal representatives, as the case may be, at any time until the date on which the options expire by their original terms. Termination of an Outside Director's membership on the Board of Directors by reason of retirement after completion of at least ten years of continuous service will extend vesting and exercisability of such Director's options. Options unvested on the date of retirement will continue to vest at the rate of 1/60th per month for so long as such Director survives, and vested options will be exercisable at any time until the date on which all such options expire by their original terms, five years from the date of grant. All ISOs held by an employee will expire unless exercised by the employee, his or her heirs, legatees or legal representatives, as the case may be, before the earlier of (1) the date on which the ISO expires by its terms, or (2)(a) except in the case of death or disability, within thirty days after the date employment is terminated, or (b) in the case of death or disability, within one year after the date of termination of employment. In no event will a granted and outstanding ISO expire more than three months after the date of the employee's termination of employment. The Board of Directors may at any time amend Stock Option Plan F or the terms of options granted under such Plan, except that no amendment may, without approval of the shareholders, (i) materially increase the benefits accruing to the participants under the Plan, (ii) increase the number of shares which may be issued under the Plan, except for adjustments in certain circumstances, or (iii) materially modify the requirements as to eligibility for participation in the Plan. An amendment to an option granted to an Outside Director may not be made more frequently than every six months unless necessary to comply with the Internal Revenue Code or the Employee Retirement and Income Security Act of 1974, as amended. The Plan shall remain in effect until January 1, 2006. Tax Consequences Information regarding the federal income tax consequences to the Company and to optionees of options granted under Stock Option Plan F follows. This information is not intended to be exhaustive and is only intended to briefly summarize the federal income tax statutes, regulations and currently available agency interpretations thereof, and is intended to apply to Stock Option Plan F as normally operated. It is recommended that optionees consult their own professional tax advisors for personal and specific advice about options. An optionee has no tax consequences from the grant of an NSO. Upon exercise of an NSO, the optionee has compensation income taxable at ordinary income tax rates on the amount by which the fair market value of the shares received as of the date of exercise exceeds the exercise price. The Company is entitled to a deduction equal to the amount of compensation income to the optionee as long as income taxes are withheld on the optionee's compensation income. Upon the sale of Common Stock acquired through the exercise of an NSO, any difference between the amount realized and the fair market value of the Common Stock as of the date of exercise will be capital gain or loss. An employee is not taxed upon the grant of an ISO. Except for the possible imposition of the alternative minimum tax, an optionee is not taxable on the exercise of an ISO. Unlike the exercise of an NSO, the Company is not entitled to a deduction with respect to an ISO unless the optionee engaged in a disqualifying disposition described below. Upon a sale of shares acquired upon exercise of an ISO, the employee will recognize capital gain or loss, as the case may be, equal to the difference between the amount realized on the sale and the exercise price, provided the sale occurs at least two years after the grant of the ISO and at least one year after the exercise of the ISO. If these holding periods are not satisfied, the sale of shares acquired upon exercise of an ISO is a "disqualifying disposition." If the sale is a disqualifying disposition, the excess of the fair market value of the shares on the date the ISO was exercised over the exercise price is compensation income taxable at ordinary income tax rates, and any excess of the sale price of the shares over the fair market value of the shares on the date the ISO was exercised would be capital gain. The Company would be entitled to a deduction equal to the amount of compensation income taxable to the optionee. The excess of the fair market value of the shares at the time of exercise over the exercise price of the ISO increases the optionee's alternative minimum taxable income. 21 New Plan Benefits The number of stock options that would have been granted during the Company's 1995 fiscal year to each of the following persons or groups had Plan F been in effect would not differ from the number which was in fact granted under 1992 Plan E, as set forth below.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term Name and Position Compounded Annually /(1)/ Number of Units/(2)/ - ----------------- ------------------- --------------- 5% 10% --------- --------- Charles O. Rossotti...................................................... $ 0 $ 0 0 Chairman of the Board of Directors and Director Patrick W. Gross......................................................... 15,236 33,666 4,050 Vice Chairman of the Board of Directors and Director Paul A. Brands........................................................... 30,472 67,331 8,100 Vice Chairman of the Board of Directors, Chief Executive Officer, and Director Philip M. Giuntini....................................................... 30,472 67,331 8,100 President and Director Frank A. Nicolai......................................................... 15,236 33,666 4,050 Executive Vice President, Secretary, Treasure, and Director Fred L. Forman........................................................... 15,236 33,666 4,050 Executive Vice President All current executive officers as a group................................ 106,652 235,660 28,350 All current directors who are not executive officers as a group.......... 40,061 88,524 7,500 All employees as a group................................................ 2,775,802 6,133,286 730,252
/(1)/ The potential realizable value is calculated based on the term of the option at its time of grant. It is calculated by assuming that the stock price on the date of grant appreciates at the indicated annual rate, compounded annually for the entire term of the option, and that the option is exercised and the shares are sold on the last day of its term for the appreciated stock price. Such values do not include consideration of income tax consequences. /(2)/ Options which were granted during the Company's 1995 fiscal year pursuant to 1992 Plan E. Vote Required The affirmative vote of the holders of a majority of the shares of Common Stock present at the Annual meeting or represented by Proxy and entitled to vote to approve Plan F is required for approval of such plan. The Board of Directors has unanimously adopted a resolution approving Plan F and directed that it be submitted to the shareholders for their consideration. The members of the Board of Directors and the Company's executive officers have advised the Company that they intend to vote all shares in their control in favor of Plan F. In the event that Plan F is not approved by the shareholders of the Company at the Annual Meeting, the Board of Directors will reconsider Plan F. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF STOCK OPTION PLAN F 22 PROPOSAL TO APPROVE THE PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN FOR EXECUTIVE OFFICERS Introduction A component of the Company's compensation scheme for senior staff and officers, including executive officers, has been the participate in incentive compensation programs. These programs provide participants who meet their performance goals with the opportunity to earn significant amounts of additional compensation. These programs are designed to connect a significant amounts of additional compensation. These programs are designed to connect a significant component of the executive officers' compensation with the Company's achievement of its annual financial objectives and to recognize the performance of officers in fulfilling their responsibilities. The Compensation Committee believes that the programs are of substantial benefit to the Company because they link the interests of the officers with those of the Company's shareholders. Under the current federal tax laws, the Company's deduction for compensation payments made to each executive officer is limited to $ 1 million, excluding compensatory amounts not required by IRS rules to be counted in the computation of whether the $1million ceiling has been reached. Payments under incentive compensation programs that qualify as "performance-based compensation" under rules issued by IRS, are exempt from the limitation for compensation deductions for federal income tax purposes. On February 22, 1996, the Board of Directors terminated the existing incentive compensation plan for executive officers and adopted the American Management Systems, Incorporated 1996 Incentive Compensation Plan for Executive Officer (i.e., the Plan). The IC Plan is intended to provide incentive compensation that is fully deductible by the Company for federal income tax purposes. No payment of any amounts under incentive compensation agreements (i.e., IC Agreements) issued under the IC Plan may be made unless such Plan is approved by the shareholders at the Annual Meeting. If the IC plan is not approved by the shareholders, the Compensation Committee may still determine to provide other incentive compensation to executive officers, and depending on the amount of compensation received by such officers, the Company may lose federal income tax deductions for some portion of the compensation paid to such officers. Furthermore, establishment of the IC Plan is not intended to preclude the Compensation Committee from providing executive officers with participation in other incentive compensation programs. Historically, the Compensation Committee has also awarded stock options under the Company's stock option plans to executive officers based on the Company's attainment of the same performance goals that are used in IC Plan, and the Compensation Committee expects to continue that practice. The Compensation Committee has also historically established incentive compensation programs for executive officers that are based on the attainment of professional goals that are personal to the various executives. The attainment of the various goals under these programs is not always objectively determined and such incentive compensation arrangements are, therefore, not eligible for coverage by a performance-based compensation plan that meets IRS requirements. The determination of the amount, if any, payable to an executive officer under such other incentive compensation plans is made independently of the executive officer's entitlement under the IC Plan. Currently, Patrick W. Gross, Frank A Nicolai, and Fred L. Forman also participate in incentive compensation programs with personal performance goals. The following summary describes the material features of the IC Plan. Such summary is qualified in its entirety by reference to the complete text of the IC Plan as set forth in Exhibit B to this Proxy Statement. Summary Description of IC Plan Eligibility. Only the executive officers of the Company are eligible to participate in the IC Plan (a "Participant"). The Group of executive officers currently includes six persons. Participation in the IC Plan is evidenced by receipt of an IC Agreement. The Compensation Committee selects those eligible officers who will receive IC Agreements under the IC Plan and, subject to the terms of such Plan, establishes the terms of the IC Agreement. Administration. The regularly appointed Compensation Committee serves as the committee to administer the IC Plan. In all cases, the Compensation Committee must have at least three members and no member of the Board may serve on the Compensation Committee unless such person is an "Outside Director" within the meaning of Section 162(m)(4)(C)(i) of the Internal Revenue Code, and applicable guidance issued thereunder. 23 Performance Periods. An IC Agreement issued by the Compensation Committee may cover from one to three fiscal years of the Company (the "IC Performance Period"). In all cases, the determination of the cumulative amount payable to a Participant (the "IC Award") includes a component that is intended to allow the Compensation Committee to take into account the Company's expected financial performance for the fiscal year immediately following the IC Performance Period specified in an IC Agreement (the "Outlook Year"). The Compensation Committee may also specify in an IC Agreement that the fiscal years and Outlook Year receive different weightings in determining the amount payable under the IC Agreement. Performance Targets. A Participant's entitlement to payment of amounts resulting from participation in the IC Plan is dependent on the Company's financial performance relative to annual target amounts for the Company's consolidated earnings before income taxes ("Annual profit Targets") for each fiscal year during the IC Performance Period and the Outlook Year. Performance Share. The Compensation Committee specifies in each IC Agreement a percentage, not more than 200% of base salary, that is the performance share (the "IC Performance Share") percentage used in determining the amount of an IC Award. No IC Agreement which has been granted by the Compensation Committee has a performance share exceeding 125%. The Compensation Committee expects that grants with IC Performance Share percentages in excess of 100% will occur only when, in such Committee's judgement, the increased amount of compensation that would result is justified by the amount of increase in the Company's annual profit that would be achieved. Performance Factor. The performance factor (the "IC Performance Factor") is a multiplicative factor which is used in determining the amount of an IC Award. The IC Performance Factor applicable to an IC Agreement is a function of the length of the Participant's IC Performance Period and the Company's "Percentage of Target Achieved," as shown in the table contained in the subsection below entitled, "Calculation of Award." Calculation of Award. Subject to receipt by a Participant of a non-refundable Interim IC Award (as defined below), a Participant's IC Award is not subject to a minimum or maximum amount and is determined based on the Participant's base salary, the Participant's IC Performance Share, and the Company's financial performance relative to the Annual Profit Targets specified in the Participant's IC Agreement for the fiscal years in the IC Performance Period and the Outlook Year. Base salary used for computing IC Awards is equal to $350,000 for 1996, and for each subsequent year, base salary used for computing IC Awards is equal to the preceding year's limit increased by 10% (i.e., $385,000 for 1997, $423,500 for 1998, etc.). Currently, the actual base salaries of all executive officers are lower than the plan specified amount, and the Compensation Committee will use its discretion to compute an IC Award payable based on the Participant's actual base salary when lower than the plan specified amount. The plan specified base salary amount for each year is intended to comply with IRS rules and provide a maximum IC Award amount that may be paid at any specified level of annual profit achievement. In no event may a base salary for any year in excess of the plan specified amount be used in computing an IC Award. A Participant's IC Award is determined in accordance with the following steps: Step 1 - Multiply the Annual Profit Target for each fiscal year and the Outlook Year by the weighting given to the Annual Profit target for that fiscal year or Outlook year. Step 2 - Multiply the actual pre-tax earnings for each fiscal year other than the Outlook Year and 110% of targeted pre-tax earnings for the Outlook Year by the weighting given to the Annual Profit Target for that fiscal year or Outlook Year. The use of 110% of targeted performance for the Outlook Year is intended to preclude the payment of an IC Award based on a projection for an uncompleted fiscal year, which projection exceeds 110% of targeted financial performance. Furthermore, the Compensation Committee expects to use its discretion to reduce an IC Award to the amount that would be payable based on such Committee's projection of the Company's pre- tax earnings for the Outlook Year. The Compensation Committee may not, however, compute an IC Award based on Outlook Year performance in excess of 110% of targeted performance. Step 3 - Divide the sum of each of the amounts determined in Step 2 by the sum of each of the amounts determined in Step 1 to determine the Percentage of Target Achieved. Step 4 - Based on the Percentage of Target Achieved, determine a Participant's Cumulative IC Performance Factor under the following: 24
Cumulative IC Performance Factors Based on Length of IC Performace Period --------------------------------------- For a 1-Year For a 2-Year For a 3-Year Percentage of Target Achieved IC Agreement IC Agreement IC Agreement ----------------------------- ------------ ------------ ------------ 115% or more/(1)/ 110% but less than 115% 1.50 6.00 9.00 105% but less than 110% 1.25 5.00 7.50 100% but less than 105% 1.00 4.00 6.00 95% but less than 100% 0.75 3.00 4.50 90% but less than 95% 0.50 2.00 3.00 85% but less than 90% 0.25 1.00 1.50 less than 85% 0.00 0.00 0.00
/(1)/ If the Percentage of Target Achieved is 115% or more, the applicable IC Performance Factor is determined by adding an additional 25% of the IC Performance Factor for 100% of target achievement for each additional 5% increment by which 100% of target achievement is exceeded. For example, if the Percentage of Target Achieved is 115% for an IC Agreement with a IC Performance Period of two years, the Cumulative IC Performance Factor applicable is 7.00 (i.e., 6.00, plus 25% of 4.00). Step 5 - Determine the Participants's IC Award under the following formula: Salary x IC Performance Share x Cumulative IC Performance Factor = IC Award Interim Awards on Certain IC Agreements. Unless an IC Agreement provides otherwise, an IC Agreement that has an IC Performance Period of more than one year entitles the Participant to receive interim payments (an "Interim IC Award") on the last day of February following each year during the IC Performance Period. Once paid, Interim IC Awards are not refundable to the Company. The Interim IC Awards are determined in the same manner as described above, except that financial performance of 110% of targeted performance is used for all fiscal years for which financial results have not yet been reported. The Compensation Committee expects to use its discretion to reduce the amount of an Interim IC Award to the amount that would be payable if its projection of pretax earnings is used for those years for which earnings results have not been reported. Similar to the use of 110% of targeted financial performance for the Outlook Year component of an IC Award calculation described above, use of 110% of targeted performance for years for which financial results have not been reported precludes IC Awards based on projections in excess of 110% of targeted performance, and the Compensation Committee may not compute an Interim IC Award based on performance in excess of 110% of targeted performance for any fiscal year for which financial results have not yet been reported. In addition, "Interim IC Performance Factors" and "Cumulative Interim IC Performance Factors" set forth in the following schedules apply respectively for determining Interim IC Awards after the first fiscal year and the second fiscal year, in the case of an IC Agreement covering three fiscal years: 25
Projected Percentage of Target Interim IC Cumulative Interim IC Achieved for the IC Performance Period Performance Factor/(1)/ Performance Factor/(2)/ -------------------------------------- ------------------ ------------------ 115% or more/(3)/ 110% but less than 115% 1.50 3.00 105% but less than 110% 1.25 2.50 100% but less than 105% 1.00 2.00 95% but less than 100% 0.75 1.50 90% but less than 95% 0.50 1.00 85% but less than 90% 0.25 0.50 less than 85% 0.00 0.00
/(1)/ This column applies to an Interim IC Award after the first fiscal year of an IC Agreement with an IC Performance Period of two or three years. /(2)/ This column applies to an Interim IC Award after the second fiscal year of an IC Agreement with an IC Performance Period of three years. /(3)/ If the Projected Percentage of Target Achieved is 115% or more, the IC Performance Factor is determined by adding an additional 25% of the IC Performance Factor for 100% of target achievement for each additional 5% increment by which 100% of target achievement is exceeded. For example, if the Projected Percentage of Target Achieved is 115% after the end of the first fiscal year of an IC Agreement that includes two fiscal years, the IC Performance Factor is 1.75 (i.e., 1.50, plus 25% of 1.00). Payment of Awards. Notwithstanding any provision of the IC Plan or an IC Agreement, no amount is payable under the IC Plan until the Compensation Committee has certified both the amount of the Company's earnings before taxes that are used in computing the IC Award or Interim IC Award payable and that all other material terms of the IC Agreement have been met. Not later than the last day of February following the end of the IC Performance Period, the Company will pay an amount equal to the IC Award in the case of an IC Agreement that included only one fiscal year. In the case of other IC Agreements, not later than the last day of February following the end of the IC Performance Period, the Company will pay an amount equal to the IC Award reduced by the Interim IC Awards and up to 16 2/3% of the IC Award which is retained for a deferred payout. The percentage amount that is retained for a deferred payout is payable in four equal installments on the last day of each succeeding month. Acceleration of Payment. An IC Award or portion of an IC Award otherwise payable by the last day of February may be accelerated by the Compensation Committee so that such IC Award or portion of an IC Award is paid as early as the preceding December 1. The Compensation Committee may accelerate payment of an IC Award only to the extent it certifies the earnings before taxes and other material terms of the IC Agreement have been met, the IC Award made is discounted for early payment to the extent required by Section 162(m) of the Internal Revenue Code and the accelerated payment does not affect IC Awards under the IC Plan from qualifying as "performance-based compensation" under Section 162(m)(4) of the Internal Revenue Code. Adjustment of Award. The Compensation Committee, for reasons in addition to those previously described, may reserve the right in an IC Agreement to reduce the Participant's IC Award to less than the maximum amount. The Compensation Committee may not increase the maximum award under the IC Plan to any Participant. 26 Employment Generally Required. Unless a Participant dies or is disabled, a Participant may not receive an amount payable as a result of receiving an IC Agreement unless the Participant is employed by the Company on the scheduled payment date. In the event a Participant terminates from the Company as a result of death or disability, the Compensation Committee may, in its discretion, continue to make payments due under an IC Agreement to the Participant or the Participant's estate in the event of a Participant's death. Amendment or Termination. The Compensation Committee reserves the right to amend, suspend, or terminate the IC Plan or adopt a new plan at any time, without approval of the Company's shareholders; provided that no such amendment may without the consent of the Participant adversely affect the payment of any amount to such Participant, and provided further that no amendment shall be effective until the approval of the Company's shareholders has been obtained to the extent that shareholder approval is required for purposes of Section 162(m) of the Internal Revenue Code. New Plan Benefits On February 22, 1996, the Compensation Committee established the terms for IC Agreements with each of the executive officers of the Company. The IC Agreements for Paul A. Brands, Philip M. Giuntini, Frank A. Nicolai, and Fred L. Forman have IC Performance Periods of two years. Charles O. Rossotti and Patrick W. Gross have IC Agreements with IC Performance Periods of one year for each of 1996 and 1997. Assuming the IC Plan is approved by the shareholders at the Annual Meeting, the Company achieves financial performance equal to 100% and to 110% of the Annual Profit Targets set forth in their IC Agreements, and the Compensation Committee exercises its discretion as described above, the estimated future payments to the executive officers are as follows:
Dollar Value of Estimated Future Payouts/(1)/,/(2)/ ---------------------------------------- IC IC Performance Factor Average IC Agreement Performance for 100% of Target Paid in 1997 Paid in 1998 Annual Name and Position Performance Period Share Profit for 1996 for 1997 Payment ----------------- ------------------ ----- ------ -------- -------- ------- Company Achieves 100% of Target Profits - --------------------------------------- Charles O. Rossotti 1996-97 100% 1.0 $250,000 $250,000 $250,000 Chairman of the Board of Directors and Director Patrick W. Gross 1996-97 75% 1.0 219,000 232,500 225,750 Vice Chairman of the Board of Directors and Director Paul A. Brands 1996-97 125% 4.0 380,000 1,230,000 805,000 Vice Chairman of the Board of Directors, Chief Executive Officer, and Director Philip M. Giuntini 1996-97 125% 4.0 380,000 1,230,000 805,000 President and Director Frank A. Nicolai 1996-97 37.5% 4.0 0 426,000 213,000 Executive Vice President, Secretary, Treasurer, and Director Fred L. Forman 1996-97 37.5 4.0 0 465,000 232,500 Executive Vice President ------- --------- -------- All executive officers as a group 1,229,000 3,833,500 2,531,250
27
Dollar Value of Estimated Future Payouts/(1),(2)/ ---------------------------------------- IC IC Performance Factor Average IC Agreement Performance for 110% of Target Paid in 1997 Paid in 1998 Annual Name and Position Performance Period Share Profit for 1996 for 1997 Payment ----------------- ------------------ ----- ------ -------- -------- ------- Company Achieves 110% of Target Profits/(3)/ - --------------------------------------- Charles O. Rossotti 1996-97 100% 1.5 375,000 375,000 375,000 Chairman of the Board of Directors and Director Patrick W. Gross 1996-97 75% 1.0 219,000 232,500 225,750 Vice Chairman of the Board of Directors and Director Paul A. Brands 1996-97 125% 6.0 570,000 1,845,000 1,207,500 Vice Chairman of the Board of Directors, Chief Executive Officer, and Director Philip M. Giuntini 1996-97 125% 6.0 570,000 1,845,000 1,207,500 President and Director Frank A. Nicolai 1996-97 37.5% 6.0 0 639,000 319,500 Executive Vice President, Secretary, Treasurer, and Director Fred L. Forman 1996-97 37.5% 6.0 0 697,500 348,750 Executive Vice President --------- --------- --------- All executive officers as a group 1,734,000 5,634,000 3,684,000
/(1)/ Amounts are estimates, based on projected 1996 or 1997 base salary as appropriate, and achievements of the Company's financial targets for pre-tax income for fiscal 1996 and 1997. The Company elected to present projected information in the table as more meaningful to the shareholders than pro forma data based on historical financial results. No assurance can be given that these IC amounts will be earned, as they are based on the Company's projections for fiscal 1996 and 1997. /(2)/ Excludes additional incentive compensation payable to Messrs. Gross, Nicolai, and Forman, which is based on achievement of individual non-financial goals and is not payable pursuant to the IC Plan. /(3)/ The IC Plan contains no maximum amount. The IC Award increases for each additional 5% increment by which the Company's financial performance exceeds the target. Vote Required The affirmative vote of the holders of a majority of the votes cast with respect to the proposal to approve the IC Plan is required for approval of such Plan. The Board of Directors has unanimously adopted a resolution approving the IC Plan and directed that it be submitted to the shareholders for their consideration. The members of the Board of Directors and the Company's executive officers have advised the Company that they intend to vote all shares in their control in favor of the IC Plan. In the event that the IC Plan is not approved by the shareholders of the Company at the Annual Meeting, the Board of Directors will reconsider the such Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE INCENTIVE COMPENSATION PLAN FOR EXECUTIVE OFFICERS 28 OTHER MATTERS A representative from Price Waterhouse LLP, independent public accountants to the Company, is expected to be present at the Annual Meeting, will have an opportunity to make a statement should the representative desire to do so, and is expected to be available to respond to appropriate questions during such Meeting. The Board of Directors does not know of any matters to be presented at the Annual Meeting other than those stated above. If any other business should come before the Annual Meeting, including a vote to adjourn such Meeting, the persons named in the enclosed Proxy will vote thereon at the Meeting, or any adjournment thereof, as he or they determine to be in the best interests of the Company. To be included in the Proxy Statement and form of Proxy for the 1997 annual meeting, shareholder proposals intended to be presented at that meeting must be received by the Company no later that December 13, 1996. ANNUAL REPORT A copy of the 1995 Annual Report of the Company (which includes condensed financial data and a letter to stockholders) accompanies this Proxy Statement. Appendix 1 to this Proxy Statement, titled "1995 Financial Report," contains all of the financial information (including the Company's audited financial statements), and certain general information, previously published in the Company's Annual Report. Appendix 1 is incorporated herein by reference. A copy of the Company's Annual Report on Form 10-K may be obtained without charge by writing to Frank A. Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. BY ORDER OF THE BOARD OF DIRECTORS, Frank A. Nicolai Secretary April 11, 1996 Fairfax, Virginia SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REMINDED TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED. 29 EXHIBIT A AMERICAN MANAGEMENT SYSTEMS, INCORPORATED STOCK OPTION PLAN F I. Purposes There are three purposes of Stock Option Plan F (the "Plan"). The first is to offer to those employees who contribute materially to the successful operation of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the "Corporation") additional incentive and encouragement to remain in the employ of the Corporation by increasing their personal participation in the Corporation through stock ownership. The second purpose is to provide an alternative means of compensating key employees whose performances contribute significantly to the success of the Corporation. The third is to attract and retain directors who have not at any time been officers or employees of the Corporation ("Outside Directors") and to compensate such Outside Directors for service to the Corporation. The Plan provides a means whereby optionees may purchase shares of the $0.01 par value common stock of the Corporation (the "Common Stock") pursuant to options. The options may be either one of two types, (1) "incentive stock options" which will qualify as such under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or under any applicable successor statute, or (2) "nonqualified stock options," that is, options which are not intended to qualify as incentive stock options under Section 422 of the Code. II. Administration Except as otherwise provided in this Section 2, the Plan shall be implemented and administered by the Board of Directors of the Corporation (the "Board") or a Stock Option/Award Committee (the "Committee") appointed by the Board and composed of three or more directors of the Corporation. The Committee may be delegated the authority and discretion to adopt and revise such rules and regulations as it shall deem necessary for the administration of the Plan, and to determine, consistent with the provisions of the Plan, the employees to be granted options, whether such options shall be nonqualified stock options or incentive stock options, the times at which options shall be granted, the option price of the shares subject to each option (subject to Paragraph D of Section 6), the number of shares subject to each option, the vesting schedule of options or whether the options shall be immediately vested, the times when options shall terminate, and whether the exercise price of options shall be paid in cash or stock. Acts of a majority of the members of the Committee at a meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The Committee's actions, including any interpretation or construction of any provisions of the Plan or any option granted hereunder, shall be final, conclusive and binding unless otherwise determined by the Board at its next regularly scheduled meeting. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. Notwithstanding any other provision of this Section or the Plan or any documentation governing incentive compensa