-----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, K6UqY2DOvHbjxe7I8oG7jTFLxHTBOLMqWv5WVx1jiks0QIJ2obpeqh7xzV4AK5uv TKspIeRZzRCM74dcXmMq/Q== 0000950133-99-001356.txt : 19990416 0000950133-99-001356.hdr.sgml : 19990416 ACCESSION NUMBER: 0000950133-99-001356 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990521 FILED AS OF DATE: 19990415 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: SEC FILE NUMBER: 000-09233 FILM NUMBER: 99594872 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 DEF 14A 1 DEFINITIVE PROXY STATEMENT 1 SCHEDULE 14A (RULE 14a-101) SCHEDULE 14A INFORMATION INFORMATION REQUIRED IN PROXY STATEMENT 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 21, 1999, at 10:00 a.m. local time, for the following purposes: To elect nine (9) 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 an amendment to the Second Restated Certificate of Incorporation increasing the authorized number of shares of Common Stock; To approve an amended 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 29, 1999, 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. ALTERNATIVELY, YOU MAY VOTE BY TELEPHONE AT 1-800-840-1208. Instructions regarding telephone voting are included on the Proxy. BY ORDER OF THE BOARD OF DIRECTORS, Frank A. Nicolai Secretary April 21, 1999 3 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 LEGATO ROAD FAIRFAX, VIRGINIA 22033 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS MAY 21, 1999 TABLE OF CONTENTS General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Voting Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Information Concerning Nominees for Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Information Concerning Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Compensation Committee Report of Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Shareholder Return Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Committees and Compensation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . 17 Proposal to Approve an Amendment to the Certificate of Incorporation Increasing the Authorized Number of Shares of Common Stock . . . . . . . . . . . . . . . . . . . . 18 Proposal to Approve an Amended 1996 Amended Stock Option Plan F . . . . . . . . . . . . . . . . . . . . . . 19 Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Proposals for 2000 Annual Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Second Restated Certificate of Incorporation, Amendment to Article Fourth . . . . . . . . . . . . . Exhibit A 1996 Amended Stock Option Plan F, as Amended . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit B American Management Systems, Incorporated 1998 Financial Report . . . . . . . . . . . . . . . . . . Appendix 1
4 GENERAL The enclosed Proxy is being solicited by the Board of Directors (the "Board of Directors" or the "Board") of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the "Company" or "AMS") in connection with the annual meeting of shareholders of the Company to be held May 21, 1999 (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 21, 1999. Any shareholder giving a Proxy by mail or via telephone has the power to revoke it at any time before it is voted by giving written notice of revocation to the Secretary of the Company or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Company. If you attend the Annual Meeting, you may, if you wish, revoke your Proxy by voting in person. Proxies solicited herein will be voted, and if the person solicited specifies in the Proxy a choice with respect to matters to be acted upon, the shares will be voted in accordance with such specification. If no choice is indicated, the Proxy will be voted "FOR" the election of the nominees listed on pages 2 to 6 under the caption "Information Concerning Nominees for Director"; "FOR" the approval of an amendment to the Company's Second Restated Certificate of Incorporation (the "Certificate of Incorporation") increasing the authorized number of shares of Common Stock, $0.01 par value per share (the "Common Stock"); and "FOR" the approval of an amended 1996 Amended Stock Option Plan F ("Plan F"). VOTING PROCEDURE As of March 29, 1999, there were outstanding 42,514,408 shares of Common Stock. Each share of Common Stock is entitled to one vote at the Annual Meeting. Only shareholders of record at the close of business on March 29, 1999, 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. Directors will be elected by the affirmative vote of the holders of a plurality of the shares present (in person or represented by Proxy) and voted on the election of directors at the Annual Meeting. The proposal to approve an amendment to the Certificate of Incorporation will be approved by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock. The proposal to approve an amended Plan F, and any other 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 each 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. 5 ELECTION OF DIRECTORS Philip M. Giuntini resigned as President and Director of the Company on September 18, 1998. Upon Mr. Giuntini's resignation, the directors voted to reduce the number of directors constituting the Board from ten members to nine members. Accordingly, nine 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 plurality of the shares present (in person or represented by Proxy) and voted 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 under the caption "Information Concerning Nominees for Director" 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." THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES DESCRIBED BELOW FOR ELECTION AS DIRECTORS (ITEM 1 ON THE PROXY).
YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Paul A. Brands. . . . . . . . 57 Chairman of the 1992 Mr. Brands has served as Chairman of the Board of Board of Directors since December 1997 Directors, Chief and as a member of the Board of Executive Directors since October 1992. Mr. Officer, and Brands served as Vice Chairman of the Director Board of Directors from October 1992 to December 1997. He was 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.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Patrick W. Gross. . . . . . . 54 Chairman of the 1974 Mr. Gross is one of the Company's Executive founders and has served AMS continuously Committee of the as an executive officer since 1970. Board of Since December 1997, Mr. Gross has Directors, and served as Chairman of the Executive Director Committee of the Board of Directors, an office he also held from 1983 to 1989. He also served as Vice Chairman of the Board of Directors from February 1989 to September 1997. He is a director of Capital One Financial Corporation, Computer Network Technology Corporation, and Landmark Systems Corporation, all of which are publicly-held entities. He is also Chairman of the Board of Directors (a non-executive position) of Baker & Taylor Holdings, Inc., which is a non- publicly held entity. Frank A. Nicolai . . . . . . . 57 Executive Vice 1974 Mr. Nicolai is one of the Company's President, founders and has served continuously as Secretary, and an executive officer since 1970. He was Director elected Secretary in 1987. In addition, he served as Treasurer of the Company from 1980 to 1999. Daniel J. Altobello. . . . . . 58 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 presently serves as a director of MESA Air Group, Inc., World Airways, Inc., Sodexho-Marriott Services, Inc. and First Union Realty Trust, all of which are public companies. He also currently serves as a director of CareFirst, Inc. CareFirst of Maryland, Inc., Colorado Prime Corporation, and Atlantic Aviation Holdings, and a member of the Advisory Board of Thayer Capital Partners, a merchant bank. None of these entities is publicly held.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- James J. Forese. . . . . . . . 63 Director 1989 Mr. Forese is currently President, Chief Executive Officer and a Director of IKON Office Solutions. From January 1997 to July 1998 he served as 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. Dorothy Leonard. . . . . . . . 57 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 serves as an independent industrial consultant to numerous companies such as IBM, AT&T, and Nielsen Media Research. She also is a director of Guy-Gannett Communications, which is a non-publicly held entity.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- W. Walker Lewis. . . . . . . . 54 Director 1995 Mr. Lewis presently is Chairman of Devon Value Advisers. From January 1995 to April 1998 he was a Senior Advisor with SBC Warburg Dillon Read Inc. (previously Dillon, Read & Co., Inc.). 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 Jostens, Inc. and Owens Corning, which are publicly-held corporations, and London Fog and Mrs. Fields Original Cookies, which are non-publicly held entities. Mr. Lewis previously served as a director of AMS from February 1981 through May 1992. Frederic V. Malek. . . . . . . 62 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 to 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.; various Paine-Webber mutual funds; FPL Group; Northwest Airlines; CB Richard Ellis Services, Inc.; Global Vacation Group, Inc.; Aegis Communications Group, Inc.; and HCR/Manor Care, Inc., all of which are publicly-held entities.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Alan G. Spoon. . . . . . . . . 47 Director 1996 Mr. Spoon has been Chief Operating Officer and Director of The Washington Post Company, a public 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 is a member of the Advisory Board of Polaris Ventures, L.P., a venture capital fund, both of which are non-public entities. He presently serves as a director of Human Genome Sciences, Inc. and Ticketmaster-CitySearch Online, Inc., both of which are public companies. He also is a director of The National Museum of National History.
-6- 10 INFORMATION CONCERNING EXECUTIVE OFFICERS Information concerning Paul A. Brands, Chairman and Chief Executive Officer; Patrick W. Gross, Chairman of the Executive Committee of the Board of Directors; and Frank A. Nicolai, Executive Vice President and Secretary, is set forth above under the caption "Information Concerning Nominees for Director."
NAME AGE POSITION BACKGROUND ---- --- -------- ---------- Fred L. Forman. . . . . . . . . 55 Executive Dr. Forman is currently in Europe on a Vice President two- to three-year special assignment to perform various management duties with the Company's telecommunications group and overall European management program. In addition, he presently coordinates the Company's Engagement Management Program and participates in several executive steering committees with key clients. He joined the Company in 1971. Ronald L. Schillereff. . . . . 54 Executive Dr. Schillereff joined the Company in Vice President, February 1999. From 1993 to 1998 he was Chief Financial with Electronic Data Systems Corporation Officer, ("EDS") serving as Managing Director of and Treasurer EDS Australia (1997 to 1998); Managing Director of A.T. Kearney for Southeast Asia, which is a wholly-owned management consulting subsidiary of EDS (1995 to 1997); and Principal and Practice Leader in Management Consulting Services, the consulting division of EDS (1993 to 1995).
-7- 11 PRINCIPAL STOCKHOLDERS As of March 29, 1999, no persons were known by the Company to beneficially own 5% or more of the outstanding shares of Common Stock. The following table sets forth, as of March 29, 1999, the number and percentage of outstanding shares of Common Stock beneficially owned by (i) each director, (ii) each executive officer, and (iii) all executive officers and directors as a group. Unless otherwise noted below, each person named in the table has sole voting and sole investment power with respect to each of the shares beneficially owned by such person.
AMOUNT OF BENEFICIAL PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING SHARES(2) - ------------------------------------ ------------ --------------------- Daniel J. Altobello(3) . . . . . . . . . . . . . . . . 19,957 0.0% 6550 Rock Spring Drive Bethesda, MD 20817 Paul A. Brands (3)(4) . . . . . . . . . . . . . . . . . 510,441 1.2% 4050 Legato Road Fairfax, VA 22033 James J. Forese(3) . . . . . . . . . . . . . . . . . . 87,374 0.2% 70 Valley Stream Parkway Malvern, PA 19355 Fred L. Forman(4) . . . . . . . . . . . . . . . . . . . 251,560 0.6% 4050 Legato Road Fairfax, VA 22033 Patrick W. Gross(3)(4)(5) . . . . . . . . . . . . . . . 700,142 1.6% 4050 Legato Road Fairfax, VA 22033 Dorothy Leonard(3) . . . . . . . . . . . . . . . . . . 9,413 0.0% Harvard University Graduate School of Business 522 Soldiers Field Road Morgan Hall T93 Boston, MA 02163 W. Walker Lewis(3) . . . . . . . . . . . . . . . . . . 6,755 0.0% 399 Park Avenue, 19th Floor New York, NY 10022 Frederic V. Malek(3) . . . . . . . . . . . . . . . . . 18,259 0.0% 901 15th Street, N.W. Suite 350 Washington, D.C. 20004 Frank A. Nicolai(3)(4)(6) . . . . . . . . . . . . . . . 541,154 1.3% 4050 Legato Road Fairfax, VA 22033 Ronald L. Schillereff(4) . . . . . . . . . . . . . . . 0 0.0% 4050 Legato Road Fairfax, VA 22033 Alan G. Spoon(3)(7) . . . . . . . . . . . . . . . . . . 4,749 0.0% 1150 15th Street, N.W. Washington, D.C. 20071 All executive officers and directors . . . . . . . . . 2,149,804 5.1% as a group (eleven persons)
-8- 12 (1) The 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 29, 1999. Accordingly, Mr. Altobello has 832 options vested and exercisable; Mr. Brands has 24,300 options vested and exercisable; Mr. Forese has 10,499 options vested and exercisable; Dr. Forman has 12,150 options vested and exercisable; Mr. Gross has 12,150 options vested and exercisable; Dr. Leonard has 2,833 options vested and exercisable; Mr. Lewis has 5,249 options vested and exercisable; Mr. Malek has 1,166 options vested and exercisable; Mr. Nicolai has 12,150 options vested and exercisable; Dr. Schillereff has no options vested and exercisable; and Mr. Spoon has 2,749 options vested and exercisable. All executive officers and directors as a group (eleven persons) have beneficial ownership of 84,078 options vested and exercisable within 60 days of March 29, 1999. (2) The 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 29, 1999. (3) Indicates a director of the Company. (4) Indicates an executive officer of the Company. (5) The amount includes 64,875 shares beneficially owned by Mr. Gross' wife. Mr. Gross disclaims beneficial ownership with respect to the shares owned by his wife, who has the sole power to vote and dispose of such shares. The amount also includes 362,310 shares jointly owned by Mr. and Mrs. Gross, who share joint power to vote and dispose of such shares. Lastly, the amount includes 55,350 shares each owned by two trusts, totaling 110,700 shares, for the benefit of Mr. Gross' son and daughter, respectively, of which Mr. and Mrs. Gross are co-trustees. Mr. and Mrs. Gross share joint power to vote and dispose of such shares. (6) The amount 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. (7) The amount includes 2,000 shares 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 (the "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 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, 1998 (the "1998 fiscal year"), and representations by reporting persons that no other reports were required for the 1998 fiscal year, all Section 16(a) reporting requirements were met, except as follows. Mr. Frederic V. Malek failed to timely report on a Form 4 a sale of shares of Common Stock in March 1998, and Dr. Dorothy Leonard failed to timely report on a Form 4 a sale of shares of Common Stock in November 1998. Each of these directors timely filed a Form 5 for the 1998 fiscal year to report such transaction. In addition, Dr. Fred L. Forman failed to timely report on a Form 4 a sale of shares of Common Stock in February 1998. This transaction was recently reported on a Form 4. -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, 1998, to the Company's executive officers.
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------- ----------------------- AWARDS ------ SHARES UNDERLYING OPTIONS (NO. ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER OF SHARES)(2) COMPENSATION(3) - --------------------------- ---- ------ ----- ----- ---------- ------------ Paul A. Brands 1998 $342,333 $437,500 $ 0 3,000 $ 8,328 Chairman of the Board 1997 304,000 0 0 0 8,427 of Directors, Chief Executive 1996 301,167 0 0 17,700 7,904 Officer, and Director Philip Giuntini 1998 $240,250 0 0 2,000 658,328(4) Formerly President and 1997 304,000 0 0 0 8,427 Director 1996 301,167 0 0 17,700 7,904 Patrick W. Gross 1998 $311,167 236,250 0 1,000 8,328 Chairman of the Executive 1997 292,000 0 0 0 8,427 Committee of the Board of 1996 290,547 0 0 8,850 7,904 Directors and Director Frank A. Nicolai 1998 286,333 217,500 0 1,000 8,328 Executive Vice President, 1997 268,000 0 0 0 8,427 Secretary, and Director 1996 265,500 150,750 0 8,850 7,904 Fred L. Forman 1998 313,500 236,250 174,158(5) 1,000 8,328 Executive Vice President 1997 303,667 229,500 9,959(6) 0 8,427 1996 289,975 219,000 0 8,850 7,904
(1) All amounts were awarded based on the achievement of annual performance goals under multi-year incentive compensation plans. (2) Each of these awards of shares 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) Except as otherwise indicated, these amounts represent the Company's contribution to special individual retirement accounts pursuant to the AMS Simplified Employee Pension/IRA Plan (the "IRA Plan"). (4) This amount consists of $650,000, which was paid by the Company to Mr. Giuntini in connection with his departure from the Company, and $8,328, which represents the Company's contribution under the IRA Plan. (5) This amount consists of $104,186 in foreign assignment related income and $69,972 in foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. (6) This amount represents foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. -10- 14 OPTION GRANTS IN FISCAL 1998 Shown below is information concerning stock option grants to the Company's executive officers who were granted options on Common Stock during the Company's 1998 fiscal year.
INDIVIDUAL GRANTS ---------------------------------------------------------- POTENTIAL REALIZABLE VALUE NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF SHARES OPTIONS STOCK PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM COMPOUNDED ANNUALLY OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------------- NAME GRANTED(1) FISCAL 1998 ($/SHARE)(2) DATE 5% 10% ---- ------- ----------- ----------- ---- -- --- Paul A. Brands . . . 3,000 0.4% $28.38 05/08/2003 $23,518 $51,967 Philip M. Giuntini . 2,000 0.3% 28.38 05/08/2003 15,679 34,646 Patrick W. Gross . . 1,000 0.1% 28.38 05/08/2003 7,839 17,323 Frank A. Nicolai . . 1,000 0.1% 28.38 05/08/2003 7,839 17,323 Fred L. Forman . . . 1,000 0.1% 28.38 05/08/2003 7,839 17,323
(1) Each option grant is associated with a performance-based individual incentive compensation plan for 1998-1999 and was made by the appropriate Board committee pursuant to a shareholder-approved stock option plan. The options will become exercisable one day prior to the indicated 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 the grant. 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 1998 fiscal year of options to purchase shares of Common Stock pursuant to Plan F, 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 1998 fiscal year.
NUMBER OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEYOPTIONSAT ACQUIRED END OF FISCAL YEAR END OF FISCAL 1998(2) ON VALUE ----------------------------- --------------------------- NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- ----------- ------------ -------------- ----------- ------------- Paul A. Brands. . . . . . . . . 12,825 $ 192,178 24,300 4,500 $ 472,837 $55,125 Philip M. Giuntini. . . . . . . 52,866 545,907 0 0 0 0 Patrick W. Gross. . . . . . . . 16,537 287,790 13,500 1,750 277,894 21,750 Frank A. Nicolai. . . . . . . . 1,350 25,875 12,150 1,750 236,419 21,750 Fred L. Forman. . . . . . . . . 18,985 330,391 12,150 1,750 236,419 21,750
(1) Based on the market value of the Common Stock on the date of exercise (as measured by the closing bid price of the National Market of The Nasdaq Stock Market), minus the option's exercise price. (2) Based on the market value of the Common Stock on the last trading day of 1998 (as measured by the closing bid price of $40.00 of the National Market of The Nasdaq Stock Market), minus the option's exercise price. LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR No long-term incentive plan awards were made to the Company's executive officers during the Company's 1998 fiscal year. -11- 15 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 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 1998: 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 GENERAL. 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 5 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 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 (the "Profit-Sharing Plan"), a stock award plan, or the Company's Employee Stock Purchase Plan. The Company does not provide material perquisites to any of its executive officers. ANNUAL BASE SALARY. The Compensation Committee determines the annual base salary of each of the Company's executive officers, including the CEO. Changes in base salary are generally made effective on March 1. The same principles are applied in setting the salaries of all executive officers to ensure that salaries are competitively established. Salaries are determined by considering the officer's potential duties and responsibilities within the Company and his or her business unit, and the officer's potential impact on the operations and profitability of the Company. Unlike with respect to the Company's incentive compensation arrangements, the -12- 16 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 each 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, which are comprised of financial performance, including targets for the Company's pre-tax income. Each executive officer also generally has an incentive compensation plan with targets based on the achievement of various individual 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. 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 individual 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 1998 was the first year of two-year compensation plans for Paul A. Brands, Patrick W. Gross, Frank A. Nicolai, and Fred L. Forman. 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 Engagement Management Framework 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 1999, the Compensation Committee determined that Messrs. Brands, Gross, and Nicolai substantially met their financial goals relative to fiscal year 1998 and that Dr. Forman had substantially met his non-financial goals, and determined that each had earned the target payment of one incentive share. These amounts are shown above in the Summary Compensation Table under "Annual Compensation -- Bonus." The Compensation Committee in February 1999 also approved the interim stock option awards to Messrs. Brands, Gross, Nicolai, and Forman contemplated by their approved incentive compensation plans and based on achievement of the specified goals for fiscal 1998. POLICY ON DEDUCTIBILITY OF COMPENSATION Under Section 162(m) ("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 million per year for fiscal years beginning on or after January 1, 1994. This limitation does not apply to compensation payable to the Company's current executive officers consisting of stock options issuable under Plan F or earlier stock option plans, nor to compensation payable under certain performance-based compensation plans approved by shareholders. The -13- 17 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 1996 Incentive Compensation Plan for Executive Officers (the "IC Plan") was presented to and approved by the shareholders at the 1996 annual meeting of shareholders of the Company. Grants to executive officers of incentive compensation based on pre-tax income are generally expected to be covered by the IC Plan when such coverage is consistent with the Compensation Committee's goals. The IC Plan significantly limits the Compensation Committee's discretion regarding the structure and 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 that 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 A. Brands, who has served as Chief Executive Officer of the Company since September 1993, received an annual base salary of $350,000 for 1998, which represented an increase of 15% over his base salary for 1997. The increase was not based on any specific corporate performance factors. Mr. Brands' incentive compensation payments are determined by the Compensation Committee based on targets for the Company's pre-tax income, collection of accounts receivable, and certain other financial and non-financial goals. As previously indicated, Mr. Brands met the financial target for his multi-year plan in effect for 1998-1999. In connection therewith, a first interim award of 12,000 options was granted by the Compensation Committee in February 1999. At its February 1999 meeting, the Compensation Committee also decided to increase Mr. Brands' base salary to $400,000 as of March 1, 1999. Frederic V. Malek (Chairman) Daniel J. Altobello James J. Forese Dorothy Leonard W. Walker Lewis Alan G. Spoon -14- 18 SHAREHOLDER RETURN PERFORMANCE GRAPH The following graph and table provide a comparison of the cumulative total return on the Common Stock of the Company for the five-year period beginning December 31, 1993, with returns on the Standard & Poor's 500 Composite Index and the Computer Software Sector Index of the Hambrecht & Quist Technology Stock Index. The graph and table assume that the value of the investment in the Common Stock of the Company and each of the aforementioned indices on December 31, 1993, was $100 and that all dividends were reinvested, although the Company has never paid dividends on the Common Stock. The historical stock price performance of the Common Stock of the Company shown below is not necessarily indicative of future stock price performance. [GRAPH]
- ---------------------------------------------------------------------------------------------------- 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 - ---------------------------------------------------------------------------------------------------- AMSY Common Stock $100 $146 $228 $279 $222 $456 - ---------------------------------------------------------------------------------------------------- S&P 500 Composite Index $100 $101 $139 $171 $229 $294 - ---------------------------------------------------------------------------------------------------- Hambrecht & Quist Technology/Software $100 $126 $180 $219 $265 $346 - ----------------------------------------------------------------------------------------------------
-15- 19 COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS COMMITTEES AND MEETINGS 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 three directors, all of whom are executive officers of the Company: Patrick W. Gross (Committee Chairman), Paul A. Brands, 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 1998. The Stock Option/Award Committee is presently composed of three directors, all of whom are executive officers of the Company: Paul A. Brands (Committee Chairman), Patrick W. Gross, 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 Profit-Sharing 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 once during 1998. The Compensation Committee is presently composed of the six Outside Directors: Frederic V. Malek (Committee Chairman), Daniel J. Altobello, James J. Forese, Dorothy Leonard, W. Walker Lewis, and Alan G. Spoon. 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 1998, the Compensation Committee met three times. The Audit Committee is presently composed of four Outside Directors: James J. Forese (Committee Chairman), Daniel J. Altobello, Dorothy Leonard, and Alan G. Spoon. 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 1998, the Audit Committee met three times. The Board of Directors met five times during 1998. Except for one meeting that was not attended by one director, all members attended all of the meetings of the Board and Committees of the Board on which they serve. COMPENSATION Directors who also serve as executive officers of the Company are not separately compensated for attending Board meetings. 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 1998. In addition, Outside Directors were paid a retainer of $5,000 per year during fiscal 1998. 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. Alternatively, Outside Directors can elect to defer receipt of the annual meeting fees and retainer pursuant to the Company's Outside Director Deferred Compensation Plan. Under the terms of the Deferred Compensation Plan, Outside Directors making such an election would be credited with earnings on amounts deferred at an interest rate based on a corporate bond index and such interest rate would be increased by 300 basis points if the Company achieved certain annual performance goals. W. Walker Lewis elected to have his annual meeting fees for four of the Board meetings he attended during 1998 paid in the form of Common Stock pursuant to the Stock-for-Fees Plan. -16- 20 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 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 Amended and Restated Stock Option Plan E, as amended ("Plan E"), each new Outside Director was automatically granted 5,000 options (such number subject to adjustments for splits) upon 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 five years, when any options previously granted have fully vested. Plan F, as currently in effect, provides for the grant of the same amount of options to Outside Directors. Pursuant to 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 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. Dr. Leonard was granted 5,000 options under Plan E in August 1996 because her options granted in 1991 had fully vested, and Alan G. Spoon was granted 5,000 options under Plan E in September 1996 when he became a director. Mr. Malek was granted 5,000 options under Plan F in April 1998 because his options granted in 1993 had fully vested. In addition, Mr. Altobello was granted 5,000 options under Plan F in August 1998 because his options granted in 1993 had fully vested. The proposal to approve an amended Plan F would eliminate the automatic, nondiscretionary stock option awards to Outside Directors. The amended Plan F would permit the Compensation Committee to grant stock options to Outside Directors on a discretionary basis. See "Proposal to Approve an Amended 1996 Amended Stock Option Plan F," below. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Frederic V. Malek, James J. Forese, Dorothy Leonard, Daniel J. Altobello, W. Walker Lewis, and Alan G. Spoon served as members of the Compensation Committee during fiscal 1998 and continue to serve as members. Mr. Malek is Chairman of the Compensation Committee. During 1998, there were no Compensation Committee interlocks, and there was no insider participation in the executive compensation decisions of the Company. -17- 21 PROPOSAL TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK An amendment (the "Charter Amendment") to Article Fourth of the Certificate of Incorporation was adopted by the Board of Directors on February 26, 1999, subject to approval by the shareholders. The text of the Charter Amendment is set forth in Exhibit A to this Proxy Statement and is incorporated herein by reference, and the discussion herein is qualified in its entirety by reference thereto. The Charter Amendment increases the authorized number of shares of Common Stock from 100,000,000 shares to 200,000,000 shares. Shareholders of the Common Stock are not entitled to preemptive rights. The additional shares are likely to be used for stock splits which the Company may authorize from time to time. The proposed increase in the authorized number of shares is necessary to permit future stock splits. The Company has split its stock six times since 1985, most recently in January 1996, when the Board of Directors authorized a 3-for-2 split. The cumulative effect of these splits has multiplied one share at the beginning of 1985 into 20.25 shares currently. The additional shares proposed to be authorized could also be used to satisfy stock options which may be granted under stock option plans in the future or obligations under other stock-based compensation plans, such as the Profit-Sharing Plan or the Stock-for-Fees Plan. Finally, it would also be possible for the Company to issue the additional shares proposed to be authorized as stock dividends or in connection with acquisitions, financings to raise funds, or other actions to expand or enhance the Company's business. At this time, the Company does not contemplate any of these actions which would require the use of unissued authorized shares, other than the satisfaction of obligations under benefit plans and the possibility of future stock splits. Conceivably, it may be possible for the issuance of additional shares to deter potential takeover efforts if the additional shares were issued to persons who are opposed to such efforts. However, the Company is not aware of any potential takeover efforts and the proposed increase in the authorized number of shares was unrelated to any such concern. As of March 29, 1999, there were outstanding 42,514,408 shares of Common Stock and 2,833,624 shares of Common Stock reserved for issuance upon exercise of the options granted under the Company's stock option plans. If the Charter Amendment is approved by the shareholders, based on the number of shares outstanding on March 29, 1999, there will be 157,485,592 shares of authorized but unissued Common Stock. The issuance of additional authorized shares pursuant to a stock split or stock dividend will not reduce the percentage of the total number of outstanding shares held by any shareholder or have a dilutive financial effect; the sale of any additional authorized shares will proportionately reduce the percentage of the total number of outstanding shares held by any shareholder, although such a sale will not have a dilutive financial effect unless the additional shares are sold for less than the then fair market value of the Common Stock. The Board of Directors does not anticipate issuing additional shares of Common Stock for less than fair market value except to the extent that the exercise price of employee stock options is less at the time of the options' exercise than the fair market value of the Common Stock. The additional shares of Common Stock to be authorized under the Charter Amendment may be issued from time to time by the Board of Directors without the necessity of further shareholder action. Approval of the Charter Amendment will require the affirmative vote of the holders of a majority of the outstanding shares of Common Stock. The Board of Directors has unanimously adopted a resolution approving the Charter Amendment and directed that it be submitted to the shareholders for their consideration. The members of the Board of Directors and the Company's executive officers have advised the Company that they intend to vote all shares in their control in favor of the Charter Amendment. In the event that the Charter Amendment is not approved by the shareholders of the Company at the Annual Meeting, the Board of Directors will reconsider it. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK (ITEM 2 ON THE PROXY). -18- 22 PROPOSAL TO APPROVE AN AMENDED 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. The Plan was amended in 1997, becoming 1996 Amended Stock Option Plan F (i.e., Plan F). The Company's shareholders now are being asked to approve Plan F, as amended by amendments that were approved by the Board of Directors effective as of March 3, 1999, subject to shareholder approval (the "Amendments"). The Amendments (i) increase the number of shares of Common Stock authorized to be issued pursuant to stock options granted under Plan F from 3,800,000 shares to 5,800,000 shares, (ii) increase the maximum lifetime of stock options from five years to ten years in the case of nonqualified stock options ("NSOs") and from eight years to ten years in the case of incentive stock options ("ISOs"), (iii) provide for stock options to be granted by the Compensation Committee to Outside Directors generally on a discretionary basis, rather than on an automatic, nondiscretionary basis, (iv) clarify the respective roles of the Board of Directors, the Stock Option/Award Committee, and the Compensation Committee under Plan F, and (v) make technical changes to conform more closely to regulations issued by the Commission under Section 16(b) of the Exchange Act and by the Internal Revenue Service under Section 162(m). The Board of Directors believes that the 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 the Outside Directors for service to the Company. The text of Plan F, as proposed to be amended (the "Proposed Plan") and incorporating the Amendments in italics, is set forth in Exhibit B to this Proxy Statement, and the following description of Plan F is qualified by reference to such text. SUMMARY DESCRIPTION OF PLAN F Plan F as currently in effect (the "Current Plan") 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 the Current Plan. The Current Plan defines "Outside Directors" generally as directors who have not at any time been officers or employees of the Company. As of March 29, 1999, 2,138 key employees (i.e., five executive officers, 199 Vice Presidents, 532 Senior Principals, and 1,402 Principals, including persons in comparable positions) and six Outside Directors were eligible to participate in the Current Plan. The Current Plan 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 the Current Plan, the Stock Option/Award Committee has the authority to determine which employees shall be granted options, whether the options are NSOs or ISOs, the times at which options are granted, the exercise prices of options, the numbers of shares subject to options, the times at which or the periods over which options vest, the times at which options terminate, and whether the exercise price of an option will be paid in cash or stock. Under the Current Plan, a committee composed of at least two "non-employee directors" (within the meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act), who also are "outside directors" (within the meaning of Section 162(m)), has the authority (i) to make awards to directors of the Company who are not Outside Directors, to all persons who are "officers" of the Company (within the meaning of Section 16) and to "covered employees" (within the meaning of Section 162(m)) and (ii) to perform all other functions of the Board of Directors or Stock Option/Award Committee with respect to outstanding awards to any of such directors, officers, -19- 23 and covered employees. The Compensation Committee currently performs these functions with respect to these individuals. Under the Proposed Plan, the Compensation Committee would be referred to specifically throughout such Plan as the committee responsible for performing these functions. Under the Current Plan, options may be granted to key employees either (i) on the basis of awards earned under the Company's incentive compensation programs for groups of key employees, or (ii) as the Board of Directors or the appropriate Committee may determine. If options are granted in connection with the Company's incentive compensation programs, then performance bonuses and options based thereon are earned based on the employee's success in meeting predetermined performance standards during one or more years (the "Performance Period"). Such options are granted, if at all, at the time that the Company determines that the employee has met or will meet the employee's predetermined performance standards for the Performance Period in question. Under the Current Plan, the award of options to Outside Directors is non-discretionary. NSOs for 5,000 shares are granted automatically to any new Outside Director on the date of the Outside Director's first election or appointment to the Board of Directors, subject to vesting as provided in such Plan. On the day after those stock options become fully vested (other than vesting by reason of death or disability), each Outside Director receives an additional grant of 5,000 shares. One sixtieth of the subsequent options vest on the date of grant and thereafter are subject to vesting as provided in the Current Plan. The Proposed Plan would provide that the award of stock options to Outside Directors, and the terms of those options (including terms dealing with vesting), generally would be subject to the discretion of the Compensation Committee. However, as under the Current Plan, stock options granted to Outside Directors would vest upon the termination of an Outside Director as a member of the Board of Directors by reason of death or disability. The Current Plan 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. The Proposed Plan would eliminate this requirement because it no longer is required to comply with Rule 16b-3 under Section 16 of the Exchange Act. The Current Plan authorizes the issuance of options to purchase a maximum of 3,800,000 shares, subject to adjustment for future capital changes. Of this number, 1,661,067 shares remained available as of March 29, 1999 for issuance pursuant to options granted thereunder. The Proposed Plan would increase the number of shares authorized to be issued to 5,800,000. Shares subject to options granted under the Current Plan that terminate or expire unexercised are available for the grant of future options. The number of shares that may be subject to options granted under the Current Plan 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 that may be subject to options granted under the Current Plan to any "covered employee" (as defined in Section 162(m)) during the life of such Plan is 100,000 shares, subject to adjustment for future capital changes. Under the Current Plan, NSOs are exercisable only to the extent that 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. The exercise price of all NSOs granted under the Current Plan, 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 the Current Plan, ISOs also are exercisable only to the extent that 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. 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). -20- 24 Under the Current Plan, all NSOs expire no later than five years after the date of grant, and all ISOs expire no later than eight years after the date of grant. Under the Proposed Plan, NSOs and ISOs would expire no later than ten years after the date of grant. For purposes of the Current Plan, the fair market value of the Common Stock is the closing bid price of the Common Stock as quoted in the National Market of The Nasdaq Stock Market on the date of grant of the option, or, if there is no trade on such date, on the most recent date on which the Common Stock was traded. On March 29, 1999, the closing bid price of the Common Stock was $34.25 per share. Under the Current Plan, options granted to employees may be amended to advance the date on which the option vests. The Proposed Plan would extend this rule to options granted to Outside Directors. If an option is so amended, the amendment also may provide that the shares that 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, the Current Plan also provides for the automatic acceleration of the vesting of options that would have vested within one year of any such event. An option is exercised by giving written notice to the Company, specifying the full number of shares of Common Stock to be purchased and tendering payment to the Company of the exercise price. Payment for shares issued upon the exercise of an option may consist of cash or delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company the number of sales or loan proceeds required to pay the exercise price. Under the Current Plan, 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 other than resignation following completion of ten or more years of continuous service, all options held by the employee that are not exercisable on the date of such termination 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 is entitled to exercise any option whatsoever. To the extent NSOs held by an employee are exercisable upon the employee's termination of employment, shares subject to NSOs held by the employee may be purchased during the "exercise period," after which the NSOs expire and all rights granted under the agreement pursuant to which the options were granted become null and void. The "exercise period" ends on the earlier of (i) the date on which the NSOs expire by their terms and (ii) (a) except in the case of death, disability, or resignation as an employee following completion of ten or more years of continuous service as an employee, thirty 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 or more years of continuous service, one 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 resignation as an Outside Director following completion of ten or more years of continuous service as an Outside Director, death or disability, all options held by the Outside Director that are not exercisable on the date of such termination expire. 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 years of continuous service as an Outside Director, death or disability, the "exercise period" for shares subject to an NSO held by the Outside Director, 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 and (ii) the date one year after the date of termination of the 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 (i) the date on which the ISO expires by its terms and (ii) (a) except in the case of death or disability, within thirty days after the date employment is terminated and (b) in the case of death or disability, within one year after the date of termination of employment. -21- 25 Under the Current Plan, the Board of Directors may, at any time, amend such Plan or the terms of options granted under such Plan, except that, among other things, no amendment may, without approval of the shareholders, materially modify the terms of such Plan as to "covered employees" (within the meaning of Section 162(m)). Consistent with Section 162(m), the Proposed Plan would prohibit only modifications to the material terms of such Plan as to such employees without shareholder approval. TAX CONSEQUENCES Information regarding the federal income tax consequences to the Company and to optionees of options granted under 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 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," which is 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 that 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 that 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 1998 fiscal year to each of the following persons or groups had the Proposed Plan been in effect would not differ from the number that was in fact granted under the Current Plan, as set forth below. -22- 26
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM NAME AND POSITION COMPOUNDED ANNUALLY(1) NUMBER OF UNITS(2) ----------------- ------------------- --------------- 5% 10% ------ ------- Paul A. Brands . . . . . . . . . . . . . . . . . . . $ 23,518 $ 51,967 3,000 Chairman of the Board of Directors, Chief Executive Officer, and Director Philip M. Giuntini . . . . . . . . . . . . . . . . . 15,679 34,646 2,000 Formerly President, and Director Patrick W. Gross . . . . . . . . . . . . . . . . . . 7,839 17,323 1,000 Chairman of the Executive Committee of the Board of Directors, and Director Frank A. Nicolai . . . . . . . . . . . . . . . . . . 7,839 17,323 1,000 Executive Vice President, Secretary, and Director Fred L. Forman . . . . . . . . . . . . . . . . . . . 7,839 17,323 1,000 Executive Vice President All current executive officers as a group . . . . . . 62,714 138,582 8,000 All current directors who are not executive officers as a group . . . . . . . . . . . . . . . . . . . . . 79,411 175,522 10,000 All employees who are not executive officers as a group 5,422,509 13,216,533 713,244
(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) This number represents options that were granted during the 1998 fiscal year pursuant to Plan F. VOTE REQUIRED The affirmative vote of the holders of a majority of the shares of Common Stock present at the Annual Meeting or represented by Proxy and entitled to vote to approve Plan F, as amended by the Amendments, is required for approval of such Plan. The Board of Directors has unanimously adopted a resolution approving Plan F, as amended by the Amendments, and directed that it be submitted to the shareholders for their consideration. The members of the Board of Directors and the Company's executive officers have advised the Company that they intend to vote all shares in their control in favor of Plan F, as amended by the Amendments. In the event that Plan F, as amended by the Amendments, is not approved by the shareholders of the Company at the Annual Meeting, the Board of Directors will reconsider the Amendments; unless and until the Board takes further action with respect to the Amendments, Plan F will remain in effect in accordance with its terms. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF AN AMENDED 1996 AMENDED STOCK OPTION PLAN F (ITEM 3 ON THE PROXY). -23- 27 INDEPENDENT PUBLIC ACCOUNTANTS On July 31, 1998, at the Company's regularly scheduled meetings of the Board of Directors and the Audit Committee, the Company accepted the resignation of PricewaterhouseCoopers LLP because of conflicts of interest resulting from the July 1, 1998 merger of Price Waterhouse LLP and Coopers & Lybrand LLP. The Company and Coopers & Lybrand LLP have long-standing business relationships which both parties wish to continue. In view of the independence requirements of the Commission regarding the independence of certifying public accountants, the Company and PricewaterhouseCoopers LLP mutually determined that it would be inappropriate for PricewaterhouseCoopers LLP to continue as the Company's accountants. Price Waterhouse LLP was the Company's independent certifying accountants for 28 years. As a result of these circumstances, the Audit Committee and the Board of Directors thereupon appointed Deloitte & Touche LLP as the Company's independent certifying accountants for the fiscal year ending December 31, 1998. During the two fiscal years ended December 31, 1997 and December 31, 1996, the reports of PricewaterhouseCoopers LLP on the annual financial statements have neither contained any adverse opinions or disclaimers of opinions, nor have they been qualified or modified. During such two-year period, and through July 31, 1998, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference to the subject matter of the disagreement in connection with its reports on the financial statements for such years. A representative from Deloitte & Touche LLP 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 has not yet appointed an accounting firm to audit the accounts of the Company for the fiscal year ending December 31, 1999. The Board of Directors, upon the recommendation of the Audit Committee, expects to make such appointment at its regularly scheduled meeting in July 1999. OTHER MATTERS The Board of Directors does not know of any matters to be presented at the Annual Meeting other than those stated above in this Proxy Statement. 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 they determine to be in the best interests of the Company. PROPOSALS FOR 2000 ANNUAL MEETING OF SHAREHOLDERS Under the rules of the Commission, the date by which proposals of shareholders of the Company intended to be presented at the 2000 annual meeting of shareholders must be received by the Company for inclusion in the proxy statement and form of proxy to be distributed by the Board of Directors is December 21, 1999. Shareholder proposals should be submitted to Frank A. Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. Under the Company's By-laws (the "By-laws"), a stockholder must follow certain procedures to nominate persons for election as directors or to propose other business to be considered at an annual meeting of shareholders. These procedures provide that shareholders desiring to make nominations for directors and/or to bring a proper subject before a meeting must do so by notice timely received by the Secretary of the Company. The Secretary of the Company generally must receive notice of any such proposal not less than sixty days and no more than ninety days prior to the anniversary of the preceding year's annual meeting of shareholders. In the case of proposals for the 2000 annual meeting of shareholders, the Secretary of the Company generally must receive notice of any such proposal no earlier than February 7, 2000, and no later than March 9, 2000 (other than proposals intended to be included in the proxy statement and form of proxy, which, as noted above, must be received by December 21, 1999). Generally, such shareholder notice must set forth (a) as to each nominee for director, all information relating to such nominee that is required to be disclosed in solicitations or proxies for election of directors under the proxy rules of the Commission; (b) as to any other business, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder; and (c) as to the shareholder, (i) the name and address of such shareholder, (ii) -24- 28 the number of shares of Common Stock which are owned beneficially and of record by such shareholder, (iii) a representation that the shareholder is a holder of record of Common Stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination or other business, and (iv) a representation as to whether the shareholder intends, or is part of a group which intends, to solicit proxies from other shareholders in support of such nomination or other business. The chairman of the annual meeting shall have the power to declare that any proposal not meeting these and any other applicable requirements imposed by the By-laws shall be disregarded. A copy of the By-laws may be obtained without charge on written request to Frank A. Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. In addition, the form of proxy solicited by the Board of Directors in connection with the 2000 annual meeting of shareholders will confer discretionary authority to the named proxies to vote on any proposal, unless with respect to a particular proposal the Secretary of the Company receives notice of such matter no earlier than February 7, 2000, and no later than March 9, 2000, and such notice complies with the other requirements described in the preceding paragraph. ANNUAL REPORT A copy of the 1998 Annual Report of the Company (which includes condensed financial data and a letter to shareholders) accompanies this Proxy Statement. Appendix 1 to this Proxy Statement, titled "1998 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 1998 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 21, 1999 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 OR CAST YOUR VOTES BY TELEPHONE AT 1-800-840-1208. INSTRUCTIONS REGARDING TELEPHONE VOTING ARE INCLUDED ON THE PROXY. -25- 29 EXHIBIT A AMERICAN MANAGEMENT SYSTEMS, INCORPORATED SECOND RESTATED CERTIFICATE OF INCORPORATION AMENDMENT TO ARTICLE FOURTH Section. 1. Authorized Shares. The total authorized capital stock of the Corporation shall be 204,000,000 shares, consisting of 4,000,000 shares of Preferred Stock, par value $.10 per share (herein called the "Preferred Stock"), and 200,000,000 shares of Common Stock, par value $0.01 per share (herein called the "Common Stock"). A-1 30 EXHIBIT B AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 1996 AMENDED STOCK OPTION PLAN F, AS AMENDED AND IN EFFECT ON MARCH 29, 1999 (As Amended March 3, 1999, Such Amendment Subject To Shareholder Approval) I. PURPOSES There are three purposes of the 1996 Amended 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 II, the Plan shall be implemented and administered by the Board of Directors of the Corporation (the "Board") or a Stock Option/Award Committee appointed by the Board and composed of three or more directors of the Corporation. The Stock Option/Award 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 VI), 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 Stock Option/Award Committee at a meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Stock Option/Award Committee, shall be the valid acts of the Stock Option/Award Committee. The Stock Option/Award 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. Notwithstanding any other provision of this Section II, 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 (the "Compensation Committee"), 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 Stock Option/Award Committee, as the case may be, with respect to outstanding awards to any of such directors, officers, and covered B-1 31 employees including without limitation amendments to this Plan or such outstanding awards which affect such persons. No member of the Board, the Stock Option/Award Committee or the Compensation Committee, as the case may be, shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. 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 Board, the Stock Option/Award Committee or the Compensation Committee, as the case may be, 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, or shall interfere in any way with the right of the Corporation to terminate the membership on the Board 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 VI 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, the Stock Option/Award Committee or the Compensation Committee, as the case may be, 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. Options shall be granted to Outside Directors as the Compensation Committee may determine from time to time. 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 5,800,000 shares, subject to adjustment in accordance with the provisions of paragraph G of Section VI 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 VI hereof. There shall be no annual limitation on options granted with respect to awards earned for Performance Periods of more than one year. B-2 32 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 VI 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, the Stock Option/Award Committee or the Compensation Committee, as the case may be, shall authorize. Option Agreements generally shall be in such form and contain such additional provisions as the Board, the Stock Option/Award Committee or the Compensation 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, the Stock Option/Award Committee or the Compensation Committee, as the case may be, 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, the Stock Option/Award Committee or the Compensation Committee, as the case may be. Options granted to Outside Directors shall vest either immediately or periodically pursuant to a schedule selected by the Compensation Committee at the same time the option is granted, provided that 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. C. Repurchase Amendment. Options granted to employees or Outside Directors 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, the Stock Option/Award Committee or the Compensation Committee, as the case may be, shall authorize, and shall be in such form and contain such provisions as the Board, the Stock Option/Award Committee or the Compensation 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 Board, the Stock Option/Award Committee or the Compensation Committee, as the case may be, 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 III 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. 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