-----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, SwFkflLds2s9qu+SKefYJ95oll0lvtuqRmn6w1hETAd+hCsHvV7TIMaxa4SOjrnc 3ublDv22Cr+gmgalvNldkg== 0000950133-01-001211.txt : 20010411 0000950133-01-001211.hdr.sgml : 20010411 ACCESSION NUMBER: 0000950133-01-001211 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010511 FILED AS OF DATE: 20010410 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: 1598903 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 DEF 14A 1 w47463def14a.txt AMERICAN MANAGEMENT SYSTEMS, INC. DEFINITIVE 14A 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Under 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)(1) 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 11, 2001, at 10:00 a.m. local time, for the following purposes: To elect eight (8) 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 executive incentive compensation plan; and To transact such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. Only shareholders of record at the close of business on March 22, 2001, will be entitled to notice of, and to vote at, the meeting or any adjournment(s) or postponement(s) 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 OR VIA THE INTERNET AT HTTP://WWW.PROXYVOTING.COM/AMSY. Instructions regarding telephone and Internet voting are included on the Proxy. BY ORDER OF THE BOARD OF DIRECTORS, Frank A. Nicolai Secretary April 10, 2001 3 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 LEGATO ROAD FAIRFAX, VIRGINIA 22033 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS MAY 11, 2001 TABLE OF CONTENTS General .........................................................................................................1 Voting Procedure..................................................................................................1 Election of Directors.............................................................................................2 Information Concerning Nominees for Director......................................................................2 Information Concerning Executive Officers.........................................................................6 Principal Stockholders............................................................................................8 Section 16(a) Beneficial Ownership Reporting Compliance..........................................................10 Executive Compensation...........................................................................................11 Compensation Committee Report of Executive Compensation..........................................................15 Audit Committee Report...........................................................................................18 Shareholder Return Performance Graph.............................................................................19 Committees and Compensation of the Board of Directors............................................................20 Compensation Committee Interlocks and Insider Participation......................................................21 Proposal to Approve the 2001 Executive Incentive Compensation Plan...............................................21 Independent Public Accountants...................................................................................23 Other Matters....................................................................................................23 Proposals for 2002 Annual Meeting of Shareholders................................................................23 Annual Report....................................................................................................24 American Management Systems, Incorporated Audit Committee Charter.........................................Exhibit A American Management Systems, Incorporated 2001 Executive Incentive Compensation Plan......................Exhibit B American Management Systems, Incorporated 2000 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 11, 2001 (the "Annual Meeting"), or any adjournment(s) or postponement(s) thereof. The entire expense of solicitation of proxies will be borne by the Company, except that certain expenses for Internet access will be incurred by shareholders who choose to vote over the Internet. Solicitation will be primarily by mail. However, directors, executive officers, and employees of the Company may also solicit by telephone, personal contact or electronic communication. 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 10, 2001. Any shareholder giving a Proxy by mail, via telephone or via the Internet 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 5 under the caption "Information Concerning Nominees for Director"; and "FOR" the approval of the AMS 2001 Executive Incentive Compensation Plan (the "2001 IC Plan"). VOTING PROCEDURE As of March 22, 2001, there were outstanding 41,590,108 shares of the Company's Common Stock, $0.01 par value per share (the "Common Stock"). Each share of Common Stock is entitled to one vote at the Annual Meeting. Only shareholders of record at the close of business on March 22, 2001 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 the 2001 IC Plan will be approved by the affirmative vote of the holders of a majority of the votes cast with respect to such Plan (as required by Internal Revenue Service ("IRS") regulations). 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. Notwithstanding the foregoing, with respect to the proposal to approve the 2001 IC Plan, the election inspectors will not treat abstentions as votes cast for purposes of determining the approval of such Plan (as required by IRS regulations). If a broker submits a Proxy indicating that it does not have discretionary authority as to certain shares to vote on a particular matter (a "Broker Non-vote"), those shares will not be treated as present and entitled to vote for purposes of determining the approval of such matter and will not be treated as votes cast for purposes of determining the approval of the 2001 IC Plan. 5 ELECTION OF DIRECTORS Eight 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 5. 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. INFORMATION CONCERNING NOMINEES FOR DIRECTOR
YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Patrick W. Gross. . . . . . . . 56 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 served Directors, and as Chairman of the Executive Committee of Director 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 . . . . . . . . 59 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.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Daniel J. Altobello. . . . . . . 60 Director 1993 Mr. Altobello served as Chairman of ONEX Food Services, Inc. from September 1995 until his retirement in October 2000. He remains a Director of ONEX. Mr. Altobello has been 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., First Union Realty Trust, and Friedman, Billings & Ramsey Group, all of which are public companies. He also currently serves as a director of CareFirst, Inc., CareFirst of Maryland, Inc., and Colorado Prime Corporation, and as a member of the Advisory Board of Thayer Capital Partners, a merchant bank. None of these entities is publicly held. James J. Forese. . . . . . . . . 65 Director 1989 Mr. Forese is currently Chairman, 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 also serves as a director of NUI Corporation, a publicly-held corporation. He joined ALCO/IKON in 1996.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Dorothy Leonard. . . . . . . . . 59 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 Fortune 100 companies and to startups. She also serves on the Advisory Board of Daimler Chrysler Corporation, a public company. W. Walker Lewis. . . . . . . . . 56 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 as Executive Vice President of Avon Corporate. He currently serves as a director of Owens Corning, which is a publicly-held corporation, 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.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Frederic V. Malek. . . . . . . . 64 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 Manor Care, Inc., all of which are publicly-held entities. Alan G. Spoon. . . . . . . . . . 49 Director 1996 Mr. Spoon has been Managing General Partner of Polaris Venture Partners, a venture capital firm, since May 2000. From 1991 until he joined Polaris, Mr. Spoon was Chief Operating Officer and Director of The Washington Post Company, a public company, and from 1993 until joining the venture capital firm, he also served as President of The Washington Post Company. 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 presently serves as a director of Human Genome Sciences, Inc., Ticketmaster, Inc., and Danaher Inc., each of which are public companies. Mr. Spoon also is a director of International Data Group, a private entity.
-5- 9 INFORMATION CONCERNING EXECUTIVE OFFICERS Information concerning 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 ---- ---- -------- ---------- William M. Purdy. . . . . . . . . 60 Interim Chief Executive Mr. Purdy has served as Interim Chief Officer and President Executive Officer and President of AMS since October 2000. He supervised the Financial Services Sector of the Company as Executive Vice President from March 2000 to October 2000. He established the Electric and Gas Utilities Practice in 1995 and supervised that Practice until October 2000. He managed the Industrial Consulting and Systems Group (Federal Defense) as a Vice President from 1977 to October 2000. Mr. Purdy joined the Company in 1977. Gregory S. Hero. . . . . . . . . 44 Executive Mr. Hero has been an Executive Vice Vice President President of AMS since May 2000 and General Manager of the worldwide New Media and Communications practices of the Company since February 1998. He served as Vice President and General Manager of the Americas Operating Unit of the New Media and Communications practice from 1996 through 1998. Mr. Hero joined AMS in November 1992. Prior to joining the Company, he was with McKinsey and Company in Zurich, Switzerland from early 1990 through late 1992. He also was with the IT analytics group of Salomon Brothers in New York from 1987 until 1990. Mr. Hero began his consulting career with the Management Consulting Division of Arthur Andersen & Co. (presently Accenture) in 1981, working in Washington and Chicago until 1987.
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NAME AGE POSITION BACKGROUND ---- ---- -------- ---------- Donna S. Morea. . . . . . . . . . 46 Executive Ms. Morea has been an Executive Vice Vice President President of AMS since May 2000. She is currently the General Manager of the Company's State and Local Solutions Group. In this capacity, she oversees the Company's business with state, local and provincial governments and educational entities. Prior to taking on this role, Ms. Morea established the Human Services Group and led the Human Services Group for six years. She joined AMS in 1980. Ms. Morea serves on the Board of Directors of the Crossway Community, a nationally recognized social services innovator. Ronald L. Schillereff. . . . . . 56 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 EDS and Treasurer 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). Larry R. Seidel. . . . . . . . . 51 Executive Mr. Seidel, who became an Executive Vice Vice President President of the Company in May 2000, is currently responsible for AMS's Financial Services Industry Group and the Management Systems and Technology Group. In this capacity, he oversees AMS's business with financial services companies, including insurance, federal civilian agencies, and environmental and health care organizations. He joined the Company in 1973. Paul A. Turner. . . . . . . . . . 61 Executive Mr. Turner became an Executive Vice Vice President President of AMS in May 2000 and the Chief and Chief Technology Officer of the Company in Technology January 2000. He has the overall Officer responsibility for identifying and introducing new technology into AMS's system design and development activities. Before joining AMS, Mr. Turner was the founder and managing partner of the PricewaterhouseCoopers ("PwC") Global Technology Center. Mr. Turner worked at PwC for 13 years.
-7- 11 PRINCIPAL STOCKHOLDERS The following table sets forth, as of March 22, 2001, the number and percentage of outstanding shares of Common Stock beneficially owned by (i) each director of the Company, (ii) each executive officer of the Company, (iii) all such executive officers and directors as a group, and (iv) all persons or entities known by the Company to own more than 5% of the Common Stock. Unless otherwise noted below, each person and entity named in the table has sole voting and sole investment power with respect to each of the shares beneficially owned by such person or entity.
AMOUNT OF BENEFICIAL PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING SHARES(2) - ------------------------------------ ------------ --------------------- Daniel J. Altobello(3).................................... 26,958 0.1% 6550 Rock Spring Drive Bethesda, MD 20817 James J. Forese(3)........................................ 94,708 0.2% 70 Valley Stream Parkway Malvern, PA 19355 Patrick W. Gross(3)(4)(5)................................. 685,645 1.6% 4050 Legato Road Fairfax, VA 22033 Gregory S. Hero(4)........................................ 41,131 0.1% 4050 Legato Road Fairfax, VA 22033 Dorothy Leonard(3)........................................ 15,213 0.0% Harvard University Graduate School of Business 522 Soldiers Field Road Morgan Hall T93 Boston, MA 02163 W. Walker Lewis(3)........................................ 18,201 0.0% 399 Park Avenue, 19th Floor New York, NY 10022 Frederic V. Malek(3)...................................... 35,259 0.1% 901 15th Street, N.W., Suite 350 Washington, D.C. 20004 Donna S. Morea(4)......................................... 45,659 0.1% 4050 Legato Road Fairfax, VA 22033 Frank A. Nicolai(3)(4)(6)................................. 340,554 0.8% 4050 Legato Road Fairfax, VA 22033 William M. Purdy(4)....................................... 102,507 0.2% 4050 Legato Road Fairfax, VA 22033 Ronald L. Schillereff(4).................................. 16,333 0.0% 4050 Legato Road Fairfax, VA 22033 Larry R. Seidel(4)(7)..................................... 196,080 0.5% 4050 Legato Road Fairfax, VA 22033 Alan G. Spoon(3)(8)....................................... 12,749 0.0% 1000 Winter Street, Suite 3350 Waltham, MA 02451
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AMOUNT OF BENEFICIAL PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING SHARES(2) - ------------------------------------ ------------ --------------------- Paul A. Turner(4)......................................... 6,143 0.0% 4050 Legato Road Fairfax, VA 22033 Westport Asset Management, Inc.(9)........................ 3,034,200 7.3% 253 Riverside Avenue Westport, CT 06880 All executive officers and directors...................... 1,460,965 3.5% as a group (fourteen persons)
(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 22, 2001. Accordingly, Mr. Altobello and Dr. Leonard each have 7,833 options vested and exercisable; Mr. Forese has 6,583 options vested and exercisable; Messrs. Gross and Nicolai each have 7,500 options vested and exercisable; Mr. Hero has 29,881 options vested and exercisable; Mr. Lewis has 5,416 options vested and exercisable; Mr. Malek has 8,166 options vested and exercisable; Ms. Morea has 6,755 options vested and exercisable; Mr. Purdy has 24,444 options vested and exercisable; Dr. Schillereff has 16,333 options vested and exercisable; Mr. Seidel has 40,750 options vested and exercisable; Mr. Spoon has 9,749 options vested and exercisable; and Mr. Turner has 6,000 options vested and exercisable. All executive officers and directors as a group (fourteen persons) have beneficial ownership of 184,743 options vested and exercisable within 60 days of March 22, 2001. (2) The percentages of Common Stock were calculated to include stock options vested and exercisable. The number of shares of Common Stock was calculated as of March 22, 2001. (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 3,410 shares each owned by two trusts, totaling 6,820 shares, for the benefit of Mr. Seidel's two daughters. Mr. Seidel does not have the power to vote or dispose of any such shares, and, accordingly, disclaims beneficial ownership with respect to them. (8) The amount includes 3,000 shares jointly owned by Mr. Spoon and his spouse, who share joint power to vote and dispose of such shares. (9) Based solely on the February 14, 2001 filing on Schedule 13G of Westport Asset Management, Inc. ("Westport"), it is the Company's understanding that (i) Westport is a registered investment adviser and a parent holding company, (ii) Westport owns 50% of Westport Advisors LLC, which is also a registered investment advisor ("Westport LLC"), (iii) Westport has sole voting and sole dispositive power with respect to 896,400 of the reported shares, Westport and Westport LLC share voting power with respect to 1,618,600 of the reported shares, and Westport and Westport LLC share dispositive power with respect to 2,137,800 of the reported shares, and (iv) the reported shares do not include 4,700 shares owned in the personal securities accounts of employees of Westport and Westport LLC. -9- 13 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, 2000 (the "2000 fiscal year"), and representations by reporting persons that no other reports were required for the 2000 fiscal year, all Section 16(a) reporting requirements were met, except as follows. During 2000, W. Walker Lewis reported the acquisition of shares of Common Stock for his service on the Board of Directors on two Forms 4 that were filed late. -10- 14 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, 2000, to the following executive officers of the Company ("named executive officers").
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------- ---------------------- AWARDS PAYOUTS ------ ------- SHARES UNDERLYING OPTIONS NO. OF LTIP ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER (SHARES)(2) PAYOUT(3) COMPENSATION(4) - --------------------------- ---- ------ ----- ----- ---------- --------- --------------- William M. Purdy 2000 $358,958 $ 0 $ 0 14,600 $ 0 $ 8,731 Interim Chief Executive Officer and President Paul A. Brands 2000 $420,833 $ 0 $ 0 0 $ 0 $558,731(5) Formerly Chairman of the 1999 391,666 335,000 0 12,000 727,500 8,188 Board of Directors, Chief 1998 342,333 437,500 0 3,000 0 8,328 Executive Officer, and Director Patrick W. Gross 2000 $368,166 $ 0 $ 0 2,500 $ 0 $ 8,731 Chairman of the 1999 330,833 167,835 0 4,000 347,415 8,188 Executive Committee of the Board of 1998 311,167 236,250 0 1,000 0 8,328 Directors, and Director Fred L. Forman 2000 $368,166 $ 0 $302,136(6) 2,500 $ 0 $ 8,731 Formerly Executive Vice 1999 330,833 125,250 266,376(7) 4,000 375,750 8,188 President 1998 313,500 236,250 174,158(8) 1,000 0 8,328 Donna S. Morea 2000 $355,624 $360,750 $ 0 9,000 $1,082,250 $ 8,731 Executive Vice President Paul A. Turner 2000 $357,500 $ 0 $162,500(9) 0 $ 0 $ 0 Executive Vice President and Chief Technology Officer
(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 or group incentive compensation plans and was made by the appropriate Board committee pursuant to a shareholder-approved stock option plan. (3) All amounts represent the final cash payment for successful completion of multi-year performance indicators of individual incentive compensation plans. (4) 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"). (5) This amount consists of $550,000, which was paid by the Company in 2000 to Mr. Brands in connection with his departure from the Company, and $8,731, which represents the Company's contribution under the IRA Plan. (6) This amount consists of $83,111 in foreign assignment related income and $219,025 in foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. (7) This amount consists of $142,315 in foreign assignment related income and $124,061 in foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. (8) This amount consists of $104,186 in foreign assignment related income and $69,972 in foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. (9) This amount represents a one-time hiring bonus. -11- 15 OPTION GRANTS IN FISCAL 2000 Shown below is information concerning stock option grants to the Company's named executive officers who were granted options on Common Stock during the Company's 2000 fiscal year.
INDIVIDUAL GRANTS -------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT NAME NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK ---- SHARES OPTIONS PRICE APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE OR TERM COMPOUNDED ANNUALLY OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------ GRANTED FISCAL 2000 ($/SHARE)(1) DATE 5% 10% ------- ----------- ----------- ---- -- --- William M. Purdy....... 8,600(2) 0.29% $31.81 02/28/10 $172,058 $436,028 6,000(3) 0.20% 31.81 02/28/10 $120,040 $304,206 Paul A. Brands......... 0 0.00% N/A N/A $0 $0 Patrick W. Gross....... 2,500(4) 0.08% $31.81 02/28/10 $50,017 $126,752 Fred L. Forman......... 2,500(4) 0.08% $31.81 02/28/10 $50,017 $126,752 30,000(5) 1.00% 32.38 05/12/10 $610,814 $1,547,922 Donna S. Morea............ 2,000(3) 0.07% $31.81 02/28/10 $40,013 $101,402 7,000(6) 0.23% 31.81 02/28/10 $140,047 $354,907 Paul A. Turner......... 0 0.00% N/A N/A $0 $0
(1) Each option grant was awarded with an exercise price equal to the market value of the Common Stock on the date of the grant. (2) Such option grant is associated with a performance-based individual incentive compensation plan and was made by the appropriate Board committee pursuant to 1996 Amended Stock Option Plan F, as amended ("Plan F"), a shareholder-approved stock option plan. On June 30, 2000, 3,600 of such options became exercisable. The remaining 5,000 options vest in equal amounts from February 29, 2000 to February 28, 2003. (3) Such option grant was made in connection with a performance-based group incentive compensation plan and was made by the appropriate Board committee pursuant to Plan F. The options vested on June 30, 2000. (4) Such option grant is associated with a performance-based individual incentive compensation plan and was made by the appropriate Board committee pursuant to Plan F. Such options vested on June 30, 2000. (5) Such option grant was made outside of an incentive compensation plan and was made by the appropriate Board committee pursuant to Plan F. The options vest in their entirety on May 12, 2005. (6) Such option grant is associated with a performance-based individual incentive compensation plan and was made by the appropriate Board committee pursuant to Plan F. The options will vest in their entirety on June 30, 2001. -12- 16 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES Shown below is information with respect to exercises by the Company's named executive officers during the Company's 2000 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 named executive officers as of the end of the Company's 2000 fiscal year.
NUMBER OF SHARES NUMBER OF UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED END OF FISCAL YEAR END OF FISCAL 2000(2) ON VALUE ------------------ --------------------- NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- ----------- ----------- ------------- ----------- ------------- William M. Purdy................ 750 $ 13,727 27,639 3,611 $10,406 0 Paul A. Brands.................. 8,100 $137,700 0 0 0 0 Patrick W. Gross................ 4,050 $68,850 15,600 750 0 0 Fred L. Forman.................. 4,050 $73,153 15,600 30,750 0 0 Donna S. Morea.................. 750 $17,625 6,462 12,941 0 0 Paul A. Turner.................. 0 0 6,000 24,000 0 0
(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 2000 (as measured by the closing bid price of $19.81 of the National Market of The Nasdaq Stock Market), minus the option's exercise price. LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR Shown below is information on the long-term incentive plans for the Company's named executive officers, which were approved by the Compensation Committee in 2000 for the 2000-2001 performance period. If the performance goals set forth in the plans had been met, the named executive officers would have been entitled to receive the incentive compensation indicated in such table. However, in view of the Company's poor performance in 2000 and the unlikelihood that any incentive compensation payments would be made pursuant to these long-term incentive plans, the Compensation Committee terminated such plans at its February 2001 meeting.
PERFORMANCE OR ESTIMATED NUMBER OTHER PERIOD UNTIL FUTURE PAYOUTS OF SHARES MATURATION OR ------------------------------------------ NAME (#) PAYMENT THRESHOLD($) TARGET ($) MAXIMUM($)(1) ---- --- ------- ------------ ---------- ------------- William M. Purdy. . . . . . . . . . . . 4 2000-01 0 $2,265,000 0 Paul A. Brands . . . . . . . . . . . . 4 2000-01 0 $1,200,000 0 Patrick W. Gross. . . . . . . . . . . . 4 2000-01 0 $1,200,000 0 Fred L. Forman. . . . . . . . . . . . . 4 2000-01 0 $1,200,000 0 Donna S. Morea . . . .. . . . . . . . . 4 2000-01 0 $1,200,000 0 Paul A.Turner . . . . . . . . . . . . . 4 2000-01 0 $1,200,000 0
(1) If the Compensation Committee determines that the executive has exceeded the performance goals set forth in his or her incentive compensation plan, the Committee may increase his or her long-term incentive compensation award above the target level indicated in the preceding column. The increase would be based on a formula related to pre-tax income. EMPLOYMENT, CHANGE IN CONTROL AND SEPARATION AGREEMENTS WITH NAMED EXECUTIVE OFFICERS EMPLOYMENT AGREEMENTS. AMS entered into employment agreements commencing on January 1, 2001 with each of William M. Purdy, Donna S. Morea and Paul A. Turner. The employment agreements contain the same terms and conditions. The term of each agreement is eighteen months, and each agreement renews automatically for successive one-year terms, unless either party thereto terminates the agreement within ninety days of the end of a term. -13- 17 Under the employment agreements, each of Messrs. Purdy and Turner and Ms. Morea was entitled to a base salary of $375,000 for 2001, which was subsequently increased to $400,000 for 2001 by the Compensation Committee. The base salary is reviewed annually by the Compensation Committee; provided, however, that the Compensation Committee may not reduce the base salary of any such named executive officer unless the reduction is part of a general program of salary adjustment applicable to all AMS executives with equal or senior title and responsibility. In addition to the base salary, each such named executive officer is entitled to receive an additional $150,000 if he or she is in good standing with AMS on June 30, 2001, and an additional $250,000 if he or she is in good standing with the Company on June 30, 2002. If there is a change in control of the Company (which is defined as a merger or acquisition, a change in more than 50% of the voting power of the Company or a change in a majority of the Board composition for a period of more than two years) prior to June 30, 2001, then each such named executive officer is entitled to receive the greater of $450,000 or the amounts available under the change in control retention agreement between the Company and such executive, which change in control retention agreement is discussed below. Such named executive officers may not receive payments under both agreements. The employment agreements provide that incentive compensation plans for each of Messrs. Purdy and Turner and Ms. Morea will be established for a one- or two-year period. Incentive compensation payments will be made under such plans upon the achievement of certain targets set forth in the plans. Each such named executive officer also is entitled to AMS's standard health and medical benefits. The employment agreements contain certain confidentiality and non-solicitation provisions. AMS may terminate any of Messrs. Purdy or Turner or Ms. Morea for cause if, after notice and a hearing by the Board of Directors, the Board determines that such named executive officer has engaged in conduct justifying termination for cause. If AMS terminates any such named executive officer without cause, the Company must pay health care coverage premiums for such executive, severance benefits that equal 250% of the base salary of the executive if the termination occurs on or before June 30, 2002 and 100% of the base salary of the executive if the termination occurs after June 30, 2002. Upon such termination without cause, the Company will retain approximately 25% of any severance benefit each year to help enforce compliance with the confidentiality and non-solicitation provisions in the employment agreements. Any constructive termination of employment by the Company, which includes a significant reduction in the executive's authority, duties, base salary or benefits (other than general benefits plan reductions applicable to substantially all of the participants in such plans), will be treated as an involuntary termination without cause. CHANGE IN CONTROL RETENTION AGREEMENTS. AMS also has change in control retention agreements with Messrs. Purdy and Turner and Ms. Morea. Under these agreements, if AMS terminates any of such named executive officers for any reason, other than gross misconduct, any such executive terminates employment with the Company for good reason not involving gross misconduct and the termination is within one year of a change in control, the Company will be obligated to make a payment to such executive. A change in control is defined as a merger or acquisition, a change in more than 50% of the voting power of the Company or a change in a majority of the Board composition for a period of more than two years. The payment to each such named executive officer will be equal to two times the sum of the executive's base salary immediately prior to the change in control, plus two shares of incentive compensation, which are calculated based on the target percentage set forth in such executive's incentive compensation plan. In order to receive the payment, the executive must execute a waiver of substantially all employment-related claims against the Company. SEPARATION AGREEMENT. In November 2000, AMS entered into a letter agreement with Paul A. Brands, former Chairman of the Board, Chief Executive Officer and Director of the Company, in connection with his departure. Under the terms of the agreement, AMS is obligated to pay Mr. Brands $3,000,000 (less amounts for applicable federal, state and local employment and income taxes and the costs of certain health benefits). AMS paid $550,000 of such amount in fiscal 2000. It will pay all remaining amounts in the second quarter of 2001. 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 Compensation Committee report, Audit Committee report and Performance Graph shall not be incorporated by reference into any such filings. -14- 18 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 2000: 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 well recognized 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 Employee Stock Purchase Plan and the executive officers whose compensation is subject to Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") do not participate in the Company's Restricted Stock and Stock Bonus Plan (the "Restricted Stock Plan"), a stock award 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 January 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 executive officer's potential duties and responsibilities within the Company and his or her business unit, and the executive officer's potential impact on the operations and profitability of the Company. Unlike with respect to the Company's incentive compensation arrangements, the Compensation Committee does not consider achievement of specific corporate performance factors in establishing base salaries for its executive officers. In general, it is the policy of the Company to set base salaries lower than would be typical for comparable positions in similar firms, and to include more compensation in -15- 19 incentive plans, particularly incentive compensation plans tied to multi-year performance periods. Employment contracts entered into in early 2001 by the Company with each of William M. Purdy, Gregory S. Hero, Donna S. Morea, Ronald L. Schillereff, Larry L. Seidel, and Paul A. Turner specify that their base salaries for calendar year 2001 shall be $375,000 and may not be reduced during the terms of the contracts except as part of an general program of salary adjustment by the Company applicable to all vice presidents and above. The Company subsequently increased the base salary for each of the foregoing executive officers to $400,000 for 2001. 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 executive 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 executive 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. Generally, 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. The foregoing description of the Company's incentive compensation plans for executive officers would be modified, as discussed in more detail below, if the shareholders approved the Company's adoption of the 2001 IC Plan. Fiscal 2000 was the first year of two-year compensation plans for all executive officers. All of these plans included the same pre-tax income target as a financial goal and included individual goals based on the areas of responsibility of each such executive officer. 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 of such awards. Each plan also included higher award multiples for performance which exceeded the targets by a stated percentage. In February 2001, the Compensation Committee determined that since the Company did not meet its financial goals for 2000, no incentive compensation based on financial or non-financial goals would be awarded to any executive officer of the Company relative to the 2000-2001 incentive compensation plans. However, the Compensation Committee determined that Ms. Morea exceeded her financial and non-financial goals relative to her 1998-2000 incentive compensation plan and determined that she earned an amount above her target payment. Such amount is shown above in the Summary Compensation Table under "Annual Compensation -- Bonus" and "Long-Term Compensation -- Payouts -- LTIP Payout." The Compensation Committee in February 2001 also decided not to grant stock options to the executive officers because the Company did not achieve the financial performance specified in their incentive compensation plans. At its February 2001 meeting, the Compensation Committee terminated the plans for the 2000-2001 period. -16- 20 POLICY ON DEDUCTIBILITY OF COMPENSATION Under Section 162(m), 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 under certain performance-based compensation plans approved by shareholders, including stock options issuable under Plan F or earlier stock option plans. The Compensation Committee has taken certain actions to minimize the adverse effects of Section 162(m) on the after-tax income of the Company. In particular, as recommended by the Compensation Committee, the 1996 Incentive Compensation Plan for Executive Officers was presented to and approved by the shareholders at the 1996 annual meeting of shareholders of the Company and the 2001 IC Plan is being presented to the shareholders in this Proxy Statement. Grants to executive officers of incentive compensation based on pre-tax income are generally expected to be covered by the 2001 IC Plan when such coverage is consistent with the Compensation Committee's goals. The 2001 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 will be paid pursuant to the 2001 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 served as Chief Executive Officer of the Company from September 1993 until October 2000, received an annual base salary of $425,000 for 2000, which represented an increase of approximately 6.25% over his base salary for 1999. The increase was not based on any specific corporate performance factors. Mr. Brands did not receive any incentive compensation payments for 2000. As disclosed above, Mr. Brands received $550,000 in 2000 pursuant to a separation agreement with the Company. William M. Purdy became Interim Chief Executive Officer of the Company in October 2000. He received an annual base salary of $375,000 for 2000. At its February 2001 meeting, the Compensation Committee also decided to increase Mr. Purdy's base salary to $400,000 as of January 1, 2001. Daniel J. Altobello (Chairman) James J. Forese Dorothy Leonard W. Walker Lewis Frederic V. Malek Alan G. Spoon -17- 21 AUDIT COMMITTEE REPORT The Audit Committee of the Board of Directors is composed of four independent directors and operates under a written charter adopted by the Board of Directors in June 2000, which is set forth in Exhibit A to this Proxy Statement. The members of the Committee are James J. Forese (Chairman), Daniel J. Altobello, Dorothy Leonard and Alan G. Spoon. The Committee recommends to the Board of Directors the selection of the Company's independent accountants. Management is responsible for the Company's internal controls and the financial reporting process. The independent accountants are responsible for performing an independent audit of the Company's consolidated financial statements in accordance with generally accepted auditing standards and to issue a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes. In this context, the Audit Committee has met and held discussions with management and the independent accountants. Management represented to the Audit Committee that the Company's consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent accountants. The Audit Committee discussed with the independent accountants matters required to be discussed by Statements on Auditing Standards No. 61 (Communication with Audit Committees). The Company's independent accountants also provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the independent accountants that firm's independence. Based upon the Audit Committee's discussion with management and the independent accountants and the Audit Committee's review of the representations of management and the report of the independent accountants to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Commission. James J. Forese (Chairman) Daniel J. Altobello Dorothy Leonard Alan G. Spoon -18- 22 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, 1995, 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, 1995, was $100 and that all cash dividends were reinvested, although the Company has never paid cash 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. [LINE GRAPH]
========================================================================================================== 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 ========================================================================================================== AMSY Common Stock $100 $123 $98 $200 $157 $99 ========================================================================================================== S&P 500 Composite Index $100 $123 $164 $211 $255 $232 ========================================================================================================== Hambrecht & Quist Technology/Software $100 $122 $147 $192 $437 $327 ==========================================================================================================
-19- 23 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 two directors, both of whom are executive officers of the Company: Patrick W. Gross (Committee Chairman) 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 2000. The Stock Option/Award Committee is presently composed of two directors, both of whom are executive officers of the Company: Frank A. Nicolai (Committee Chairman), and Patrick W. Gross. 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 Restricted Stock Plan. Directors and executive officers are not eligible to participate in the Restricted Stock Plan. The Stock Option/Award Committee meets as required and met twice during 2000. The Compensation Committee is presently composed of the six Outside Directors: Daniel J. Altobello (Committee Chairman), James J. Forese, Dorothy Leonard, W. Walker Lewis, Frederic V. Malek, 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 2000, 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. All of the members of the Audit Committee are independent in accordance with Rule 4200(a)(15) of the National Association of Securities Dealers' listing standards. The Audit 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. The Board adopted a written charter for the Audit Committee in June 2000. The Audit Committee met three times in 2000. The Board of Directors met eight times during 2000. 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 were entitled to receive a meeting fee of $6,000 per Board meeting attended, plus travel expenses, and such fees and expenses were, in fact, paid for all meetings attended during fiscal 2000. In addition, Outside Directors were paid an annual retainer of $6,000 during fiscal 2000. 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 (the "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 meeting -20- 24 fees for the eight Board meetings he attended during 2000 paid in the form of Common Stock pursuant to the Stock-for-Fees Plan. The following is a summary of the stock options that have been granted to Outside Directors 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. 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, except as otherwise indicated. Each Outside Director in May 1988 was granted 5,000 options to purchase shares of Common Stock pursuant to the Company's stock option plan. 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. 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. Plan F, as in effect prior to its amendment in May 1999, provided for the automatic grant of the same amount of options to Outside Directors as provided for under Plan E. Consequently, Mr. Malek was granted 5,000 options under Plan F in April 1998 because his options granted in 1993 had fully vested. Mr. Altobello was granted 5,000 options under Plan F in August 1998 because his options granted in 1993 had fully vested. In May 1999, Plan F was amended to eliminate the automatic, non-discretionary stock option awards to Outside Directors and to permit the Compensation Committee to grant stock options to Outside Directors on a discretionary basis. On July 23, 1999, each Outside Director was granted 5,000 options to purchase shares of Common Stock, all of which vested immediately upon their grant to the Outside Directors. Mr. Forese was granted 5,000 options under Plan F in October 1999, and Mr. Lewis was granted 5,000 options under Plan F in December 2000. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Daniel J. Altobello, James J. Forese, Dorothy Leonard, W. Walker Lewis, Frederic V. Malek, and Alan G. Spoon served as members of the Compensation Committee during fiscal year 2000 and continue to serve as members. Mr. Altobello is Chairman of the Compensation Committee. During 2000, there were no Compensation Committee interlocks, and there was no insider participation in the executive compensation decisions of the Company. PROPOSAL TO APPROVE THE 2001 EXECUTIVE INCENTIVE COMPENSATION PLAN Section 162(m) generally prohibits a public company from deducting compensation in excess of $1 million that it pays to its chief executive officer and four most highly compensated executive officers ("Covered Employees"). The statute exempts certain performance-based compensation from this limitation. In 1994, the Company adopted and the shareholders approved the American Management Systems, Incorporated Incentive Compensation Plan for Executive Officers. The plan was designed to provide compensation that fit within the statutory exemption for performance-based compensation. In 1996, the Company adopted and the shareholders approved a revised version of the plan entitled the American Management Systems, Incorporated 1996 Incentive Compensation Plan for Executive Officers (the "1996 IC Plan"). -21- 25 The 1996 IC Plan must be reapproved, or a new plan that provides compensation that qualifies for the exemption must be adopted and approved, at the first stockholder meeting that occurs in the fifth year following the year in which the 1996 IC Plan was approved by stockholders. Upon consideration, the Board of Directors determined that a new plan would best serve the interests of the Company. Accordingly, in a unanimous written consent dated March 26, 2001, the Board of Directors approved the adoption of the American Management Systems, Incorporated 2001 Executive Incentive Compensation Plan (i.e., the 2001 IC Plan) as successor to the 1996 IC Plan. If approved by the shareholders, the 2001 IC Plan would be effective January 1, 2001. Stockholder approval of the 2001 IC Plan is recommended by the Board of Directors in order to continue to provide an incentive to executive officers and other selected key executives of the Company to contribute to the growth, profitability and increased stockholder value of the Company, to retain such executives, and to endeavor to maintain the tax-deductible status of such incentive payments to the Company's Covered Employees. The description of the 2001 IC Plan that follows is qualified in its entirety by reference to the plan, which is set forth in Exhibit B to this Proxy Statement. The 2001 IC Plan would permit the Compensation Committee to make an award to a "covered employee" (as defined in Section 162(m)) for a performance period that is equal to a percentage of a bonus pool (the "Bonus Pool"). The Bonus Pool would be defined as four percent of the Company's Income Before Income Taxes, adjusted to eliminate the effects of charges for restructurings, extraordinary items, discontinued operations, and cumulative effect of accounting changes, each as defined by Generally Accepted Accounting Principles ("adjusted Income Before Income Taxes") for the performance period. The performance period would be a fiscal year of the Company or another 12-month or shorter period specified by the Compensation Committee that is the same for all participants. The percentage awarded to any one participant could not exceed 40 percent of the Bonus Pool, and the percentages awarded to all participants could not exceed 100 percent of the Bonus Pool. In order to comply with Section 162(m), both the performance period and the percentage awarded to each participant would be specified by the Compensation Committee no later than 90 days after the beginning of the performance period or, if earlier, the date on which 25 percent of the performance period has elapsed. The Compensation Committee in its discretion would be allowed to reduce a participant's award to less than the maximum amount permitted under the 2001 IC Plan based on factors other than the adjusted Income Before Income Taxes of the Company. These factors would not be required to be objectively determinable. The Committee would not be allowed to increase the maximum award under the 2001 IC Plan to any participant. Under the 2001 IC Plan, the Compensation Committee would be allowed, among other things, to pay an award by issuing or delivering shares of stock or other property of equivalent value in lieu of cash, to give the participant an election to defer part or all of any payment, to require that the participant be employed by AMS as of a particular date in order to receive the payment, or to impose other accrual or vesting requirements on the award. In the event of a change in control, the Bonus Pool would be computed as if the performance period ended immediately before the change in control, and by annualizing the amount of the adjusted Income Before Income Taxes achieved during the performance period. However, the award to which a participant otherwise would be entitled would be prorated based on the portion of the performance period that had elapsed before the change in control. The Board of Directors, or a committee designated by the Board of Directors, could terminate, amend, modify or suspend the 2001 IC Plan and the terms and provisions of any award granted to any participant that has not been settled. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 2001 EXECUTIVE INCENTIVE COMPENSATION PLAN. -22- 26 INDEPENDENT PUBLIC ACCOUNTANTS GENERAL A representative from Deloitte & Touche LLP, independent public accountants to the Company, is expected to be present at the Annual Meeting, will have an opportunity to make a statement should the representative desire to do so, and is expected to be available to respond to appropriate questions during such Meeting. The Board of Directors has not yet appointed an accounting firm to audit the accounts of the Company for the fiscal year ending December 31, 2001. The Board of Directors, upon the recommendation of the Audit Committee, expects to make such appointment at its regularly scheduled meeting in September 2001. AUDIT FEES During the 2000 fiscal year, the Company retained its principal independent accountant, Deloitte & Touche LLP, to provide services in the following categories and amounts: Audit Fees $393,000 Financial Information Systems Design and Implementation $0 Fees All Other Fees(1) $3,508
(1) Such amount represents consultant services rendered in connection with the development of the Company's internal audit plan. The Audit Committee has considered whether the provision of non-audit services by the Company's principal independent accountant is compatible with maintaining the principal accountant's independence. OTHER MATTERS The Board of Directors does not know of any matters to be presented at the Annual Meeting other than those stated above. If any other business should come before the Annual Meeting, including a vote to adjourn or postpone such Meeting, the persons named in the enclosed Proxy will vote thereon at the Meeting, or any adjournment or postponement thereof, as they determine to be in the best interests of the Company. PROPOSALS FOR 2002 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 2002 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 11, 2001. 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 2002 annual meeting of shareholders, the Secretary of the Company generally must receive notice of any such proposal no earlier than February 10, 2002, and no later than March 12, 2002 (other than proposals intended to be included in the proxy statement and form of proxy, which, as noted above, must be received by December 11, 2001). 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 -23- 27 such business of such shareholder; and (c) as to the shareholder, (i) the name and address of such shareholder, (ii) 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 2002 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 10, 2002, and no later than March 12, 2002, and such notice complies with the other requirements described in the preceding paragraph. ANNUAL REPORT A copy of the 2000 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 "2000 Financial Report," contains all of the financial information (including the Company's audited financial statements), and certain general information, published in the Company's 2000 Annual Report. Appendix 1 is incorporated herein by reference. A copy of the Company's 2000 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 10, 2001 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 OR VIA THE INTERNET AT HTTP://WWW.PROXYVOTING.COM/AMSY. INSTRUCTIONS REGARDING TELEPHONE AND INTERNET VOTING ARE INCLUDED ON THE PROXY. -24- 28 EXHIBIT A AMERICAN MANAGEMENT SYSTEMS, INCORPORATED AUDIT COMMITTEE OF THE BOARD OF DIRECTORS CHARTER I. PURPOSE AND POWERS OF THE AUDIT COMMITTEE The primary purpose of the Audit Committee (the "Audit Committee") of the Board of Directors (the "Board") of American Management Systems, Incorporated (the "Corporation") is to assist the Board in fulfilling its responsibilities with respect to the oversight of the Corporation's financial affairs. In fulfilling its purpose, the Audit Committee will review, among other things, the following: - - the Corporation's financial statements, financial reports and other financial information submitted, distributed or otherwise made available to or filed with any governmental authority, the Nasdaq Stock Market, Inc., the Corporation's shareholders or others; - - the Corporation's system of (1) internal controls as they pertain to accounting, auditing, and other financial matters, (2) legal compliance, (3) management systems, and (4) rules of ethics established by management and the Board; - - the performance of the Corporation's independent auditors and the Corporation's Internal Audit Department; - - the suitability, with respect to independence and other matters, of the Corporation's independent auditors (or prospective internal auditors) to serve as independent auditors of the Corporation; and - - the adequacy of the provisions of this Charter. II. GENERAL PRECEPTS GOVERNING THE AUDIT COMMITTEE'S RESPONSIBILITIES Consistent with its purpose, the Audit Committee shall encourage continuous improvement of, and foster adherence to, the Corporation's policies, procedures and practices at all levels. The Audit Committee shall maintain free and open communication with the Corporation's independent auditors, internal auditors and management. The Audit Committee has the authority and power to investigate, in its discretion, any matter of which it becomes aware and which pertains to the Corporation's accounting and auditing functions, internal controls or financial reporting practices. The Audit Committee shall be entitled to obtain any information relevant and helpful to any such investigation. The Corporation's independent auditors shall be accountable to the Board and the Audit Committee, as representatives of the Corporation's shareholders, with respect to audit and non-audit services rendered to the Corporation. The Board shall have the ultimate authority and responsibility to appoint, and where appropriate, to replace, the Corporation's independent auditors, upon the recommendation of the Audit Committee. A-1 29 The Corporation's management shall be responsible for determining that the Corporation's financial statements are complete, accurate and prepared in accordance with generally accepted accounting principles. The independent auditors shall be responsible for planning and conducting the audits and performing the non-audit services rendered to the Corporation. The Audit Committee shall operate in accordance with the provisions of the Corporation's Bylaws. III. COMPOSITION OF THE AUDIT COMMITTEE The Audit Committee shall consist of three or more directors, other than officers or employees of the Corporation or any of its subsidiaries, who are free from any relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a member of the Audit Committee. Each member of the Audit Committee shall have a working knowledge of basic finance and accounting practices and shall be able to read and understand financial statements. In addition, at least one member of the Audit Committee shall have previous employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the person's financial sophistication. IV. MEETINGS OF THE AUDIT COMMITTEE The Audit Committee shall meet at least four times annually, and may meet more frequently if the members of the Audit Committee deem it necessary or advisable. The Audit Committee shall meet privately with the Director of Internal Audit and the Corporation's independent auditors at least once per year. The Audit Committee shall meet with the Corporation's independent auditors and management on a quarterly basis (or, if required, on a more frequent periodic basis), and as soon as practicable after the end of each fiscal year, to review the Corporation's financial statements. V. DUTIES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE The Audit Committee shall take the actions described in the following paragraphs in fulfillment of the responsibilities set forth in this Charter. FINANCIAL REPORTING PROCESS - - Review and discuss with management and the independent auditors, prior to filing, submission or release, as the case may be (1) the interim financial information contained in the Corporation's Quarterly Reports on Form 10-Q and material assumptions and estimates used to generate the interim financial information; (2) the annual financial information contained in the Corporation's Annual Reports on Form 10-K and material assumptions and estimates used to generate the annual financial information; (3) the Corporation's earnings announcements; (4) other financial reports to be submitted, distributed or otherwise made available to or filed with any governmental authority, the Nasdaq Stock Market, Inc., the Corporation's shareholders or others, as appropriate; and (5) report to the Board the results of reviews of the information referred to above in clauses (1) through (4). - - Review, consider and discuss with the independent auditors matters required to be discussed by Statement of Auditing Standards No. 61, as the same may be amended from time to time. A-2 30 - - Discuss with management the Company's exposure to material financial risks and the measures taken to reduce such risks. - - Discuss with management and/or legal counsel, any legal matters that could have a material impact on the Corporation's financial statements. INTERNAL CONTROLS - - Oversee the Corporation's internal audit function, including, but not limited to, the review of internal audit independence, objectivity, responsibility, proposed annual audit plans, audit results, budget processes, staffing, and coordination with the Corporation's independent auditors. - - Review with the Corporation's independent auditors, internal auditors and management, the adequacy and effectiveness of, and compliance with the Corporation's internal controls. - - Review with the Corporation's independent auditors, internal auditors and management, the adequacy and effectiveness of the Corporation's management systems. - - Review with the independent auditors any recommendations they may have for improving internal accounting controls and management systems. CHARTER REVIEW AND PREPARATION OF AUDIT COMMITTEE REPORTS - - Review and update this Charter on an annual basis, or more frequently if deemed advisable. - - Prepare a report for inclusion in the Corporation's Proxy Statement that describes the Committee's composition and responsibilities as required by the rules of the Securities and Exchange Commission and The Nasdaq Stock Market, Inc. as the same may be amended from time to time. - - Review annually reports of fees for audit, non-audit and legal fees for services rendered. INDEPENDENT AUDITORS - - Recommend to the Board the selection of the Corporation's independent auditors. - - Review the engagement of the independent auditors, including planning, staffing and audit fees. - - On an annual basis, review and discuss with the independent auditors all significant transactions and relationships with the Corporation to determine the auditors' independence, including, the amount of audit fees paid by the Corporation relative to the amount of non-audit fees paid and other pertinent matters. The Audit Committee shall be responsible for obtaining from the independent auditors a formal written statement describing all relationships between the independent auditors and the Corporation, in a form consistent with Independence Standards Board Standard No. 1, as the same may be amended from time to time. - - Review with the independent auditors their reports or opinions, any recommendations they may have regarding choice of accounting and auditing principles and their perception of the adequacy of the Corporation's financial and accounting personnel and the cooperation they received from such personnel during the audit. - - Review the performance of the independent auditors, including performance relating to non-audit services and fees charged for such services, and recommend to the Board any proposed retention or discharge of the independent auditors. A-3 31 - - Oversee the independent auditor relationship by reviewing the audit process and audit reports and allowing the independent auditors full access to the Audit Committee and the Board to discuss relevant issues. - - Obtain from the independent auditors assurance that Section 10A of the Securities Exchange Act of 1934, as amended, has not been implicated. VI. TERM OF SERVICE OF AUDIT COMMITTEE MEMBERS Members of the Audit Committee shall serve until their successors are designated. A-4 32 EXHIBIT B AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 2001 EXECUTIVE INCENTIVE COMPENSATION PLAN 1. Purpose. The purpose of this 2001 Executive Incentive Compensation Plan is to attract, motivate and retain highly qualified executives of American Management Systems, Incorporated. The Plan is intended to promote the interests of AMS and its shareholders by providing eligible officers with the opportunity to earn incentive compensation that is linked to the financial performance of AMS. Incentive compensation provided under the Plan is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the Plan shall be interpreted consistent with such intent. The existence of this Plan is not intended to preclude AMS from providing additional incentive compensation to eligible officers or incentive compensation under other plans, agreements or arrangements to an officer, whether such officer is eligible to participate in the Plan or actually participates in the Plan. 2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Adjusted Income Before Income Taxes" shall mean AMS's income before income taxes, adjusted to eliminate the effects of charges for restructurings, extraordinary items, discontinued operations, and the cumulative effect of accounting changes, each as defined by Generally Accepted Accounting Principles. (b) "AMS" shall mean American Management Systems, Incorporated, a Delaware corporation, and any entity that succeeds to all or substantially all of its business. (c) "Award" shall mean an award granted pursuant to Section 4. (d) "Board" shall mean AMS's Board of Directors. (e) "Change in Control" shall mean the first to occur of any of the following events: (i) Any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Act")), other than AMS or a trustee or other fiduciary holding securities under an employee benefit plan of AMS or a corporation owned directly or indirectly by the stockholders of AMS in substantially the same proportions as their ownership of stock of AMS, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Act), directly or indirectly, of securities representing fifty percent (50%) or more of the combined voting power of AMS's then-outstanding securities entitled generally to vote for the election of directors; (ii) AMS's stockholders approve an agreement to merge or consolidate with another corporation (other than a majority-controlled subsidiary of AMS) unless AMS's stockholders immediately before the merger or consolidation are to own more than two-thirds (66-2/3%) of the combined voting power of the resulting entity's voting securities entitled generally to vote for the election of directors; (iii) AMS's stockholders approve an agreement (including, without limitation, an agreement of liquidation) to sell or otherwise dispose of all or substantially all of the business or assets of AMS; or (iv) During any period of two (2) consecutive years, individuals who, at the beginning of the period, constituted the Board cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by AMS's stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred with respect to a Participant by reason of (A) any event involving a transaction in which the Participant or a group of persons or entities with whom or with which the Participant acts in concert, acquires, directly or indirectly, fifty percent (50%) or more of the combined voting power of AMS's then-outstanding voting securities or the business or assets of AMS, or (B) any event involving or arising out of a proceeding under Title 11 of the United States Code or the provisions of any B-1 33 future United States bankruptcy law, an assignment for the benefit of creditors or an insolvency proceeding under state or local law. (f) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions thereto. (g) "Committee" shall mean the regularly appointed compensation committee of the Board unless the Board appoints another compensation committee of members of the Board to administer the Plan. In either case, the Committee shall have at least two(2) members, and no member of the Board may serve on the Committee unless such person is an "outside director" within the meaning of Section 162(m)(4)(C)(i) of the Code, and applicable guidance issued thereunder. (h) "Effective Date" shall mean January 1, 2001. (i) "Eligible Employee" for an Award with respect to a Performance Period shall mean each "covered employee" as defined in Section 162(m) of the Code for the AMS fiscal year with which that Performance Period ends or, if the Award is deductible by AMS in a later fiscal year, for such later fiscal year. (j) "GAAP" shall mean U.S. Generally Accepted Accounting Principles. (k) "Incentive Pool" shall equal four percent (4%) of Adjusted Income Before Income Taxes for the Performance Period. (l) "Participant" shall mean an Eligible Employee designated by the Committee to participate in the Plan for a designated Performance Period. (m) "Performance Period" shall mean an AMS fiscal year or such other twelve (12)-month or shorter period as is designated by the Committee during which performance will be measured in order to determine a Participant's entitlement to receive payment of an Award. The Performance Period shall be the same for all Participants. (n) "Plan" shall mean this American Management Systems, Incorporated 2001 Executive Incentive Compensation Plan, as amended from time to time. (o) "Stock" shall mean AMS's common stock. 3. Administration. (a) Authority. The Plan shall be administered by the Committee. The Committee is authorized, subject to the provisions of the Plan, in its sole discretion, from time to time to select Participants, grant Awards under the Plan, establish, modify or rescind such rules and procedures as it deems necessary for the proper administration of the Plan, and make such determinations and interpretations and to take such steps in connection with the Plan or the Awards granted thereunder as it deems necessary or advisable. All such actions by the Committee under the Plan or with respect to the Awards granted thereunder shall be final and binding on all persons. (b) Manner of Exercise of Committee Authority. The Committee may delegate its responsibility with respect to the administration of the Plan to one or more officers of AMS, to one or more members of the Committee or to one or more members of the Board; provided, however, that the Committee may not delegate its responsibility to take any of the actions specified in Section 4. The Committee may also appoint agents to assist in the day-to-day administration of the Plan and may delegate the authority to execute documents under the Plan to one or more members of the Committee or to one or more officers of AMS. (c) Limitation of Liability. The Committee may appoint agents to assist it in administering the Plan. The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or employee of AMS, AMS's independent certified public accountants, consultants or any other agent assisting in the administration of the Plan. Members of the Committee and any officer or employee of AMS acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted