-----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, NEvHK8ID97cYwjYPAgrWGeTrAMR33jFXFvjmINMJ1d5sXda05uZ5nNUPNPVpsOLg 9GYdtV/9OQ7o/zg22eZqtw== 0000950133-97-001298.txt : 19970411 0000950133-97-001298.hdr.sgml : 19970411 ACCESSION NUMBER: 0000950133-97-001298 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970509 FILED AS OF DATE: 19970410 SROS: NONE 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: 97577977 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 DEF 14A 1 AMERICAN MANAGEMENT SYSTEMS PROXY STATEMENT. 1 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] No fee required [ ] 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: 2 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 9, 1997, at 10:00 a.m. local time, for the following purposes: To elect eleven (11) 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 1996 Amended Stock Option Plan F; 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 21, 1997, 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, 1997 3 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 LEGATO ROAD FAIRFAX, VIRGINIA 22033 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS MAY 9, 1997 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 Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 9 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Compensation Committee Report OF Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 13 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 1996 Amended Stock Option Plan F . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 American Management Systems, Incorporated 1996 Amended Stock Option Plan F . . . . . . . . . . . Exhibit A American Management Systems, Incorporated 1996 Financial Report . . . . . . . . . . . . . . . . . Appendix 1
4 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 9, 1997 (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, 1997. 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" and for the approval of the AMS 1996 Amended Stock Option Plan F ("Stock Option Plan F" or "Plan F"). VOTING PROCEDURE As of March 21, 1997, there were outstanding 41,240,731 shares of the Company's Common Stock, $0.01 par value per share (the "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 21, 1997 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. 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. 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. 1 5 ELECTION OF DIRECTORS Eleven 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............ 56 Chairman of the Board 1970 Mr. Rossotti is one of the founders of the of Directors and Company and was elected Chairman of the Board of Director Directors 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............... 52 Vice Chairman of the 1974 Mr. Gross is one of the Company's founders and Board of Directors and has served AMS continuously as an executive Director officer 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 Landmark Systems Corporation and Powersim Corporation, all of which are non-publicly held entities.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Paul A. Brands.................. 55 Vice Chairman of the 1992 Mr. Brands has served as Vice Chairman of the Board of Directors, Board of Directors and a member of the Board of Chief Executive Directors since October 1992. He was Officer, and Director designated Chief Executive Officer in September 1993. 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.............. 50 President and Director 1992 Mr. Giuntini has served as President 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................ 55 Executive Vice 1974 Mr. Nicolai is one of the Company's founders and President, Secretary, has served continuously as an executive officer Treasurer, and since 1970. He was elected Treasurer in 1980 Director and Secretary in 1987.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Daniel J. Altobello............ 56 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................. 61 Director 1989 Mr. Forese is currently Executive Vice President and President, International Operations of IKON Office Solutions. From 1995 to 1996 he served as 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 Americas Group from 1988 to 1990. He currently serves as a director of NUI Corporation and Unisource Worldwide, both of which are publicly-held corporations. He joined ALCO/IKON in 1996.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND - ---- --- -------- -------- ---------- Dorothy Leonard................ 55 Director 1991 Dr. Leonard 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 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................ 52 Director 1995 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, Unilab Corporation, and Mrs. Fields Original Cookies, which are publicly-held corporations, and Marakon Associates, which is a non-publicly held entity. Mr. Lewis previously served as a director of AMS from February 1981 through May 1992.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND - ---- --- -------- -------- ---------- Frederic V. Malek.............. 60 Director 1985 Mr. Malek has been Chairman of Thayer Capital Partners, a merchant bank, since March 1993. He was Co-Chairman, CB Commercial Real Estate Group (a real estate brokerage and management firm) from April 1989 to October 1996. 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; CB Commercial Real Estate Group; FPL Group; Northwest Airlines; Choice Hotels, Inc.; and Manor Care, Inc., all of which are publicly-held entities. Alan G. Spoon................... 45 Director 1996 (1) Mr. Spoon has been Chief Operating Officer and Director of The Washington Post Company since 1991, and has also served as President since 1993. Mr. Spoon joined The Washington Post Company in 1982. From 1989 to 1991, he was President of Newsweek, Inc. During that time he also was responsible for Post-Newsweek television stations. From 1987 to 1989, he was The Washington Post Company's Chief Financial Officer. He currently serves as a director of The International Herald Tribune and Consumer's Edge, and is a member of The Advisory Board of Polaris Ventures, L.P., a venture capital fund, all of which are non-publicly held entities.
(1) Mr. Spoon was elected to the Board of Directors in September 1996 after the Board voted to increase the number of directors constituting the Board from ten members to eleven members. 6 10 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 ---- --- -------- ---------- Executive Fred L. Forman. . . . . . . . . . . . . 53 Vice President Dr. Forman is a key 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 21, 1997, 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) . . . . . . . . . . 15,468 Common-0.0% 6550 Rock Spring Drive Bethesda, MD 20817 Paul A. Brands(3)(4) . . . . . . . . . . . . . 513,907 Common-1.2% 4050 Legato Road Fairfax, VA 22033 James J. Forese(3) . . . . . . . . . . . . . . 82,874 Common-0.2% 825 Duportail Road Wayne, PA 19087 Fred L. Forman(4) . . . . . . . . . . . . . . . 270,546 Common-0.7% 4050 Legato Road Fairfax, VA 22033 Philip M. Giuntini(3)(4)(6) . . . . . . . . . . 487,247 Common-1.2% 4050 Legato Road Fairfax, VA 22033 Patrick W. Gross (3)(4)(7) . . . . . . . . . . 689,111 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(3) . . . . . . . . . . . . . . 8,457 Common-0.0% The Harvard University Graduate School of Business Administration 522 Soldiers Field Road Boston, MA 02163 W. Walker Lewis(3) . . . . . . . . . . . . . . 2,768 Common-0.0% 535 Madison Avenue New York, NY 10022 Frederic V. Malek(3) . . . . . . . . . . . . . 26,467 Common-0.1% 901 15th Street, N.W. Suite 300 Washington, D.C. 20005 Frank A. Nicolai(3)(4)(8) . . . . . . . . . . . 541,154 Common-1.3% 4050 Legato Road Fairfax, VA 22033 Charles O. Rossotti(3)(4)(9) . . . . . . . . . 1,391,428 Common-3.4% 4050 Legato Road Fairfax, VA 22033 Alan G. Spoon(3)(10) . . . . . . . . . . . . . 2,749 Common-0.0% 1150 15th Street, N.W. Washington, D.C. 20071 All executive officers and directors . . . . . 4,032,176 Common-9.8% as a group (twelve 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 21, 1997. Accordingly, Mr. Altobello has 13,218 options vested and exercisable; Mr. Brands has 37,969 options vested and exercisable; Mr. Forese has 5,999 options vested and exercisable; Dr. Forman has 31,136 options vested and exercisable; Mr. Giuntini has 52,866 options vested and exercisable; Mr. Gross has 13,500 options vested and exercisable; Mr. Nicolai has 13,500 options vested and exercisable; Dr. Leonard has 833 options vested and exercisable; Mr. Lewis has 2,249 options vested and exercisable; Mr. Malek has 9,374 options vested and exercisable; Mr. Spoon has 749 options vested and exercisable; and Mr. Rossotti has no options vested and exercisable. In addition, Mr. Giuntini's beneficial ownership includes 27,970 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 (twelve persons) have beneficial ownership of 209,363 options vested and exercisable within 60 days of March 21, 1997. (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 21, 1997. (3) Indicates a director of the Company. 8 12 (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 87,634 shares and 27,970 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 111,375 shares beneficially owned by Mr. Gross' wife and 30,375 shares beneficially owned by each of his two children, with respect to which shares Mr. Gross disclaims beneficial ownership. Mrs. Gross and the children have the sole power to vote and dispose of the shares beneficially owned by them. Also includes 362,310 shares jointly owned by Mr. and Mrs. Gross, who share joint power to vote and dispose of such shares. (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 179,750 shares each owned by two trusts, totaling 359,500 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 929,553 shares jointly owned by Mr. and Mrs. Rossotti, who share joint power to vote and dispose of such shares. (10) The shares are jointly owned by Mr. Spoon and his spouse, who share joint power to vote and dispose of such shares. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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, 1996 (the "1996 fiscal year"), and representations by reporting persons that no other reports were required for the 1996 fiscal year, all Section 16(a) reporting requirements were met. 9 13 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, 1996 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 1996 $250,000 $ 0 0 $ 0 $7,904 Chairman of the Board of 1995 250,000 250,000 0 0 7,904 Directors and Director 1994 251,917 250,000 0 0 8,382 Patrick W. Gross 1996 290,547 0 8,850 0 7,904 Vice Chairman of the Board 1995 270,833 192,500 4,050 577,500 7,904 of Directors and Director 1994 248,767 175,000 1,350 0 7,924 Paul A. Brands 1996 301,167 0 17,700 0 7,904 Vice Chairman of the Board 1995 282,917 287,000 8,100 598,500 7,904 of Directors, Chief 1994 260,417 262,500 0 0 8,211 Executive Officer, and Director Philip M. Giuntini 1996 301,167 0 17,700 0 7,904 President and Director 1995 282,917 287,000 8,100 598,500 7,904 1994 260,417 262,500 0 0 7,924 Frank A. Nicolai 1996 265,500 150,750 8,850 0 7,904 Executive Vice President, 1995 249,167 177,100 4,050 354,200 7,904 Secretary, Treasurer, 1994 226,667 161,000 0 0 8,292 and Director Fred L. Forman 1996 289,975 219,000 8,850 0 7,904 Executive Vice President 1995 270,333 192,500 4,050 385,000 7,904 1994 246,667 175,000 0 0 7,924
(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 is associated with performance under individual incentive compensation plans and was 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/IRA Plan. These numbers also include miscellaneous compensation in immaterial amounts for several officers (less than $1,000 per person). 10 14 OPTION GRANTS IN FISCAL 1996 Shown below is information concerning stock option grants to the Company's executive officers who were granted options on Common Stock during the Company's 1996 fiscal year.
INDIVIDUAL GRANTS ------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES NUMBER OF % OF TOTAL OF STOCK PRICE APPRECIATION SHARES OPTIONS FOR OPTION TERM UNDERLYING GRANTED TO EXERCISE OR COMPOUNDED ANNUALLY OPTIONS EMPLOYEES BASE PRICE EXPIRATION --------------------------- NAME GRANTED IN FISCAL 1996 ($/SHARE) DATE 5% 10% ---- ------- -------------- --------- ---------- --------- --------- Charles O. Rossotti . . . . . . . . 0 0.0% N/A N/A $ 0 $ 0 Patrick W. Gross. . . . . . . . . . 8,100 1.1% $24.00 2/28/01 53,709 118,683 750 0.1% 26.50 4/01/01 5,491 12,133 Paul A. Brands . . . . . . . . . . 16,200 2.1% 24.00 2/28/01 107,418 237,366 1,500 0.2% 26.50 4/01/01 10,982 24,268 Philip M. Giuntini . . . . . . . . 16,200 2.1% 24.00 2/28/01 107,418 237,366 1,500 0.2% 26.50 4/01/01 10,982 24,268 Frank A. Nicolai. . . . . . . . . . 8,100 1.1% 24.00 2/28/01 53,709 118,683 750 0.1% 26.50 4/01/01 5,491 12,133 Fred L. Forman. . . . . . . . . . . 8,100 1.1% 24.00 2/28/01 53,709 118,683 750 0.1% 26.50 4/01/01 5,491 12,133
(1) Each option grant is associated with a performance-based individual incentive compensation plan for 1994-1995 or 1996-1997 and was made by the appropriate Board committee pursuant to a shareholder-approved stock option plan. The options shown as expiring on February 28, 2001 became exercisable on August 31, 1996. The options shown as expiring on April 1, 2001 will become exercisable one day prior to such 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 15 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 1996 fiscal year of options to purchase shares of Common Stock pursuant to the 1992 Amended and Restated Stock Option Plan E, as amended ("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 1996 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 1996(2) ON VALUE -------------------------------- --------------------------- NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- -------- ------------ -------------- ----------- ------------- Charles O. Rossotti . . . . . . . . . 0 $ 0 0 0 $ 0 $ 0 Patrick W. Gross. . . . . . . . . . . 37,800 646,275 13,500 22,012 68,644 344,312 Paul A. Brands. . . . . . . . . . . . 14,444 264,330 59,231 1,500 698,228 0 Philip M. Giuntini. . . . . . . . . . 25,754 434,811 57,874 1,500 638,377 0 Frank A. Nicolai. . . . . . . . . . . 0 0 13,500 750 69,919 0 Fred L. Forman . . . . . . . . . . . . 19,068 306,726 31,135 750 347,643 0
(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 1996 (as measured by the NASDAQ closing bid price of $24.50), minus the exercise price. LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR Shown below is information on long-term incentive plans for the Company's executive officers, which were approved by the Compensation Committee of the Board of Directors in 1996 for the 1996-1997 performance period. If the performance goals set forth in the plans are met, the executive officers will be entitled to receive the incentive compensation indicated in the table below. Owing to the Company's poor performance in 1996, it is not anticipated that any incentive compensation payments will be made pursuant to these long-term incentive plans.
PERFORMANCE OR ESTIMATED NUMBER OTHER PERIOD UNTIL FUTURE PAYOUTS OF SHARES MATURATION OR ------------------------------------------------ NAME(1) (#) PAYMENT THRESHOLD($) TARGET ($) MAXIMUM($)(2) ------- --- ------- ------------- ---------- ------------- Charles O. Rossotti. . . . . . . . . . . . 0 -- --- --- --- Patrick W. Gross. . . . . . . . . . . . . 4 1996-97 --- $ 876,000 --- Paul A. Brands. . . . . . . . . . . . . . 4 1996-97 $0 1,520,000 --- Philip M. Giuntini. . . . . . . . . . . . 4 1996-97 0 1,520,000 --- Frank A. Nicolai. . . . . . . . . . . . . 2 1996-97 0 402,000 --- Fred L. Forman. . . . . . . . . . . . . . 2 1996-97 0 459,000 ---
(1) The long-term incentive compensation plans for Messrs. Brands, Giuntini, and Gross are based on pre-tax income targets. The long-term incentive compensation plans for Messrs. Nicolai and Forman include pre-tax income and non-financial goals. Mr. Rossotti's incentive compensation plan was based on the Company's pre-tax performance for fiscal 1996 only and, therefore, is not includable in this table as long-term incentive compensation. 12 16 (2) If the Compensation Committee determines that the officer has exceeded the performance goals set forth in his incentive compensation plan, the Committee may increase his incentive compensation award above the target level indicated in the preceding column. The increase would be based on a formula related to pre-tax income, in the case of Messrs. Brands, Giuntini, and Gross, and on the Committee's judgment of their achievement of their specified financial and non-financial goals, in the case of Messrs. Nicolai and Forman. 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 Exchange Act 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. The Compensation Committee has furnished the following report for fiscal 1996: 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 13 17 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 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 1996 was the first year of two-year incentive compensation plans for Patrick W. Gross, Paul A. Brands, Philip M. Giuntini, Frank A. Nicolai, and Fred L. Forman. Charles O. Rossotti completed a one-year incentive compensation plan. 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 administrative processes, and expanding the Company's Achieving Breakthrough Performance program. 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 1997, the Compensation Committee determined that since the Company did not meet its financial goals for 1996, no incentive compensation based on financial goals would be awarded to any executive officer of the Company. The Compensation Committee determined that Messrs. Nicolai and Forman had substantially met their non-financial performance goals, and determined that Mr. Nicolai had earned 75% of his target cash payment and Mr. Forman had earned 100% of his target cash payment. These amounts are shown in the Summary Compensation Table under "Annual Compensation -- Bonus." The Compensation Committee in February 1997 also decided not to grant stock options to Messrs. Brands, Giuntini, Gross, Nicolai, or Forman because the Company did not achieve the financial performance specified in their incentive compensation plans. Mr. Rossotti's 1996 compensation plan did not provide for stock options. Also in February 1997, the Compensation Committee decided not to 14 18 increase the 1997 annual base salary of any executive officer of the Company except Mr. 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 covered by the 1996 Incentive Compensation Plan for Executive Officers (the "IC Plan"), which was approved by the shareholders at the 1996 annual meeting of shareholders of the Company. The IC Plan significantly limits the Compensation Committee's discretion regarding the amount of incentive compensation paid to an 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 $304,000 for 1996, which represented an increase of approximately 6% over his base salary for 1995. 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 did not meet those targets for fiscal year 1996, as determined by the Compensation Committee in February 1997, and consequently, he did not receive an incentive compensation payment or stock option award based on 1996 performance. The Compensation Committee also decided not to increase Mr. Brands' annual base salary for 1997. Frederic V. Malek (Chairman) Daniel J. Altobello James J. Forese Dorothy Leonard W. Walker Lewis Alan G. Spoon 15 19 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. [GRAPH]
================================================================================================================= 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 ----------------------------------------------------------------------------------------------------------------- AMSY Common Stock 100 169 150 219 342 419 ----------------------------------------------------------------------------------------------------------------- S&P 500 Composite Index 100 108 119 120 165 203 ----------------------------------------------------------------------------------------------------------------- Hambrecht & Quist Technology/Software 100 112 120 151 217 263 =================================================================================================================
16 20 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 met once during 1996. 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 twice during 1996. The Compensation Committee is presently composed of six Outside Directors: Daniel J. Altobello, James J. Forese, Dorothy Leonard, W. Walker Lewis, Frederic V. Malek, and Alan G. Spoon. 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 1996, the Compensation Committee met twice. The Audit Committee is presently composed of three Outside Directors: Daniel J. Altobello, James J. Forese, and Dorothy Leonard. 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 1996, the Audit Committee met three times. 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, 1997. The Board of Directors met five times during 1996, and all members attended 100% of the meetings of the Board and Committees of the Board on which they serve. 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 1996. In addition, Outside Directors were paid a retainer of $5,000 per year during fiscal 1996. 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. W. Walker Lewis elected to have his annual meeting fees for three of the Board meetings he attended during 1996 paid in the form of Common Stock pursuant to the Stock for Fees Plan. 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. Dorothy Leonard, who became a director in September 1991, was granted 5,000 options on September 27, 1991. Under 1992 Plan E, each new Outside Director was automatically granted 5,000 options (such number subject to adjustments for splits) upon 17 21 first becoming a director, and each Outside Director was 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. Plan F provides for the grant of the same amount of options to Outside Directors. 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 1992 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. Most recently, Dr. Leonard was granted 5,000 options under 1992 Plan E in August 1996 because her options granted in 1991 had fully vested, and Alan G. Spoon was granted 5,000 options under 1992 Plan E in September 1996 when he became a director. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Frederic V. Malek, James J. Forese, Dorothy Leonard, Daniel J. Altobello, and W. Walker Lewis served as members of the Compensation Committee throughout fiscal 1996. Alan G. Spoon became a member of the Compensation Committee in September 1996 when he was elected to the Board of Directors. The Compensation Committee is presently composed of Messrs. Malek, Forese, Altobello, Lewis, and Spoon and Dr. Leonard. Mr. Malek is Chairman of the Compensation Committee. During 1996, 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 $2,910,422 from AMS in connection with legal services performed for the Company during 1996. 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 1996 AMENDED STOCK OPTION PLAN F INTRODUCTION AND SUMMARY DESCRIPTION OF PROPOSED AMENDMENTS The Company's 1996 Stock Option Plan F was adopted by the Board of Directors on April 3, 1996, and was approved by the Company's shareholders on May 10, 1996 at the 1996 annual meeting of the shareholders of the Company. The Company's shareholders are now being asked to approve 1996 Amended Stock Option Plan F, which was adopted by the Board of Directors on February 21, 1997, subject to shareholder approval. If so approved, 1996 Amended Stock Option Plan F would implement a number of amendments to 1996 Stock Option Plan F (the "1996 Plan F Amendments" or the "Amendments"). The 1996 Plan F Amendments provide that vested nonqualified stock options ("NSOs") held by an employee who resigns following completion of ten (10) or more years of continuous service as an employee would expire one (1) year after the date of the termination of the employee's employment, rather than thirty (30) days after termination of employment. The 1996 Plan F Amendments also provide that vested NSOs held by an Outside Director whose service as a director terminates by reason of death, disability or resignation as an Outside Director following completion of ten (10) years of continuous service, which would expire by their terms under the version of Plan F currently in effect, would instead expire no later than the date one (1) year after the date of termination of the Outside Director's service as a director. Finally, in response to recent amendments to regulations issued by the Securities and Exchange Commission under Section 16 of the Exchange Act and by the Internal Revenue Service under Section 162(m) of the Internal Revenue Code, the Amendments would (i) alter the requirements for membership on the committee charged with making and administering 18 22 awards under Plan F to "covered employees" within the meaning of Section 162(m) of the Internal Revenue Code and to officers and directors subject to Section 16 of the Exchange Act, and (ii) modify the scope of amendments to Plan F and the terms of options issued thereunder that may be made by the Board of Directors without shareholder approval. The Board of Directors believes that the 1996 Plan F Amendments will further the purposes of Plan F, which 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. The text of Plan F, as proposed to be amended (the "Proposed Plan") and incorporating the proposed 1996 Plan F Amendments in italics, is set forth in Exhibit A to this Proxy Statement, and the following description of such Plan is qualified by reference to such text. 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 21, 1997, 1,613 key employees (i.e., six executive officers, 146 Vice Presidents, 323 Senior Principals, and 1,138 Principals, including persons in comparable positions) and six 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 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. Under Plan F, as currently in effect (the "Current Plan"), a committee composed of two or more Outside Directors, each of whom is required to be a "disinterested person" within the meaning of prior Rule 16b-3 as promulgated under Section 16(b) of the Exchange Act, has sole authority (i) 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 Section 16 of the Exchange Act, and (ii) 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. Under the Proposed Plan, a committee composed of at least two "non-employee directors," within the meaning of Rule 16b-3(b)(3) as adopted by Securities and Exchange Commission on August 15, 1996, who also are "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code, would have the authority (i) to make awards to directors of the Company who are not Outside Directors, to persons who are "officers" of the Company, as defined for purposes of Section 16 of the Exchange Act, and to "covered employees," within the meaning of Section 162(m) of the Internal Revenue Code, and (ii) to perform all other functions of the Board or the Stock Option/Award Committee with respect to outstanding awards to any of such directors, officers, and covered employees, including, without limitation, amendments to Stock Option Plan F or outstanding options which affect such persons. The Compensation Committee currently performs these functions with respect to the persons specified in the preceding sentences (who are currently the Company's executive officers and Controller). 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 19 23 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 will 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 will receive an additional grant of 5,000 shares. 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 Section 16 of the Exchange 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. Of this number, 2,980,000 shares remain available as of March 21, 1997 for issuance pursuant to options granted thereunder. 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 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 21, 1997, the closing bid price of the Common Stock was $21.00 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, 20 24 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. 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. To the extent NSOs held by an employee are exercisable upon an employee's termination of employment, shares subject to NSOs held by such employee may be purchased during the "exercise period," after which the NSOs shall expire and all rights granted under the agreement pursuant to which the options were granted shall become null and void. Under the Current Plan, the "exercise period" for shares subject to NSOs held by such 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 NSO expires by its terms, or (ii) (A) except in the case of death or disability, within thirty (30) days, or (B) in the case of death or disability, within one year after the date of termination of employment. Under the Proposed Plan, the "exercise period" for such shares would end on the earlier of (i) the date on which the NSO expires by its terms, or (ii) (A) except in the case of death, disability, or resignation as an employee following completion of ten (10) or more years of continuous service as an employee, thirty (30) days after the date of the employee's termination of employment, or (B) in the case of death, disability, or resignation as an employee following completion of ten (10) or more years of continuous service, one (1) year after the date of the employee's termination of employment. 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. Under the Current Plan, in the event of termination by reason of death or disability, all options then unvested would vest automatically, all options would be exercisable by the Outside Director, his or her heirs, legatees, or legal representatives, as the case may be, at any time until the date on which the options expire by their original terms. In addition, the Current Plan provides that termination of an Outside Director's membership on the Board of Directors by reason of retirement after completion of at least ten (10) 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. Under the Proposed Plan, upon the termination of an Outside Director as a member of the Board of Directors for the reason of resignation as an Outside Director following completion of at least ten (10) years of continuous service as an Outside Director, death or disability, the "exercise period" for shares subject to NSO held by such Outside Director, his heirs, legatees, or legal representatives, as the case may be, would end on the earlier of (i) the date on which the NSO expires by its terms, or (ii) the date one (1) year after the date of termination of such Outside Director's service as a member of the Board of Directors. 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 (30) 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. Under the Current Plan, 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. The Proposed Plan would permit the Board, at any time, to amend 21 25 Stock Option Plan F or the terms of options granted under such Plan, except that no amendment may, without approval of the shareholders, (i) modify the requirements as to the exercise price of stock options, (ii) increase the number of shares which may be issued under the Plan, except for adjustments in certain circumstances, (iii) materially modify the requirements as to eligibility for participation in the Plan, or (iv) materially modify the terms of the Plan as to "covered employees" within the meaning of Section 162(m) of the Internal Revenue Code. The Current Plan also provides that 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 Proposed Plan would eliminate this restriction. Plan F 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. If an optionee who is subject to the "short-swing profit liability" rules under Section 16(b) of the Exchange Act purchases shares of Common Stock within six months before the optionee exercises an NSO or an ISO, the tax consequences of exercising the option which normally occur on the option exercise date may be delayed for up to six months. In such a case, unless the optionee makes an election under Section 83(b) of the Internal Revenue Code to avoid the delay, the tax consequences which normally occur on the exercise date of an ISO or NSO will occur on the first date on which a sale of the shares of Common Stock acquired upon exercise of the option would not subject the optionee to liability under Section 16(b) of the Exchange Act. NEW PLAN BENEFITS The number of stock options that would have been granted during the Company's 1996 fiscal year to each of the following persons or groups had the Proposed Plan been in effect would not differ from the number which was in fact granted under 1992 Plan E, as set forth below. 22 26
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM COMPOUNDED ANNUALLY(1) --------------------------- NAME AND POSITION 5% 10% NUMBER OF UNITS(2) ----------------- ---------- ----------- --------------- Charles O. Rossotti....................................................... $ 0 $ 0 0 Chairman of the Board of Directors and Director Patrick W. Gross.......................................................... 59,200 130,817 8,850 Vice Chairman of the Board of Directors and Director Paul A. Brands............................................................ 118,400 261,634 17,700 Vice Chairman of the Board of Directors, Chief Executive Officer, and Director Philip M. Giuntini........................................................ 118,400 261,634 17,700 President and Director Frank A. Nicolai.......................................................... 59,200 130,817 8,850 Executive Vice President, Secretary, Treasurer, and Director Fred L. Forman............................................................ 59,200 130,817 8,850 Executive Vice President All current executive officers as a group................................. 414,400 915,719 61,950 All current directors who are not executive officers as a group........... 73,559 162,548 10,000 All employees who are not executive officers as a group................... 5,436,563 12,323,041 697,501
(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 1996 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 1996 Amended Stock Option Plan F is required for approval of such Plan. The Board of Directors has unanimously adopted a resolution approving 1996 Amended Stock Option 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 1996 Amended Stock Option Plan F. In the event that 1996 Amended Stock Option Plan F is not approved by the shareholders of the Company at the Annual Meeting, the Board of Directors will reconsider the Amendments. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF 1996 AMENDED STOCK OPTION PLAN F 23 27 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 1998 annual meeting, shareholder proposals intended to be presented at that meeting must be received by the Company no later than December 12, 1997. ANNUAL REPORT A copy of the 1996 Annual Report of the Company (which includes condensed financial data and a letter to stockholders) accompanies this Proxy Statement. Appendix 1 to this Proxy Statement, titled "1996 Financial Report," contains all of the financial information (including the Company's audited financial statements), and certain general information, previously published in the Company's Annual Report. Appendix 1 is incorporated herein by reference. A copy of the Company's Annual Report on Form 10-K 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, 1997 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. 24 28 EXHIBIT A AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 1996 AMENDED STOCK OPTION PLAN F AS IN EFFECT ON MARCH 21, 1997 (as Amended February 21, 1997, such Amendment Subject to Shareholder Approval) I. PURPOSES There are three purposes of 1996 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 exercise 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 compensation plans pursuant to which officers may elect to receive options under this Plan, a committee composed of at least two Non-Employee Directors, within the meaning of Rule 16b-3(b)(3) of the Securities and Exchange Commission who also are "outside directors" within the meaning of Section 162(m) of the Code, shall have the authority (a) to make awards to directors of the Corporation who are not Outside Directors, to all persons who are "officers" of the Corporation as defined for purposes of Sections 16(a) and 16(b) of the Securities Exchange Act of 1934, as amended (the "Act"), and to "covered employees," within the meaning of Section 162(m) of the Code and (b) to perform all other functions of the Board or Committee with respect to outstanding awards to any of such directors, officers, and covered employees including without limitation amendments to this Plan or such outstanding awards which affect such persons. Further, notwithstanding any other provision of this Section or the Plan, all awards made to Outside Directors shall be automatic and nondiscretionary as set forth in the Plan. A-1 29 III. ELIGIBILITY; PARTICIPATION; SPECIAL LIMITATIONS All key employees (including officers and directors) of the Corporation, or any corporation in which the Corporation owns stock possessing more than 50 percent of the voting power ( a "Subsidiary"), who meet minimum salary and other requirements established by the Board, shall be eligible to receive options under the Plan. All Outside Directors also shall be eligible to receive options under the Plan. An employee who has been granted an option may be granted an additional option or options or rights under the Plan if the Committee or the Board shall so determine. The granting of an option under the Plan shall not affect any outstanding stock option previously granted to an employee under the Plan or any other plan of the Corporation. Nothing contained in the Plan, or in any option granted pursuant to the Plan, shall (i) confer upon any employee the right to continued employment, or shall interfere in any way with the right of the Corporation or a Subsidiary to terminate the employment of such employee at any time or (ii) confer upon any Outside Director the right to continued membership on the Board of Directors, or shall interfere in any way with the right of the Corporation to terminate the membership on the Board of Directors of such Outside Director. In no event, however, shall an incentive stock option be granted to any person who then owns (as that term is defined in Section 424 of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or of any of its Subsidiaries, unless the exercise price as determined under paragraph D of Section 6 hereof is equal to at least 110% of the fair market value of the stock subject to the incentive stock option as of the date of grant and unless the term during which such incentive stock option may be exercised does not exceed five years from the date of the grant thereof. Options will not be treated as incentive stock options to the extent that the aggregate fair market value (determined as of the date the option is granted) of the Common Stock with respect to which options are exercisable for the first time by an employee during any calendar year (under all incentive stock option plans of the Corporation and its Subsidiaries) exceeds $100,000. IV. BASIS OF GRANT Options shall be granted to employees either (a) on the basis of awards earned under the Corporation's incentive compensation programs for groups of key employees, as in effect from time to time, or (b) as the Board of Directors or the Committee may determine from time to time. If options are granted based on (a) hereof, then performance bonuses and options based thereon shall be earned based on the employee's success in meeting predetermined performance standards during one or more years (the "Performance Period"). Options shall be granted under (a) hereof, if at all, at the time that the Corporation determines in its judgment that the employee has met or will meet the employee's predetermined performance standards for the Performance Period. Each Outside Director automatically shall be granted non-qualified stock options to purchase 5,000 shares on the date of the Outside Director's first election or appointment to the Board, subject to vesting as provided in Paragraph B of Section 6 hereof. Each Outside Director automatically shall be granted non-qualified stock options to purchase an additional 5,000 shares (the "Additional Options") on the day after all stock options previously granted under this paragraph become 100% vested (other than vesting by reason of death or disability). All such subsequent grants of stock options shall vest, as to one-sixtieth, on the date of grant and shall thereafter be subject to vesting as provided in Paragraph B of Section 6 hereof. V. NUMBER OF SHARES AND OPTIONS A. Shares of Stock Subject to the Plan. The number of shares authorized to be issued pursuant to options granted under the Plan is 3,800,000 shares, subject to adjustment in accordance with the provisions of paragraph G of Section 6 hereof. Shares subject to options granted under the Plan may be authorized and unissued shares or shares previously acquired or to be acquired by the Corporation and held in treasury. Any shares subject to an option which expires for any reason or is terminated unexercised as to such shares may again be subject to an option granted under the Plan. B. Maximum Number of Options. The number of shares which may be subject to options granted under the Plan in any single calendar year for awards earned for one-year Performance Periods shall not exceed 200,000 shares, subject to adjustment in accordance with paragraph G of Section 6 hereof. There shall be no annual A-2 30 limitation on options granted with respect to awards earned for Performance Periods of more than one year. Notwithstanding the foregoing, the maximum number of shares which may be subject to options granted under the Plan to any "covered employee" for purposes of Section 162(m) of the Code during the life of the Plan shall be 100,000 shares subject to adjustment in accordance with paragraph G of Section 6 hereof. VI. TERMS AND CONDITIONS OF OPTIONS A. Option Agreement. Each option granted pursuant to the Plan shall be evidenced by an agreement ("Option Agreement") between the Corporation and the optionee receiving the option. Option Agreements (which need not be identical) shall state whether the option is an incentive stock option or a nonqualified stock option, shall designate the number of shares and the exercise price of the options to which they pertain, shall set forth the vesting schedule of the options or state that the options are vested immediately. The Option Agreements shall be in writing, dated as of the date the option is granted, and shall be executed on behalf of the Corporation by such officers as the Board or the Committee shall authorize. Option Agreements generally shall be in such form and contain such additional provisions as the Board or the Committee, as the case may be, shall prescribe, but in no event shall they contain provisions inconsistent with the provisions of the Plan. B. Exercise of Options. Options are exercisable only to the extent they are vested. Options granted to employees shall vest either immediately or periodically pursuant to a schedule selected by the Board or the Committee at the same time the option is granted, except that the maximum vesting period for nonqualified stock options shall be five (5) years and the maximum vesting period for incentive stock options shall be seven (7) years. The Option Agreement shall either state that the options are fully vested upon grant and immediately exercisable in full or shall set forth the vesting schedule selected by the Board or the Committee. One-sixtieth of options granted to each Outside Director shall vest on the first date of election or appointment of each such Outside Director and an additional one-sixtieth shall vest on the last day of each month, so long as such Outside Director remains a member of the Board of Directors of the Corporation and, if such Outside Director resigns as an Outside Director after completion of ten (10) or more years of continuous service as an Outside Director, so long as such individual survives, until such option is vested in full. Upon termination of an Outside Director as a member of the Board of Directors by reason of death or disability, all options held by such Outside Director shall vest fully as of the date of termination. Optionees may exercise at any time or from time to time all of any portion of a vested option; provided, however, that options granted to any director or "officer" of the Corporation or "beneficial owner" of more than ten percent of any class of equity security of the Corporation, as defined for purposes of Sections 16(a) and 16(b) of the Act shall not be exercisable for a period of at least six months from the date of grant. C. Repurchase Amendment. Options granted to employees may be amended to advance the date on which the option shall vest. If an option is so amended, the amendment also may provide that the shares which would not have been vested under the vesting schedule set forth in the Option Agreement shall be subject to repurchase by the Corporation for a specified period of time at the original exercise price if the employment of the optionee is terminated for any reason prior to expiration of the repurchase period. The amendment shall be evidenced by a written agreement (the "Repurchase Amendment") between the Corporation and the optionee, shall be executed on behalf of the Corporation by such officers as the Board or the Committee shall authorize, and shall be in such form and contain such provisions as the Board or the Committee, as the case may be, shall prescribe. D. Exercise Price. 1. Incentive Stock Options. The price at which incentive stock options granted pursuant to the Plan may be exercised shall be determined by the Committee or the Board, which price shall be at least equal to the fair market value of the underlying Common Stock at the date at the options are granted. In the case of incentive stock options granted to a person who owns, immediately after the grant of such incentive stock option, stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or of any of its Subsidiaries (as more fully set forth in Section 3 hereof), the purchase price of the Common Stock covered by such incentive stock option shall not be less than 110% of the fair market value of such stock on the date of grant. A-3 31 2. Nonqualified Stock Options. The price at which all nonqualified stock options granted pursuant to the Plan may be exercised, except those options granted on the basis of awards earned for one-year Performance Periods under the Corporation's incentive compensation programs, shall be the fair market value of the Common Stock on the date of grant. The exercise price of nonqualified stock options granted on the basis of awards earned for one-year Performance Periods under the Corporation's incentive compensation programs may be 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 which is based on the fair market value of the Common Stock, as of a date, or for a period, that is within three months of the date of grant and which is selected by the Board of Directors or Committee, in its sole discretion, and determined by the Board of Directors or Committee, in its sole discretion, to be in the best interests of the Corporation and consistent with the intent of the incentive compensation program. The exercise price as determined under any such formula may be below fair market value of the Common Stock on the date of grant. Notwithstanding the foregoing, the exercise price of any option granted to a "covered employee" for purposes of Section 162(m) of the Code shall be the fair market value of the Common Stock on the date of grant. 3. Fair Market Value. For purposes of the Plan the term "fair market value" shall be defined as the closing bid price of the Common Stock quoted over 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, the closing bid price on the last preceding date upon which such Common Stock was traded. In the event that the Common Stock is not traded over NASDAQ, the term fair market value shall be defined as the closing bid price of the Common Stock published in the National Daily Stock Quotation Summary on the date of grant of the option, of if there are no quotations published on such date, on the most recent date upon which such Co