-----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, Cx8jEHCl1Y1ROrNCOtjvxcLlOy8F0Zen2QbafNsd62Qyj/trEggp0g94JpPoxUOh xFPCsvlClfoiT37AYZEwgw== 0000950133-01-500351.txt : 20010402 0000950133-01-500351.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950133-01-500351 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 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: 10-K SEC ACT: SEC FILE NUMBER: 000-09233 FILM NUMBER: 1588123 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 10-K 1 w46812e10-k.txt FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2000 OR --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From: ___________________ To: ______________ Commission File No.: 0-9233 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (Exact name of registrant as specified in its charter) State of Incorporation: Delaware I.R.S. Employer Identification No.: 54-0856778 4050 Legato Road Fairfax, Virginia 22033 (Address of principal executive office) Registrant's Telephone No., Including Area Code: (703) 267-8000 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock Par Value $0.01 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ____ The aggregate market value of voting stock held by non-affiliates of the Registrant as of March 23, 2001 was $695,949,284. As of March 23, 2001, 41,590,108 shares of common stock were outstanding. 2 DOCUMENTS INCORPORATED BY REFERENCE 1. Pursuant to Form 10-K General Instruction G(2), registrant hereby incorporates by reference those portions of the American Management Systems, Incorporated 2000 Financial Report necessary to respond to items 5, 6, 7, 7A and 8 of this Form 10-K. 2. Pursuant to Form 10-K General Instruction G(3), registrant hereby incorporates by reference those portions of the American Management Systems, Incorporated definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 11, 2001 necessary to respond to items 10, 11, 12, and 13 of this Form 10-K. i 3 CONTENTS
Page ---- Part I Item 1. Business..................................................................... 1 Item 2. Properties................................................................... 4 Item 3. Legal Proceedings............................................................ 5 Item 4. Submission of Matters to a Vote of Security Holders.......................... 6 Part II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.............................................. 7 Item 6. Selected Financial Data...................................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................... 7 Item 8. Financial Statements and Supplementary Data.................................. 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 7 Part III Item 10. Directors and Executive Officers of the Registrant........................... 8 Item 11. Executive Compensation....................................................... 8 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................................... 8 Item 13. Certain Relationships and Related Transactions............................... 8 Part IV Item 14. Exhibits, Financial Statements and Schedules, and Reports on Form 8-K...................................................... 9
ii 4 PART I ITEM 1. BUSINESS OVERVIEW The business of American Management Systems, Incorporated and its wholly owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance and create value for clients. AMS provides a full range of consulting services from strategic business analysis to the full implementation of solutions. AMS's suite of next generation products, deep industry expertise and business alliances provide a foundation of management and technology services that integrate the latest technologies with existing IT infrastructures and internal processes providing productivity gains for clients. AMS measures success based on the results and business benefits achieved by its clients. The Company focuses on expanding its delivery of enterprise-wide business solutions - including eBusiness solutions - tailored to clients in financial services, new media and communications, federal, state and local governments as well as health care and utilities. These solutions help firms achieve greater cost savings, deliver improved customer service and leverage cross-sell and up-sell opportunities in their markets. AMS is a trusted business partner for many of the largest and most respected organizations in the markets in which it specializes. AMS is a company that transforms organizations into Next Generation Enterprises. A key element of this is establishing an extensive network of strategic alliances, partnerships and joint ventures to provide "best of breed" solutions and to extend AMS's market reach in all of the Company's target markets. Each year, approximately 85% of the Company's business comes from clients it worked with in previous years. The Company, which operates as one segment, focuses on clients in specific industries, which are referred to as target markets. The Company is targeting high value sectors within these target markets and striving to be the market leader in providing Next Generation Enterprise solutions. Organizations in AMS's target markets - new media and communications firms; financial services institutions; state and local governments and education organizations; federal government agencies; and other corporate clients -- have a crucial need to exploit the potential benefits of information and systems integration technology. The Company helps clients fulfill this need by ensuring quality project execution and continuing to build a professional staff, which is composed of experts in the necessary technical and functional disciplines. The Company is focused on consolidating operating activities to create new opportunities for growth and leveraging its deep industry knowledge and existing client relationships to support that growth. A significant component of AMS's business is the development of proprietary software products, either with its own funds or on a jointly funded basis with other organizations. These products are principally licensed as elements of custom tailored systems, and, to a lesser extent, as stand-alone applications. The Company expended $76.2 million in 2000, $102.3 million in 1999, and $77.4 million in 1998 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $45.3 million in 2000, $47.1 million in 1999, and $35.4 million in 1998 for research and development associated with proprietary software, including amortization. In 2000, the Company reduced the unamortized costs by $5.9 million representing collections from funding partners, compared to $21.8 million in 1999. As a percentage of revenues, license and maintenance fee revenues were less than 10% during each of the last three years. 1 5 In order to serve clients outside of the United States, AMS has expanded internationally by establishing subsidiaries or foreign branches. Exhibit 21 of this Form 10-K provides a complete listing of all twenty-six active AMS subsidiaries (and branches), showing name, year organized or acquired, and place of incorporation. Revenues attributable to AMS's non-US clients were approximately $196.3 million in 2000, $226.7 million in 1999, and $208.4 million in 1998. Additional information on revenues and assets attributable to AMS's geographic areas of operation is provided in Note 12 of the consolidated financial statements appearing in Exhibit 13 of this Form 10-K. Founded in 1970, AMS services clients worldwide. AMS's approximately 8,500 employees serve clients from corporate headquarters in Fairfax, Virginia and from 51 offices worldwide. NEW MEDIA AND COMMUNICATIONS FIRMS AMS markets systems consulting and integration services to both local exchange and interexchange carriers, cellular and wireless telephone companies as well as cable, new media, DSL eCommerce, and eBusiness organizations. AMS's services encompass developing and implementing AMS's next generation software products specializing in customer care, billing, order processing, accounts receivable, and collections, as well as integrating leading industry partner products to create solutions for clients. FINANCIAL SERVICES INSTITUTIONS AMS provides systems consulting and integration services, as well as application software products to financial institutions and insurance companies worldwide. The Company specializes in corporate and international banking, consumer credit management, customer value and global risk management. The Company focuses on providing next generation solutions by incorporating its own suite of products while partnering with leading industry providers as well as clients to deliver Customer Value Management and facilitate business transformation for clients. STATE AND LOCAL GOVERNMENTS AND EDUCATION AMS provides information technology consulting and systems integration services to state, county, and municipal governments as well as universities and colleges. AMS provides these organizations industry experience and expertise in delivering financial, tax, and revenue management applications as well as enhancing human resources, social services, public safety and transportation functions, and environmental systems. The Company specializes in designing, developing, and implementing next generation- eGovernment- services and application software products that create productivity gains for clients through integrating the latest technologies with existing IT infrastructure and internal services. AMS is working with both clients and leading industry providers to develop statewide electronic malls to allow all state and local agencies to purchase goods and services from approved vendors over the web. FEDERAL GOVERNMENT AGENCIES AMS's clients include civilian and defense agencies as well as aerospace companies. AMS's long term relationships with Federal Government Agencies continue to enhance a deep industry expertise that is central to providing management consulting services and systems integration that generate solutions for these clients. AMS's services include developing and implementing eProcurement and next generation financial solutions as well as providing information technology consulting, systems re-engineering, large scale systems integration and maintenance support. 2 6 OTHER CORPORATE CLIENTS AMS provides enterprise-wide business and technology services for firms in other industries, including health care and utilities. AMS's suite of management and technology solutions (including eBusiness) supports projects with several large organizations in the healthcare and utilities market place, which AMS intends to pursue further. PEOPLE People are AMS's most important asset and its success depends on its ability to attract, retain and motivate well-qualified people. The Company's largest investment in recent years has been in recruiting, assimilating, and developing its people. AMS recruited and successfully assimilated approximately 2,500 new staff members in 2000, including 610 in Europe, Australia, Canada and Mexico. About 33% of the new staff members came from the Company's college and university recruiting program. AMS recruits individuals for a career and hires a balanced mix of recent university graduates and experienced professionals who have demonstrated extraordinary technical, analytical, and/or management skills. A large number have advanced degrees in management, computer science, public policy, or engineering. AMS is committed to ensuring individuals have the technical, integration and project management expertise to enable AMS to manage client projects through scale and across technology changes and business cycles. Individuals are assigned to one of the Company's market-oriented groups to develop expertise in the areas needed for solving its clients' problems. Transfers between these groups occur regularly to meet the shifting needs of clients. Performance, in terms of productivity, quality of work, and creativity in solving problems, determines an individual's advancement. This motivates staff members to increase their knowledge of AMS's clients' businesses and industries, to stay current with the technology most suited to AMS's clients, and to develop the consulting and managerial skills needed to produce results. The Company continues to develop and implement "AMS University," an integrated, structured career and leadership development program that includes required as well as elective courses. The Company believes it can accelerate the development of individual capabilities and the overall capacity of the Company. COMPETITIVE FACTORS AMS's competition comes primarily from the management services units of large public accounting firms and consulting and systems integration firms. In addition, prospective clients may decide to perform projects with their in-house staff. AMS seeks to meet this competition by leveraging a thirty-year heritage of providing a suite of management and technology solutions that drive productivity gains for clients. AMS's key success factors are its long-term client relationships, industry-specific knowledge and expertise, proprietary computer application products, alliances with leading industry providers as well as experience in managing very large design and implementation projects. Although price is always a factor in clients' decisions, it is typically not the major factor. Other important factors are the capabilities of AMS's next generation suite of computer application products, the technical expertise of project management teams and the focus on quality project execution and delivery. 3 7 AMS is consolidating operating activities to create new opportunities for growth in response to a rapidly changing market environment. These efforts will position AMS to focus development activities, improve cross-selling of AMS solutions to clients as well as improve operational efficiencies and the management of large client engagements. Throughout 2001, AMS is implementing a restructuring plan to realign the Company's internal operations to a shared services model to significantly streamline support activities across the organization. These actions will enable AMS to continue to improve performance and productivity company-wide as well as attain growth in the marketplace. MARKETING, CONTRACTS, AND SIGNIFICANT CUSTOMERS Marketing is performed principally by the senior staff (executive officers, vice presidents, senior principals, and principals) and by a relatively small number of full-time salespersons for each large market. In the U.S. Government markets, AMS replies selectively to requests for proposals, concentrating on those closely related to previous work done for the same or similar customers. Certain of the Company's software products and computer services are sold by a small group of full-time salespersons and, for those products and services, AMS advertises in trade publications and exhibits at industry conventions. For large systems integration projects, AMS typically contracts for one phase (design, development, or implementation) at a time. Many contracts may be canceled by the customer on short notice with appropriate compensation to the Company for actual work performed. Most contracts with federal government agencies allow for termination for the convenience of the government and for an annual audit. No contracts are subject to renegotiation at the client's option. AMS generally contracts either on the basis of reimbursement of costs plus a fixed fee, a fixed or ceiling price for each phase, unit rates for time and materials used, or services sold at unit prices. In most cases, AMS receives monthly or milestone progress payments. In 2000, the Company worked on projects directly for 91 U.S. Government clients, representing a total of $342.2 million, or 27% of revenues. No other customer accounted for 10% or more of revenues in 2000. ITEM 2. PROPERTIES Headquartered in Fairfax, Virginia, the Company's principal operations occupy approximately 1,234,000 square feet of office space under leases expiring through 2011. The Company also has other long-term lease commitments totaling approximately 599,000 square feet with varying expirations through 2011 at other locations throughout the United States. Additionally, the Company's international staff occupies approximately 313,000 square feet of office space outside of the U.S. at locations under leases expiring through 2006. With regard to its operating environment, the Company maintains and operates a large- and mid-range computing environment at the AMS Data Center in Fairfax, Virginia. In addition to physical and data security, the AMS Data Center facilities include conditioned power, A/C, UPS, and fire suppression. The Company leases its computing equipment including mainframe processors, small and mid-size servers, and communications equipment. The Company believes its facilities and equipment continue to be adequate for its business as currently conducted. 4 8 ITEM 3. LEGAL PROCEEDINGS State of Mississippi v. American Management Systems, Inc., No 251-99.382-CIV (Circuit Court of Hinds County, Mississippi). As previously reported in the Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 2000, June 30, 2000 and March 31, 2000, on April 22, 1999, the Company was served with a complaint alleging that it failed to deliver software conforming to a contract that it entered into with the State of Mississippi. In the complaint, the State sought compensatory damages of approximately $234.3 million and punitive damages of approximately $750.0 million. The matter proceeded to trial, and on August 23, 2000, a jury awarded the State actual and punitive damages totaling $474.5 million. On August 28, 2000, the Company reached a fully negotiated settlement with the State of Mississippi for $185.0 million and, on the same day, the court signed an order dismissing the matter with prejudice in recognition of the settlement. The present value of the settlement is approximately $135.0 million, approximately $102.0 million of which was paid by the Company's insurers and approximately $33.0 million was paid by the Company. American Management Systems, Inc. and Federal Insurance Company v. National Union Fire Insurance Company of Pittsburgh, PA, No. 3-00CV682B-CIV (US District Court for the Southern District of Mississippi, Jackson County Division). As previously reported in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, on September 11, 2000, AMS filed a lawsuit against National Union Fire Insurance Company, one of its insurance carriers, seeking damages arising from National Union's failure to take advantage of opportunities to settle the Mississippi litigation (discussed in the preceding paragraph) well within National Union's policy limits. Federal Insurance Company has joined in that claim to recover the amount of secondary excess coverage that it contributed to the Mississippi settlement. On November 13, 2000, National Union filed a motion to dismiss the case, to stay the matter pending a decision in the case that it filed against AMS and Federal in the Fairfax County Circuit Court (discussed in the following paragraph), or in the alternative, to transfer the case from the United States District Court for the Southern District of Mississippi to the United States District Court for the Eastern District of Virginia. AMS and Federal have responded to the motion and it is pending before the court. The motion to stay may be rendered moot by the actions of the Fairfax County Circuit Court (discussed below). The court has set a schedule under which discovery is to be completed by June 1, 2001, substantive motions are to be filed by June 15, 2001, and a pretrial conference is to be held on September 14, 2001. The case is scheduled for trial during the period from October 1, 2001 to October 19, 2001. National Union Fire Insurance Company of Pittsburgh, PA v. American Management Systems, Inc. and Federal Insurance Company. On September 22, 2000, the Company was served with a declaratory judgment complaint filed by National Union in the Circuit Court for Fairfax County, Virginia. National Union seeks a determination that it did not breach its obligation to the Company in the failure to settle the Mississippi action (discussed in the first paragraph of this Item 3) and further seeks a court determination that its excess policy has been exhausted as a consequence of National Union's payment toward the settlement. The Company and Federal have filed a motion to dismiss or stay the Virginia lawsuit in favor of the lawsuit filed by the Company and Federal in Mississippi. On January 11, 2001, the Fairfax County Court denied the requests to dismiss or stay the case. The court invited the parties to move for reconsideration of its order and both the Company and Federal have done so. On February 9, 2001, the Company and Federal asserted defenses to National Union's complaint. On the same day, National Union filed a motion to amend its complaint to add (i) a request for a declaration that National Union has no liability for any existing or potential claim that otherwise would be within the coverage of the National Union policy and (ii) a claim that the Company breached duties of cooperation and participation under the National Union policy and that the Company is liable to National Union for damages in the amount of $37 million plus interest. On March 28, 2001, the Court issued a ruling dismissing National Union's claims without prejudice, with the exception of the counterclaim for $37 million plus interest, which is stayed pending the outcome of the case pending in Mississippi (discussed above). 5 9 In the Matter of Bezeq, the Israel Telecommunications Company Ltd. vs. AMS Technical Systems, Inc., CIV COMP. 1420/99 and counterclaim. As previously reported in the Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 2000 and June 30, 2000, on September 9, 1999, Bezeq filed suit against a subsidiary of the Company alleging that the subsidiary was in breach of a contract with Bezeq. In the complaint, Bezeq sought damages in the approximate amount of $39.0 million, which amount included amounts secured by bank guarantees made in favor of Bezeq. On January 19, 2000, the Company's subsidiary filed a counterclaim against Bezeq alleging, among other things, breach of contract and seeking approximately $58.8 million in damages. On September 21, 2000, the Company's subsidiary and Bezeq entered into a settlement agreement, pursuant to which, among other things, neither party admitted any fault and each party released the other and the other's affiliates from any claims. The total amount paid by the Company's subsidiary to Bezeq pursuant to the settlement agreement did not exceed the amount previously reserved for potential losses under the contract. In light of the settlement, the applicable court dismissed both the claim and counterclaim with prejudice on October 24, 2000. The settlement agreement has been performed fully and the mutual releases contained therein are effective. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 2000. 6 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market information for the Company's common stock contained in the Company's 2000 Financial Report is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 6. SELECTED FINANCIAL DATA Selected financial data contained in the Company's 2000 Financial Report is incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations contained in the Company's 2000 Financial Report are incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The information set forth on pages 13 - 15 of the Company's 2000 Financial Report, under the captions "Foreign Currency Hedging" and "Notes Payable and Line of Credit," is incorporated herein by reference in accordance with General Instruction G(2) of form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, together with the reports thereon of Deloitte & Touche LLP and the supplementary financial information, contained in the Company's 2000 Financial Report, are incorporated herein by reference in accordance with General Instruction G(2) of Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to the directors and executive officers of the Company contained in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 11, 2001, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation contained in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 11, 2001, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to the security ownership of certain beneficial owners and management contained in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 11, 2001, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information relating to certain relationships and related transactions contained under the headings "Principal Stockholders" and "Compensation Committee Interlocks and Insider Participation" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 11, 2001, is incorporated herein by reference. The Company's definitive Proxy Statement will be filed within 120 days after the close of the Company's fiscal year in accordance with General Instruction G(3) of Form 10-K. 8 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The consolidated financial statements of American Management Systems, Incorporated and subsidiaries filed are as follows: Consolidated Statements of Operations for 2000 - 1998 Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Cash Flows for 2000 - 1998 Consolidated Statements of Changes in Stockholders' Equity for 2000 - 1998 Consolidated Statements of Comprehensive Income 2000 - 1998 Notes to Consolidated Financial Statements Report of Independent Accountants 2. FINANCIAL STATEMENT SCHEDULES The financial statement schedule of American Management Systems, Incorporated and subsidiaries filed is as follows: Reports of Independent Accountants on financial statement schedules Schedule II - Valuation and Qualifying Accounts for 2000 - 1998 All other schedules are omitted because they are not applicable, or the required information is shown in the financial statements or the notes thereto. Individual financial statements of the Company and each of its subsidiaries are omitted because the Company is primarily an operating company, and all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have a minority equity interest in and/or indebtedness to any person other than the Company or its consolidated subsidiaries in amounts which together exceed five percent of the total assets as shown by the most recent year-end consolidated balance sheet. 9 13 3. EXHIBITS The exhibits to the Annual Report on Form 10-K of American Management Systems, Incorporated filed are as follows: 3. Articles of Incorporation and By-laws 3.1 Second Restated Certificate of Incorporation of the Company (incorporated herein by reference to the Company's 1995 Annual Report on Form 10-K, filed on April 1, 1996). 3.2 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed on August 4, 1998). 3.3 By-Laws of the Company, as amended on June 12, 2000 (filed herewith). 3.4 Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.4 of the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1999). 4. Instruments Defining the Rights of Security Holders 4.1 Specimen Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 of the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1997). 4.2 Rights Agreement dated as of July 31, 1998, between the Company and ChaseMellon Shareholder Services L.L.C. as Rights Agent (incorporated herein by reference to the Company's Form 8-A filed on August 4, 1998, including form of Rights Certificate). 10. Material Contracts 10.1 1996 Amended Stock Option Plan F as amended (incorporated herein by reference to Exhibit A to the Company's definitive Proxy Statement filed on April 15, 1999). 10.2 Outside Directors Stock-for-Fees Plan (incorporated herein by reference to Exhibit C to the Company's definitive Proxy Statement filed on April 10, 1996). 10.3 1992 Amended and Restated Stock Option Plan E, as amended (incorporated herein by reference to Exhibit B to the Company's definitive Proxy Statement filed on April 17, 1995). 10.4 Executive Deferred Compensation Plan, as amended September 1, 1997 (incorporated herein by reference to Exhibit 10.4 of the Company's 1997 Annual Report on Form 10-K). 10.5 Outside Director Deferred Compensation Plan, effective January 1, 1997 (incorporated herein by reference to Exhibit 10.5 of the Company's 1997 Annual Report on Form 10-K). 10 14 10.6 Multi-Currency Revolving Credit Agreement dated as of January 9, 1998 among the Company, certain of the Company's subsidiaries, the Lenders named therein, and NationsBank N.A. as administrative agent and Wachovia Bank N.A., as Documentation agent (incorporated herein by reference to Exhibit 10.6 of the Company's 1997 Annual Report on Form 10-K). 10.7 Agreement of Lease between Joshua Realty Corporation and the Company, dated August 10, 1992, as amended (incorporated herein by reference to Exhibit 10.7 of the Company's 1997 Annual Report on Form 10-K). 10.8 Office Lease Agreement between Hyatt Plaza Limited Partnership and the Company, dated August 12, 1993, as amended (incorporated herein by reference to Exhibit 10.8 of the Company's 1997 Annual Report on Form 10-K). 10.9 Lease Agreement between Fairfax Gilbane, L.P. and the Company, dated February 15, 1994, as amended (incorporated herein by reference to Exhibit 10.9 of the Company's 1997 Annual Report on Form 10-K). 10.10 Deed of Lease between Principal Mutual Life Insurance Company and the Company, dated December 1996 (incorporated herein by reference to Exhibit 10.10 of the Company's 1997 Annual Report on Form 10-K). 10.11 1996 Incentive Compensation Plan for Executive Officers (incorporated herein by reference to Exhibit 10.11 of the Company's 1998 Annual Report on Form 10-K). 10.12 1999 Contractor Stock Option Plan (incorporated herein by reference to Exhibit 10.12 the Company's 1999 Annual Report on Form 10-K) 10.13 Departure Agreement, dated as of November 15, 2000, between the Company and Paul A. Brands (filed herewith). 10.14 Second Amendment to Credit Agreement, dated as of March 21, 2001, among the Company, certain of the Company's subsidiaries, the lenders named therein, Bank of America, N.A. as administrative agent and Wachovia Bank, N.A. as documentation agent (filed herewith). 10.15 Form of Change in Control Executive Retention Agreement for Senior Executives (filed herewith). 10.16 Form of Employment Agreement for Senior Executives (filed herewith). 13. 2000 Financial Report (filed herewith). 21. Subsidiaries of the Company (filed herewith). 23. Consent of Independent Accountants (filed herewith). (b) REPORTS ON FORM 8-K None. 11 15 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of American Management Systems, Incorporated Fairfax, Virginia We have audited the consolidated financial statements of American Management Systems, Incorporated and subsidiaries (the Company) as of December 31, 2000 and for each of the three years in the period ended December 31, 2000 and have issued our report thereon dated February 14, 2001 (incorporated by reference in this Annual Report on Form 10-K). Our audit also included the financial statement schedule for the each of the three years in the period ended December 31, 2000 listed in Item 14(a)(2) of this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP McLean, Virginia February 14, 2001 12 16 Schedule II American Management Systems, Incorporated VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31 (In millions) 2000 1999 1998 - ------------------------------------------------------------------------------------ Allowance for Doubtful Accounts - ------------------------------- Balance at Beginning of Period $10.8 $ 9.8 $ 5.0 Allowance Accruals 6.7 6.2 10.9 Charges Against Allowance (9.5) (5.2) (6.1) ----- ----- ----- Balance at End of Period $ 8.0 $10.8 $ 9.8 ===== ===== ===== Deferred Tax Asset Valuation Allowance - -------------------------------------- Balance at Beginning of Period $ 0.9 $ 1.1 $ 0.5 Allowance Accruals -- -- 0.6 Charges Against Allowance (0.3) (0.2) -- ----- ----- ----- Balance at End of Period $ 0.6 $ 0.9 $ 1.1 ===== ===== ===== Provision for Contract Losses - ----------------------------- Balance at Beginning of Period $27.0 $ 7.3 $ -- Allowance Accruals 35.2 20.0 7.3 Charges Against Provision (61.4) (0.3) -- ----- ----- ----- Balance at End of Period $ 0.8 $27.0 $ 7.3 ===== ===== =====
13 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th of March, 2001. American Management Systems, Incorporated By: s/William M. Purdy --------------------------------------- William M. Purdy Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following officers and directors of the Registrant in the capacities and on the date indicated.
Signature Title Date --------- ------------------------- -------------------- (i) Principal Executive Officer: s/William M. Purdy Chief Executive March 29, 2001 --------------------------------- Officer and President William M. Purdy (ii) Principal Financial Officer: s/Ronald L. Schillereff Treasurer and March 29, 2001 --------------------------------- Chief Financial Ronald L. Schillereff Officer (iii) Principal Accounting Officer: s/Nancy Yurek Controller March 29, 2001 --------------------------------- Nancy Yurek
14 18
Signature Title Date --------- ------------------------- -------------------- (iv) Directors: s/Daniel J. Altobello Director March 29, 2001 --------------------------------- Daniel J. Altobello s/James J. Forese Director March 29, 2001 -------------------------------- James J. Forese s/Patrick W. Gross Director March 29, 2001 --------------------------------- Patrick W. Gross s/Dorothy Leonard Director March 29, 2001 --------------------------------- Dorothy Leonard s/W. Walker Lewis Director March 29, 2001 --------------------------------- W. Walker Lewis s/Frederic V. Malek Director March 29, 2001 --------------------------------- Frederic V. Malek s/Frank A. Nicolai Director March 29, 2001 --------------------------------- Frank A. Nicolai s/Alan G. Spoon Director March 29, 2001 --------------------------------- Alan G. Spoon
15 19 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 3.1 Second Restated Certificate of Incorporation of the Company * (incorporated herein by reference to the Company's 1995 Annual Report on Form 10-K, filed on April 1, 1996). 3.2 Certificate of Designation of Series A Junior Participating * Preferred Stock (incorporated herein by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed on August 4, 1998). 3.3 By-Laws of the Company, as amended on June 12, 2000 (filed * herewith). 3.4 Certificate of Amendment of Second Restated Certificate of * Incorporation of the Company (incorporated herein by reference to Exhibit 3.4 of the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1999). 4.1 Specimen Common Stock Certificate (incorporated herein by * reference to Exhibit 4.1 of the Company's quarterly report on Form 10-Q for the Quarter ended March 31, 1997). 4.2 Rights Agreement dated as of July 31, 1998, between the Company * and ChaseMellon Shareholder Services L.L.C. as Rights Agent (incorporated herein by reference to the Company's Form 8-A filed on August 4, 1998, including form of Rights Certificate). 10.1 1996 Amended Stock Option Plan F as amended (incorporated herein * by reference to Exhibit A to the Company's definitive Proxy Statement filed on April 15, 1999). 10.2 Outside Directors Stock-for-Fees Plan (incorporated herein by * reference to Exhibit C to the Company's definitive Proxy Statement filed on April 10, 1996). 10.3 1992 Amended and Restated Stock Option Plan E, as amended * (incorporated herein by reference to Exhibit B to the Company's definitive Proxy Statement filed on April 17, 1995). 10.4 Executive Deferred Compensation Plan, as amended September 1, * 1997 (incorporated herein by reference to Exhibit 10.4 of the Company's 1997 Annual Report on Form 10-K). 10.5 Outside Director Deferred Compensation Plan, effective January * 1, 1997 (incorporated herein by reference to Exhibit 10.5 of the Company's 1997 Annual Report on Form 10-K).
16 20 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 10.6 Multi-Currency Revolving Credit Agreement dated as of January 9, * 1998 among the Company, certain of the Company's subsidiaries, the Lenders named therein, and NationsBank N.A. as administrative agent and Wachovia Bank N.A., as Documentation agent. (incorporated herein by reference to Exhibit 10.6 of the Company's 1997 Annual Report on Form 10-K). 10.7 Agreement of Lease between Joshua Realty Corporation and the * Company, dated August 10, 1992, as amended (incorporated herein by reference to Exhibit 10.7 of the Company's 1997 Annual Report on Form 10-K). 10.8 Office Lease Agreement between Hyatt Plaza Limited Partnership * and the Company, dated August 12, 1993, as amended (incorporated herein by reference to Exhibit 10.8 of the Company's 1997 Annual Report on Form 10-K). 10.9 Lease Agreement between Fairfax Gilbane, L.P. and the Company, * dated February 15, 1994, as amended (incorporated herein by reference to Exhibit 10.9 of the Company's 1997 Annual Report on Form 10-K). 10.10 Deed of Lease between Principal Mutual Life Insurance Company * and the Company, dated December 1996 (incorporated herein by reference to Exhibit 10.10 of the Company's 1997 Annual Report on Form 10-K). 10.11 1996 Incentive Compensation Plan for Executive Officers * (incorporated herein by reference to Exhibit 10.11 of the Company's 1998 Annual Report on Form 10-K). 10.12 1999 Contractor Stock Option Plan (incorporated by reference to * exhibit 10.12 of the Company's 1999 Annual Report on Form 10-K) 10.13 Departure Agreement, dated as of November 15, 2000, between the Company and Paul A. Brands (filed herewith). 10.14 Second Amendment to Credit Agreement, dated as of March 21, 2001, among the Company, certain of the Company's subsidiaries, the lenders named therein, Bank of America, N.A. as administrative agent and Wachovia Bank, N.A. as documentation agent (filed herewith). 10.15 Form of Change in Control Executive Retention Agreement for Senior Executives (filed herewith).
17 21 10.16 Form of Employment Agreement for Senior Executives (filed herewith). 13. 2000 Financial Report (filed herewith). 21. Subsidiaries of the Company (filed herewith). 23. Consent of Independent Accountants (filed herewith).
18 EX-3.3 2 w46812ex3-3.txt BY-LAWS OF THE COMPANY 1 EXHIBIT 3.3 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED * * * * * BY-LAWS As amended and restated on June 12, 2000 * * * * * 2 ARTICLE I OFFICES Section 1. The registered office of the corporation shall be at 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. The registered agent of the corporation at such address is The Corporation Trust Company. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Fairfax, Commonwealth of Virginia, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. The annual meeting of stockholders for the election of directors and the transaction of other business shall be held, in each year on the second Friday in May if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at any other date and time that shall be designated from time to time by the board of directors and stated in the notice of the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting, either personally or by mail, not less than ten nor more than sixty days before the date of the meeting. If mailed, such notice shall be deemed to have been given when deposited in the United States mail, postage prepaid directed to the stockholder as it appears on the records of the corporation. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole 3 time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chief executive officer and shall be called by the chief executive officer or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat (or in the case of a class or series entitled to vote to the exclusion of any other class or series, a majority of such class or series), present in person or represented by proxy, shall constitute a quorum at all meetings of such stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders (including any class or series thereof), the holders of a majority of stock entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. At all meetings of the stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by the certificate of incorporation, these By-laws, the rules or regulations of any stock exchange applicable to the corporation, as otherwise provided by law or pursuant to any regulation applicable to the corporation, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock of the corporation which are present in person or by proxy and entitled to vote thereon. Section 10. Except as otherwise provided by or pursuant to the provisions of the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted 4 upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the secretary of the corporation. Voting at meetings of stockholders need not be by written ballot. Section 11. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date: (i) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; and (ii) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Article IIB, Section 1 of these By-laws shall govern the record date to determine stockholders entitled to express consent to corporate actions in writing without a meeting. Section 12. Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the vice chairman of the board, if any, or in his absence by the chief executive officer, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 13. The corporation shall in advance of any meeting of stockholders appoint one or more inspectors of election, who may be employees of the corporation, to act at the meeting and any adjournment thereof and to make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the 5 number of shares of capital stock of the corporation outstanding and the voting power of each such share, (ii) count all votes and ballots, (iii) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (iv) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspectors' count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election. Section 14. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The board of directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the board of directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the board of directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the board of directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE IIA NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS Section 1. (A) Nominations of persons for election to the board of directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant to the corporation's notice of meeting (or any supplement thereto), (b) by or at the direction of the board of directors or (c) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting and complies with the notice procedures set forth in this By-law. (B) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (1)(A) of this By-law, the stockholder must have given timely notice thereof in writing to the secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the sixtieth day nor earlier than the close of 6 business on the ninetieth day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty days before or more than sixty days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth day prior to such annual meeting and not later than the close of business on the later of the sixtieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations or proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (and such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, and in the event that such business includes a proposal to amend the By-laws of the corporation, the language of the proposed amendment; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, and (iv) a representation whether the proponent intends or is part of a group which intends to solicit proxies from other stockholders in support of such proposal or nomination. (C) Notwithstanding anything in the second sentence of paragraph (1)(B) of this By-law to the contrary, in the event that the number of directors to be elected to the board of directors of the corporation is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased board of directors at least seventy days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. Section 2. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the board of directors or (b) provided that the board of 7 directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this By-law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-law. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the board of directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by paragraph (1)(B) of this By-law shall be delivered to the secretary at the principal executive offices of the corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting, or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. Section 3. (A) Only such persons who are nominated in accordance with the procedures set forth in this By-law shall be eligible to serve as director and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-law. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty to (i) determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this By-law and (ii) if any proposed nomination or business is not in compliance with this By-law, or if the stockholder solicits or is part of a group which solicits proxies in support of such stockholder's proposal without such stockholder having made the representation required by clause (c)(iv) of paragraph 1(B) of this By-law, to declare that such defective proposal or nomination shall be disregarded. (B) For purposes of this By-law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (C) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. 8 ARTICLE IIB CONSENTS TO CORPORATE ACTION RECORD DATE Section 1. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting shall be as fixed by the board of directors or as otherwise established under this Section. Any person seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice addressed to the secretary and delivered to the corporation, request that a record date be fixed for such purpose. The board of directors may fix a record date for such purpose which shall be no more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors and shall not precede the date such resolution is adopted. If the board of directors fails within ten days after the corporation receives such notice to fix a record date for such purpose, the record date shall be the day on which the first written consent is delivered to the corporation in the manner described in Section 2 below unless prior action by the board of directors is required under the General Corporation Law of the State of Delaware, in which event the record date shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. PROCEDURES Section 2. (A) Every written consent purporting to take or authorizing the taking of corporate action and/or related revocations (each such written consent and related revocation is referred to in this Article IIB as a "Consent") shall bear the date of signature of each stockholder who signs the Consent, and no Consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated Consent delivered in the manner required by this Section 2, Consents signed by a sufficient number of stockholders to take such action are so delivered to the corporation. Prompt notice of the taking of the corporate action without a meeting by less than unanimous Consent shall be given to those stockholders who have not consented in writing, to the extent required by law. (B) A Consent shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery to the corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. (C) Consents shall be valid for a maximum of sixty days after the date of the earliest dated Consent delivered to the corporation in the manner provided in Section 228(c) of the General Corporation Law of the State of Delaware. Consents may be revoked by written notice (i) to the corporation, (ii) to the stockholder or stockholders soliciting consents or soliciting revocation in opposition to action by consent (the "Soliciting Stockholder"), or (iii) to a proxy solicitor or other agent designated by the corporation or the Soliciting Stockholders. (D) Within ten business days after receipt of the earliest dated Consent delivered to the corporation in the manner provided in Section 228(c) of the General Corporation Law of the State of Delaware or the determination by the board of directors of the corporation that the corporation should seek corporate action by written consent, as the case may be, the secretary of the corporation shall engage nationally recognized independent inspectors of elections for the purpose of performing a ministerial review of the validity of the Consents and 9 revocations. The cost of retaining inspectors of election shall be borne by the corporation. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the corporation that the consents delivered to the corporation in accordance with this Section 2 represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the board of directors or any stockholder shall not be entitled to contest the validity of any Consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). (E) Following appointment of the inspectors, Consents and revocations shall be delivered to the inspectors upon receipt by the corporation, the Soliciting Stockholder or their proxy solicitors or other designated agents. As soon as practicable following the earlier of (i) the receipt by the inspectors, a copy of which shall be delivered to the corporation, of any written demand by the Soliciting Stockholders of the corporation, or (ii) sixty days after the date of the earliest dated Consent delivered to the corporation in the manner provided in Section 228(c) of the General Corporation Law of the State of Delaware, the inspectors shall issue a preliminary report to the corporation and the Soliciting Stockholders stating the number of valid and unrevoked Consents received and whether, based on preliminary count, the requisite number of valid and unrevoked Consents has been obtained to authorize or take the action specified in the Consents. (F) Unless the corporation and the Soliciting Stockholders shall agree to a shorter or longer period, the corporation and the Soliciting Stockholders shall have 48 hours to review the Consents and revocations and to advise the inspectors and the opposing party in writing as to whether they intend to challenge the preliminary report of the inspectors. If no written notice of an intention to challenge the preliminary report is received within 48 hours after the inspectors' issuance of the preliminary report, the inspectors shall issue to the corporation and the Soliciting Stockholders their final report containing the information from the inspectors' determination with respect to whether the requisite number of valid and unrevoked Consents was obtained to authorize and take the action specified in the Consents. If the corporation or the Soliciting Stockholders issue written notice of an intention to challenge the inspectors' preliminary report within 48 hours after the issuance of that report, a challenge session shall be scheduled by the inspectors as promptly as practicable. Following completion of the challenge session, the inspectors shall as promptly as practicable issue their final report to the Soliciting Stockholders and the corporation, which report shall contain the information included in the preliminary report, plus any change in the vote total as a result of the challenge and a certification of whether the requisite number of valid and unrevoked Consents was obtained to authorize or take the action specified in the Consents. 10 ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than five nor more than fifteen. The number of directors may be altered by resolution adopted by a vote of a majority of the entire board of directors, or by such vote of the holders of any class or series of stock as may be specified in the certificate of incorporation. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3 of this Article or otherwise specified in the certificate of incorporation and except that the first directors of the corporation were elected by the incorporators of the corporation, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Any director may resign at any time upon written notice to the corporation. Section 3. Vacancies and newly created directorships resulting from any increase in the authorized number of directors, except as otherwise provided in the certificate of incorporation may be filled only by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, or until their earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 4. The business of the corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate or incorporation or by these By-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 5. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 6. The first meeting of each newly elected board of directors shall be held immediately after the annual meeting of stockholders and at the same place, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at that time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 11 Section 7. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors. Section 8. Special meetings of the board of directors may be called by the chairman of the board of directors or the chief executive officer on three (3) days' notice to each director, either personally or by mail or by telegram, telecopier, telephone or other means of electronic transmission; special meetings shall be called by the chief executive officer or secretary in like manner and on like notice on the written request of a majority of the directors. Section 9. At all meetings of the board, a majority of the directors then in office or, if greater, one-third of the then-authorized total number of directors, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 10. Unless otherwise restricted by the certificate of incorporation or these By-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. 12 COMMITTEES OF DIRECTORS Section 11. The board of directors may by resolution designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. AUDIT COMMITTEE Section 13. There shall exist a standing Audit Committee composed of not fewer than three directors of the corporation who are neither officers nor employees of the corporation or any of its subsidiaries and 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. The members of the Audit Committee shall be designated by resolution passed by a majority of the whole board. The board may designate one or more qualifying directors as alternate members of the Audit Committee, who may replace any absent or disqualified members at any meeting of the Committee. In the absence of any member of the Audit Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a majority, may unanimously appoint another qualifying member of the board to act at the meeting in the place of any such absent or disqualified member not replaced by an alternate member designated by the whole board. Section 14. The Audit Committee shall consist of members possessing the qualifications set forth in the Audit Committee Charter, as revised from time to time as provided therein (the "Audit Committee Charter"). Section 15. The Audit Committee shall operate in accordance with the provisions of the Audit Committee Charter and these Bylaws. Section 16. The Audit Committee shall keep regular minutes of its meetings and shall report the same to the board of directors when required. Section 17. The Audit Committee, to the extent provided in this By-law, shall have and may exercise the powers of the board of directors in the management of the business and 13 affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers that may require it. Section 18. Each individual director of the corporation, as well as the board as a whole, shall continue to exercise due diligence to assure that the financial statements of the corporation fairly and accurately present the results of the operation and financial position of the corporation and that the corporation's financial operations are conducted in accordance with all applicable laws and regulations, the corporation's policies and the regular and accepted principles of accounting. The existence and functioning of the Audit Committee shall effect no derogation of this duty. COMPENSATION COMMITTEE Section 19. There shall exist a standing Compensation Committee composed of not fewer than three directors of the corporation who are neither officers nor employees of the corporation. The members of the Compensation Committee shall be designated by resolution passed by a majority of the whole board of directors. The board of directors may designate one or more qualifying directors as alternate members of the Compensation Committee, who may replace any absent or disqualified members at any meeting of the committee. In the absence of any member of the Compensation Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a majority, may unanimously appoint another qualifying member of the board of directors to act at the meeting in the place of any such absent or disqualified member not replaced by an alternate member designated by the whole board. Section 20. The Compensation Committee shall meet at the request of the board of directors, and on such other occasions as the members of the committee may deem appropriate and desirable. The chief executive officer shall attend all meetings of the committee; provided, however, that the chief executive officer shall not participate in any decision concerning compensation which is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 (including decisions regarding eligibility for participation in plans, awards and any modifications thereto.) Section 21. The Compensation Committee shall (i) adopt resolutions recommending compensation policies and practices to the board of directors, (ii) make decisions regarding compensation plans and compensation for the chief executive officer and all other executive officers of the corporation, and make decisions regarding equity based compensation arrangements for and awards thereof to the controller, and (iii) approve any and all contracts or other transactions between the corporation and any of its directors or executive officers (to the extent that the approval of the board of directors is not required by law.) Section 22. The Compensation Committee shall keep regular minutes of its meetings and shall report the same to the board of directors when required. Section 23. The Compensation Committee, to the extent provided in this By-law, shall have and may exercise the powers of the board of directors in the management of the business 14 and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers that may require it. COMPENSATION OF DIRECTORS Section 24. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any directors from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given in person or by telegram, telecopier, telephone or other means of electronic transmission. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting of stockholders, directors, or members of a committee of directors, shall constitute a waiver of notice of such meeting, except when the stockholder, director or committee member attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or the By-laws. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a chairman of the board, a president, a secretary and a treasurer. The board of directors may also choose one or more executive vice-presidents, one or more assistant secretaries and assistant treasurers, and other officers with such titles and duties as the board of directors shall designate. The board of directors shall designate one of the officers of the corporation as the chief executive officer, and such officer shall continue to act as chief 15 executive officer until the board of directors designates another person as the chief executive officer. The board of directors also shall specify which officers shall have authority to perform the duties of the chief executive officer in his absence or in the event of his inability to act and, if there is more than one such officer, shall specify the order of priority in which such officers shall act on such authority. The list of such authorized officers and the specified order of priority shall remain in effect until changed by the board of directors. Any number of offices may be held by the same person except where the certificate of incorporation or these By-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a chairman of the board, a president, one or more executive vice-presidents, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by or in the manner prescribed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the directors then in office. Any officer may resign at any time upon written notice to the corporation. Any vacancy occurring in any office of the corporation shall be filled by or in the manner prescribed by the board of directors. THE CHAIRMAN OF THE BOARD Section 6. The chairman of the board shall preside at all meetings of the stockholders and the board of directors. THE CHIEF EXECUTIVE OFFICER Section 7. The chief executive officer of the corporation shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 8. The chief executive officer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required, or permitted by law to be otherwise signed and executed, and except where the signing and execution thereof shall be expressly delegated by the chief executive officer to some other officer or agent of the corporation. 16 THE PRESIDENT, EXECUTIVE VICE PRESIDENTS AND OTHER DESIGNATED OFFICERS Section 9. In the absence of the chief executive officer or in the event of his inability to act, the officer specified by the board of directors (and in the event there is more than one such officer, in the order of priority specified by the board of directors) shall perform the duties of the chief executive officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the chief executive officer. The president (if he is not the chief executive officer), the executive vice-president(s), and any other officers designated as officers by the board of directors shall generally assist the chairman and chief executive officer and shall perform such other duties and have such other powers as the board of directors or the chief executive officer may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 10. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or the chief executive officer, under whose supervision he shall act. He shall have custody of the certificate books and such other books and records as the board of directors may direct. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 11. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the chief executive officer or the secretary may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURER Section 12. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors and shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the chief executive officer and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation and shall perform such other duties and have such other powers as the board of directors or the chief executive officer may from time to time prescribe. 17 Section 13. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors, the chief executive officer or the treasurer may from time to time prescribe. ARTICLES VI CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman of the board of directors or the president or an executive vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Section 2. Where a certificate is countersigned (i) by a transfer agent other than the corporation or its employee, or, (ii) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion, and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. 18 REGISTERED STOCKHOLDERS Section 5. The corporation shall be entitled to treat the record holder of any shares of the corporation as the owner thereof for all purposes, including all rights deriving from such shares, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including, but without limiting the generality thereof, a purchaser, assignee or transferee of such shares or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Any such purchaser, assignee, transferee or other person shall not be entitled to receive notice of the meetings of stockholders; to vote at such meetings; to examine a complete list of the stockholders entitled to vote at meetings; or to own, enjoy, and exercise any other property or rights deriving from such shares against the corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. 19 ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the board of directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the board of directors shall think conducive to the interest of the corporation, and the board of directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation begins on the 1st day of January and ends on the 31st day of December in each year. SEAL Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION Section 1. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a 20 "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the corporation, or, while a director or officer of the corporation, is or was serving at the written request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding sentence, except as otherwise provided in Section 3 of this Article, the corporation shall be required to indemnify an Indemnitee in connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the board of directors. PREPAYMENT OF EXPENSES Section 2. The corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Article VIII or otherwise. CLAIMS Section 3. If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within sixty (60) days after a written claim therefor by the Indemnitee has been received by the corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or advancement of expenses under applicable law. NONEXCLUSIVITY OF RIGHTS Section 4. The rights conferred on any Indemnitee by this Article VIII shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, provision of the certificate of incorporation, these By-laws, agreement, vote of stockholders or disinterested directors or otherwise. OTHER SOURCES Section 5. The corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at this request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise. 21 AMENDMENT OR REPEAL Section 6. Any repeal or modification of the foregoing provisions of this Article VIII shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or occurring prior to the time of such repeal or modification. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES Section 7. This Article VIII shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than, Indemnitees when and as authorized by appropriate corporate action. ARTICLE IX AMENDMENTS These By-laws may be altered or repealed at any regular meeting of the board of directors, or at any special meeting of the board of directors if notice of such alteration or repeal is contained in the notice of such special meeting, or by majority vote of the stock outstanding at the annual meeting of stockholders or at any special meeting of stockholders if notice of such alteration or repeal is contained in the notice of such special meeting. EX-10.13 3 w46812ex10-13.txt DEPARTURE AGREEMENT 1 EXHIBIT 10.13 November 15, 2000 Mr. Daniel J. Altobello Chairman of the Compensation Committee of the Board of Directors of American Management Systems, Incorporated 6550 Rock Spring Drive Bethesda, MD 20817 Dear Dan: As part of the orderly transition that I have discussed with the Board and that has been announced previously, I am writing to set forth our agreement concerning my departure from American Management Systems, Incorporated ("AMS"), the payments I will receive from AMS upon my departure, and my release of claims against AMS. 1. This confirms my resignation as Chief Executive Officer of AMS as of October 25, 2000. I will remain as chairman of the Board of Directors and will receive my salary, less amounts for applicable federal, state and local employment and income taxes, through and including January 31, 2001, or such earlier date as I leave AMS (the "Departure Date"). Between the date of this letter and the Departure Date, I will provide transitional assistance to AMS's President and Chief Executive Officer. 2. AMS will provide me with a departure payment of $3,000,000, less amounts for applicable federal, state, and local employment and income taxes, and for AMS Health Plan costs for the February - December 2001 period (the "Separation Payment"). This amount, less employment and income taxes, and AMS Health Plan costs, will be paid to me in a lump sum no later than January 31, 2001, or in such periodic installments as AMS and I may mutually agree. 3. I agree not to file any unemployment compensation claim based on my resignation from AMS. 4. I currently have unexercised options to purchase 80,200 shares of AMS common stock. I hereby surrender to AMS all my rights, title and interest in those options. 2 Mr. Daniel J. Altobello November 15, 2000 Page 2 5. The parties agree that the payment in Paragraph 2 is in full, final and complete settlement of all claims I may have against AMS as a result of my employment, including but not limited to claims for salary, IC, vacation or sick leave, bonuses, severance pay, or any other benefit of employment. Notwithstanding the foregoing, AMS acknowledges that I am a participant in the Executive Deferred Compensation Plan, the 401(k) Plan, and the Simplified Employee Pension Plan, and entitled to benefits in accordance with the terms of those plans. AMS also acknowledges that it will reimburse me for any approved, but still outstanding travel costs. 6. In exchange for the Separation Payment, on behalf of myself and my heirs, administrators and executors, I agree to release and discharge AMS, its subsidiaries, affiliates, officers, directors, employees, former employees, agents, attorneys and representatives (the "Releasees"), and AMS agrees to release and discharge me and my heirs, administrators and executors, from any and all claims, debts, liens, liabilities, demands, obligations, acts, agreements, causes of action, suits, costs and expenses (including attorneys' fees), damages (whether pecuniary, actual, compensatory, punitive or exemplary) or liabilities of any nature or kind whatsoever in law or equity or otherwise, whether now known or unknown, arising out of or in any way connected with my employment with AMS, including but in no way limited to, claims arising out of or in connection with my departure from AMS (other than the payment referred to in Paragraph 2), provided, however, that nothing in this agreement shall either waive any of my rights or claims that arise after I sign this agreement or impair or preclude my right to enforce the terms of this agreement. This release includes but is not limited to claims arising under federal, state or local laws prohibiting employment discrimination, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act, the Age Discrimination in Employment Act, as amended, the Americans with Disabilities Act, the Older Workers Benefit Protection Act of 1990, the Civil Rights Act of 1991, the Rehabilitation Act of 1973; claims for attorneys' fees or costs; and any and all claims regarding any claimed employment contract, whether written, oral or implied or otherwise; other claims relating to AMS's right to terminate its employees, including claims concerning wrongful discharge; claims under the Employee Retirement Income Security Act, as amended; or any other claims under federal, state, or local law, common law or any other law in any way relating to my employment or the termination of my employment with AMS. 3 Mr. Daniel J. Altobello November 15, 2000 Page 3 7. I agree, without limiting the generality of the above release, not to sue or otherwise institute or cause to be instituted or to in any way voluntarily participate in or voluntarily assist in the prosecution of any complaints, charges or grievances against any Releasee concerning any claims released in this agreement. 8. I acknowledge that all confidential information regarding the business of AMS and its subsidiaries and affiliates is the exclusive property of AMS. On or before the Departure Date, I will return to AMS all copies of any material involving such confidential information; and I agree that I will not, directly or indirectly, divulge or use such information, whether or not such information is in written or other tangible form. I also will return to AMS by that date any items in my possession, custody or control that are the property of AMS. I understand that even after the Departure Date I remain bound by the terms of the American Management Systems, Incorporated Intellectual Property Rights Agreement, the AMS employee confidentiality agreement, and the AMS Guide for Ethical Business Conduct. 9. Effective on the Departure Date and for a period of twelve months thereafter, I will not, either directly or indirectly: (i) employ or solicit for employment, or assist in any way in solicitation for employment, any person employed by AMS or any of its affiliates then or at any time within the preceding twelve months; or (ii) solicit, or assist in any way in the solicitation of business from any of AMS's or its affiliates' clients or prospective clients, either for my own benefit or the benefit of anyone other than AMS, unless the business being solicited is not competitive with the services or products provided by AMS or its affiliates; or (iii) own a five percent or greater interest in, or be employed by or a Director of, any organization that is engaged in lines of business that compete with any services or products offered by AMS, unless I receive written authorization from AMS to own such interest or be so employed. 10. I understand that I have the right to consult with an attorney of my choice with respect to these arrangements. I acknowledge to you that I understand the significance of this agreement and the specific terms, and I accept them voluntarily and intend to be legally bound by the agreement. 11. I understand that I have at least 21 days to consider this agreement, but do not wish to exercise that right; and that I have seven days from the date I deliver this letter to 4 Mr. Daniel J. Altobello November 15, 2000 Page 4 you to revoke it and that this agreement will not be effective or enforceable nor the amount set forth in Paragraph 2 of this agreement paid until after the revocation period ends. I understand that revocation can be made by delivery of a written notice of revocation to you by midnight on or before the seventh calendar day from the date I deliver this letter to you. 12. Neither of us will speak disparagingly about my tenure of employment with AMS and the circumstances surrounding my separation from AMS; provided, however, that either of us may give truthful testimony as required by law. 13. Both of us agree to treat the existence and terms of this agreement as confidential. I understand that I may discuss it with my spouse, counsel, tax advisors, or as may be required by law. AMS will disclose it only as reasonably necessary to carry out its obligations, or as may be required by law. 14. Should any provision of this agreement be declared or be determined by any court, administrative agency or arbitrator to be invalid or unenforceable, and that provision cannot be modified so as to be valid and enforceable, then that provision shall be deemed severed from the agreement and the validity of the remaining parts, terms or provisions shall not be affected thereby and shall be given their intended meaning and effect. 15. This agreement shall be binding on the parties hereto and upon our respective heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of the Releasees and each of them and their respective heirs, administrators, representatives, executors, successors and assigns. 16. This agreement contains our entire understanding of the matters it covers, and supersedes all other agreements between us, except as set out above. 17. This agreement shall be governed by the laws of the Commonwealth of Virginia. 5 Mr. Daniel J. Altobello November 15, 2000 Page 5 If the terms of this agreement are acceptable to AMS, please sign in the space below and return the signed copy of the letter to me. Sincerely, /s/ Paul A. Brands Paul A. Brands Agreed and accepted on behalf of American Management Systems, Incorporated this 16th day of November 2000. /s/ Daniel J. Altobello - --------------------------------------------------- Daniel J. Altobello Chairman of the Compensation Committee of the Board of Directors of American Management Systems, Incorporated EX-10.14 4 w46812ex10-14.txt SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.14 SECOND AMENDMENT TO CREDIT AGREEMENT This Second Amendment (the "Second Amendment") dated as of March 21, 2001 amends that certain $120,000,000 Multi-Currency Revolving Credit Agreement dated as of January 9, 1998 among American Management Systems, Incorporated (as a Borrower and the Guarantor), various other Borrowers, the Lenders named therein and Bank of America, N.A., formerly NationsBank, N.A., as Administrative Agent, and Wachovia Bank, N.A., as Documentation Agent, as amended by a certain First Amendment to Credit Agreement dated as of March 16, 1998 (the "Agreement"). WHEREAS, the Borrowers and the Guarantor have requested that the Lenders and the Agents amend certain provisions of the Agreement, and the Lenders and the Agents are willing to amend the Agreement as herein provided; NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, the Borrowers, the Guarantor, the Lenders and the Agents hereby agree as follows: 1. DEFINITIONS. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Agreement. 2. APPLICABLE RATE. The definition of "Applicable Rate" in Section 1.1 of the Agreement shall be amended by substituting the following for the existing language: "APPLICABLE RATE" means, for any day, with respect to any Eurocurrency Rate Revolving Credit Loan or Swingline Loan, or with respect to the Facility Fees payable hereunder, or with respect to the Letter of Credit Fees payable hereunder, as the case may be, the applicable rate per annum, expressed as a percentage, equal to the 2 number of basis points set forth below under the caption "Eurocurrency Rate Margin/Swingline Margin," "Facility Fee," or "LC Fee," as the case may be, based upon the ratio of EBILTDA to Interest and Lease Charges of AMS and its consolidated Subsidiaries:
- --------------------------------------------------------------------------- Eurocurrency Rate Margin/Swingline Margin Facility Fee LC Fee EBILTDA: Interest (basis points (basis points (basis points and Lease Charges per annum) per annum) per annum) - --------------------------------------------------------------------------- Less than or 77.5 35 77.5 equal to 3.0 - --------------------------------------------------------------------------- Greater than 3.0 but less than or equal to 3.5 70 30 70 - --------------------------------------------------------------------------- Greater than 3.5 62.5 25 62.5 - ---------------------------------------------------------------------------
For purposes of the foregoing, the Applicable Rate for any date shall be determined by reference to the ratio of EBILTDA to Interest and Lease Charges as of the last day of the fiscal quarter of AMS most recently ended as of such determination date (such calculations of EBILTDA and Interest and Lease Charges to be for the four fiscal quarters ending on such date), and any change in the Applicable Rate shall become effective five Business Days after the delivery to each Lender of the certificate with respect to the Financial Statements to be delivered pursuant to Section 5.1(a) for the fiscal quarter or fiscal year most recently ended, as the case may be, and shall apply to Loans and Letters of Credit outstanding on such delivery date or made on and after such delivery date. Notwithstanding the foregoing and except as provided in the following sentence, at any time during which AMS has failed to deliver to the Administrative Agent the certificate referred to above with respect to a fiscal quarter or fiscal year following the date that delivery of Financial Statements relating to such fiscal quarter or fiscal year are required to be delivered under Section 5.1(a), the ratio of EBILTDA to Interest and Lease Charges shall be deemed, solely for the purposes of calculating the Applicable Rate, to be less than 3.0 until such time as AMS shall have delivered such certificate and Financial Statements to the Administrative Agent. Notwithstanding the foregoing, from the date hereof to the date on which the certificate required by Section 5.1(a) with respect to the Financial Statements for the fiscal quarter ending March 31, 2001 is actually delivered, the ratio of EBILTDA to Interest and Lease Charges shall be deemed, solely for purposes of calculating the Applicable Rate, to be less than or equal to 3.0. 2 3 3. DENOMINATION DATE. The definition of Denomination Date in Section 1.1 of the Agreement shall be amended by substituting the following for the existing language: "DENOMINATION DATE" means, (i) with respect to the borrowing, continuation or conversion of a Loan denominated in U.S. Dollars, the date such Loan is made, converted or continued; (ii) with respect to the borrowing, conversion or continuation of a Eurocurrency Rate Revolving Credit Loan or a Swingline Loan denominated in an Approved Currency other than U.S. Dollars, the date that is two Business Days before the date such Loan is made, converted, or continued as a Eurocurrency Rate Revolving Credit Loan; (iii) with respect to the issuance of a Letter of Credit, the date such Letter of Credit is issued; and (iv) with respect to a borrowing of a Competitive Bid Loan, the date such Loan is accepted by Borrower. 4. EBILTDA. The definition of "EBILTDA" in Section 1.1 of the Agreement shall be amended by adding the following sentence to the definition: For purposes of Section 5.2 hereof only, for each of the fiscal quarters ending March 31, 2001 and June 30, 2001, EBILTDA shall be calculated by adding back to the figure otherwise calculated in accordance with GAAP the amount of $35,200,000 recorded as a charge to earnings for the quarter ended September 30, 2000 in connection with a settlement and related expenses of legal proceedings against AMS brought by the State of Mississippi in an action styled State of Mississippi v. American Management Systems, Inc., No. 251-99-382-CIV (Circuit Court of Hinds County, Mississippi (filed April 22, 1999). 5. USAGE PREMIUM. The definition of "Usage Premium" in Section 1.1 of the Agreement shall be deleted. 6. INTEREST BASIS; INTEREST PAYMENT DATES. Section 2.10 of the Agreement is hereby amended by substituting the following subsection (a) for the existing subsection: (a) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Revolving Credit Loan, Swingline Loan and Competitive Bid Loan from the date of the relevant Loan until such Loan is paid in full and at maturity (whether by acceleration or otherwise) and thereafter on demand at the following rates per annum: (i) For each day that such Loan is a Base Rate Loan, the Base Rate applicable to such Loan for such day. 3 4 (ii) For each day that such Loan is a Swingline Loan, a rate per annum equal to the sum of the rate quoted by Bank of America for such Loan for such day and accepted by AMS, plus the Applicable Rate. (iii) During such period that such Loan is a Eurocurrency Rate Revolving Credit Loan, the Eurocurrency Rate applicable to such Loan for the related Interest Period plus the Applicable Rate. (iv) During such period that such Loan is a Competitive Bid Loan, at a rate per annum accepted by Borrower in its notice to the Administrative Agent delivered pursuant to Section 2.6(a)(iii)(B) or Section 2.7(a)(iii)(B). 7. FEES. Section 2.13 of the Agreement is hereby amended by substituting the following subsection (b) for the existing subsection: (b) Each Borrower for the account of which a Letter of Credit is issued hereunder shall pay to the Administrative Agent (i) for the account of each Lender, a fee (the "Letter of Credit Fee") in U.S. Dollars on the date of issuance of a Letter of Credit in an amount equal to the Applicable Rate per annum times the stated amount of such Letter of Credit and (ii) for the account of the Administrative Agent, a fronting fee (the "Fronting Fee") in U.S. Dollars on the date of issuance of a Letter of Credit in an amount equal to .125% per annum times the stated amount of such Letter of Credit; provided that the Administrative Agent shall rebate to such Borrower the ratable portion of such fees attributable to the period between the date such Letter of Credit is cancelled by mutual agreement of Bank of America and such Borrower (other than by reason of payment in full of such Letter of Credit) and the expiration date of such Letter of Credit. For purposes of this Section 2.13(b), the stated amount of a Letter of Credit denominated in an Alternative Currency shall be the Equivalent U.S. Dollar Amount thereof as of the Denomination Date. Upon receipt of notice from the Administrative Agent, each Lender shall pay to the Administrative Agent its Commitment Percentage of any amount subject to rebate hereunder. 8. BANK OF AMERICA. Each and every reference in the Agreement to "NationsBank" shall be deemed a reference to "Bank of America." 9. ACKNOWLEDGEMENT OF GUARANTOR. The Guarantor affirms its obligations under the Guaranty and consents to this Second Amendment. 10. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants to the Agents and each Lender as follows: 10.1 EXISTENCE. Each of the Borrower and its Subsidiaries is a corporation or partnership duly organized, validly existing and in good standing under the Laws of the nation in which it is organized and any political subdivision thereof, and is duly qualified to do business and in good standing in each other nation and any political subdivision thereof where the nature 4 5 or extent of its business activities requires such qualification, except where the failure to be so qualified and in good standing could not reasonably be expected to have a Materially Adverse Effect. 10.2 POWER AND AUTHORITY. Each of the Borrower and its Subsidiaries has all requisite power and authority to own or lease its properties, conduct its business as now conducted and to execute and deliver the Second Amendment and to perform the Agreement as amended hereby. 10.3 AUTHORIZATION AND ENFORCEABILITY. The execution, delivery and performance of the Second Amendment have been duly authorized by all necessary corporate or partnership action of each of the Borrower and its Subsidiaries and require no consent of any Person which has not been obtained, and the Second Amendment constitutes and the Agreement as amended hereby constitutes valid and binding obligations of each of the Borrower and its Subsidiaries party thereto, enforceable in accordance with their respective terms, except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity. 10.4 NO VIOLATION. The execution, delivery and performance of the Second Amendment does not and will not violate any Borrower's or any of its Subsidiaries' charter, bylaws, partnership agreement or other organizational documents, any Laws applicable to such Borrower or any of its Subsidiaries or any agreement to which such Borrower or any of its Subsidiaries is a party or by which such Borrower or any of its Subsidiaries is bound, except for violations of Laws or agreements which could not reasonably be expected to have a Materially Adverse Effect. 10.5 NO DEFAULT. As of the date of this Second Amendment, no Default Condition or Event of Default has occurred and is continuing under the Agreement which has not been waived. 11. COST AND EXPENSES. AMS shall pay all reasonable out-of-pocket costs, fees and expenses of the Agents incident to this Second Amendment, including the reasonable fees, out-of-pocket expenses and other disbursement of Troutman Sanders Mays & Valentine LLP, counsel for the Agents, in connection with this Second Amendment, and an arrangement fee as agreed between the Administrative Agent and the Guarantor. 12. REAFFIRMATION. Except as otherwise expressly amended by this Second Amendment, the Agreement is and shall continue to be in full force and effect in accordance with its terms. The parties hereto further agree that each reference in any Loan Document to the "Agreement" or the "Loan Agreement" shall be deemed to refer to the Agreement as amended by this Second Amendment and as it may be amended from time to time hereafter. 13. MISCELLANEOUS. 13.1 GOVERNING LAW. This Second Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York. 5 6 13.2 NO NOVATION. The transactions described herein do not constitute, and should not be construed to be, a novation of any indebtedness outstanding under the Agreement. 13.3 WAIVER. Any waiver of a provision of a Loan Document accomplished by this Second Amendment shall be effective only in the specific instance for which it is granted, shall not constitute a waiver of any other provision of a Loan Document and shall not constitute an undertaking or agreement to waive any provision of a Loan Document in the future. 13.4 SUCCESSORS AND ASSIGNS. This Second Amendment shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. 13.5 INVALIDITY. If any provision of this Second Amendment shall be held invalid by any court of competent jurisdiction, such holding shall not invalidate any other provision hereof. 13.6 COUNTERPARTS. This Second Amendment may be executed in several counterparts, each of which shall be an original and all of which together shall constitute but one and the same instrument. 13.7 EFFECTIVE DATE. This Second Amendment shall become effective upon its execution by AMS and all of the Lenders. Until a Borrower executes this Second Amendment, such Borrower shall not have the right to borrow under the Agreement and the Lenders shall have no obligation to lend to such Borrower under the Agreement. On the date this Second Amendment is executed by a Borrower, such Borrower shall have the right to borrow, and the Lenders shall be obligated to lend to such Borrower, under the Agreement, as amended, and such Borrower shall be deemed to have made the representations and warranties contained herein as of the date of such execution. Upon execution of this Second Amendment, AMS Poland Sp. Z.O.O. shall be a Borrower. IN WITNESS WHEREOF, each Borrower, the Guarantor, the Administrative Agent, the Documentation Agent and each Lender have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first about written. AMERICAN MANAGEMENT SYSTEMS, INCORPORATED, as Borrower and Guarantor BY: /s/ FRANK A. NICOLAI -------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- 6 7 AMS MANAGEMENT SYSTEMS DEUTSCHLAND GMBH, as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS EUROPE S.A./N.V., as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS U.K. LTD., as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS CANADA INC., as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMSY MANAGEMENT SYSTEMS NETHERLANDS, B.V., as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- 7 8 NORDIC BUSINESS MANAGEMENT SYSTEMS AB, as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS AUSTRALIA PTY. LIMITED, as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS (SWITZERLAND) AG, as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS ITALIA S.P.A., as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS FRANCE S.A., as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- 8 9 AMS MANAGEMENT SYSTEMS POLAND SP. Z O.O., as Borrower BY: ---------------------------------------------- TITLE: ------------------------------------------- DATE: ------------------------------------------- AMERICAN MANAGEMENT SYSTEMS PORTUGAL-CONSULTORIA E DESENVOLVIMENTO DE SOFTWARE, SOCIEDADE UNIPESSOAL IDA, as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- AMS MANAGEMENT SYSTEMS ESPANA, S.A., as Borrower BY: /s/ FRANK A. NICOLAI ---------------------------------------------- TITLE: Frank A. Nicolai, Director ------------------------------------------- DATE: March 23, 2001 ------------------------------------------- 9 10 COMMONWEALTH OF VIRGINIA CITY/COUNTY OF __________________ The foregoing instrument was acknowledged before me in my jurisdiction aforesaid this _____ day of ___________, ________ by _________________, who is ________________ of AMS Management Systems Espana, S.A., for and on behalf of the corporation. --------------------------------------- Notary Public My commission expires: ______________________________ 10 11 BANK OF AMERICA, N.A., as Administrative Agent and Lender BY: /s/ ROBERT MAURIELLO ------------------------------------------------ TITLE: Vice President --------------------------------------------- DATE: March 21, 2001 ---------------------------------------------- WACHOVIA BANK, N.A., as Documentation Agent and Lender BY: /s/ JENNIFER L. NORRIS ------------------------------------------------ TITLE: Assistant Vice President --------------------------------------------- DATE: March 21, 2001 ---------------------------------------------- BANK OF TOKYO - MITSUBISHI TRUST COMPANY, as Lender BY: /s/ JEFFERY STANTON ----------------------------------------------- TITLE: Vice President --------------------------------------------- DATE: March 22, 2001 ---------------------------------------------- COMERICA BANK, as Lender BY: /s/ ASHLEY S. YASHIN ------------------------------------------------ TITLE: Account Officer --------------------------------------------- DATE: March 21, 2001 ---------------------------------------------- KBC BANK N.V. BY: /s/ Robert Snauffer /s/ Patrick A. Janssens ------------------------------------------------ TITLE: First Vice President Vice President --------------------------------------------- DATE: --------------------------------------------- 837556 11 EX-10.15 5 w46812ex10-15.txt FORM OF CHANGE IN CONTROL RETENTION AGREEMENT 1 EXHIBIT 10.15 FORM OF CHANGE IN CONTROL EXECUTIVE RETENTION AGREEMENT FOR SENIOR EXECUTIVES Date NameTitle Address c/o American Management Systems, Incorporated 4050 Legato Road Fairfax, Virginia 22033 Re: Change in Control Retention Agreement Dear Name: The Compensation Committee of the Board of Directors of American Management Systems, Incorporated (the "Corporation") has concluded that it is in the best interest of the Corporation to ensure that, during any period of uncertainty preceding and after a change in control of the Corporation, key personnel of the Corporation not be distracted or encouraged to seek other employment because of concerns over employment security following the change in control. The Compensation Committee has concluded that the best way to achieve this goal is to provide for the payment of severance benefits to key personnel whose employment terminates under certain circumstances following an actual change in control of the Corporation. The Corporation has identified you as among the key personnel of the Corporation whose services it is in the best interest of the Corporation to retain during the period surrounding a change in control. Therefore, the Corporation is pleased to offer severance benefits to you on the terms set forth below: AMERICAN MANAGEMENT SYSTEMS, INCORPORATED CHANGE IN CONTROL EXECUTIVE RETENTION AGREEMENT ARTICLE I: DEFINITIONS The following capitalized words and phrases as used in this Agreement shall have the following meanings, unless a different meaning is clearly required by the context: 1.1 AGREEMENT. The American Management Systems, Incorporated Change in Control Executive Retention Agreement, as set forth in this document and as amended from time to time. 1.2 BOARD. The Board of Directors of the Corporation. 2 NameTitle Address Page 2 1.3 CHANGE IN CONTROL. The first of the following events to occur: (a) 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 the Corporation or a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Act), directly or indirectly, of securities representing 50 percent or more of the combined voting power of the Corporation's then-outstanding securities entitled generally to vote for the election of directors; (b) The Corporation's stockholders approve an agreement to merge or consolidate with another corporation (other than a majority-controlled subsidiary of the Corporation) unless the Corporation's stockholders immediately before the merger or consolidation are to own more than two-thirds (66-2/3 percent) of the combined voting power of the resulting entity's voting securities entitled generally to vote for the election of directors; (c) The Corporation'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 the Corporation; or (d) 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 the Corporation'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. However, no Change in Control shall be deemed to have occurred by reason of (i) any event involving a transaction in which you or a group of persons or entities with whom or with which you act in concert, acquires, directly or indirectly, 50 percent or more of the combined voting power of the Corporation's then-outstanding voting securities or the business or assets of the Corporation; or (ii) any event involving or arising out of a proceeding under Title 11 of the United States Code or the provisions of any future United States bankruptcy law, an assignment for the benefit of creditors or an insolvency proceeding under state or local. 1.4 COMPENSATION. The sum of the following: (a) your base salary in effect immediately before the Change of Control, plus (b) two shares of incentive compensation, each such share being calculated by multiplying (i) your target percentage in your incentive compensation plan as in effect immediately before the Change of Control, by (ii) your base salary in effect immediately before the Change of Control. 3 NameTitle Address Page 3 1.5 CORPORATION. American Management Systems, Incorporated, a corporation organized under the laws of the State of Delaware. 1.6 GOOD REASON. Any of the following occurring on or after a Change in Control: (a) a significant reduction in the nature or scope of your authority or the duties that you perform; (b) a reduction in your annual base salary and/or incentive compensation target percentage; (c) a significant reduction in your employee benefits as a whole or the number of your incentive compensation shares, or a significant increase in your incentive compensation goals (other than a change made as part of a program or plan modification that applies generally to you and the other persons then party to agreements identical to this Agreement); (d) a change of more than 25 miles in your principal place of employment (not including business travel); or (e) a determination by the Board that you are unable to exercise your authority or perform your duties as a result of a Change in Control. 1.7 GROSS MISCONDUCT. Any of the following: (a) theft, dishonesty, or falsification of any employment or Corporation records; (b) improper disclosure of the Corporation's confidential or proprietary information; (c) any action that has a material detrimental effect on the Corporation's financial condition or position, reputation or business; (d) conviction of any criminal act that impairs your ability to perform your duties for the Corporation; or (e) willful and material breach by you of your duties and responsibilities, which breach is committed in bad faith or without reasonable belief that such breaching conduct is in the best interests of the Company , but only if the Board adopts a resolution by a vote of at least 75 percent of its members so finding after giving you and your attorney an opportunity to be heard by the Board. 4 NameTitle Address Page 4 1.8 TERMINATION DATE. The date that you cease to perform services as an employee for the Corporation. ARTICLE II: SEVERANCE BENEFIT If (a) your employment with the Corporation is terminated, either (i) by the Corporation for any reason other than for Gross Misconduct or (ii) by you for Good Reason not resulting from Gross Misconduct, (b) your Termination Date occurs during the one (1) year period beginning on the date of the Change of Control, and (c) you execute a release substantially identical to the release attached hereto, the Corporation shall pay to you a benefit equal to two times your Compensation. Such benefit shall be paid in a lump sum in cash as soon as reasonably practicable after the later of your Termination Date and the last day for revoking such release. ARTICLE III: MISCELLANEOUS 3.1 AMENDMENTS. The Board shall have complete power and authority to amend or modify this Agreement at any time, provided that no such action by the Board shall adversely affect your rights under this Agreement. 3.2 ASSIGNMENT AND ALIENATION. Neither you nor any other person shall have the right to assign, alienate, transfer, encumber, or otherwise subject to lien the benefit provided under this Agreement. 3.3 BENEFIT SOLELY FROM GENERAL ASSETS. The benefit provided under this Agreement shall be paid solely from the general assets of the Corporation. Nothing herein shall be construed to require the Corporation to maintain any fund or to segregate any amount for your benefit or the benefit of any other person, and neither you nor any other person shall have any claim against, right to, or security or other interest in any fund, account, or other specific asset of the Corporation from which any payment pursuant to this Agreement may be made. 3.4 COMPLETE STATEMENT OF AGREEMENT. This Agreement constitutes the entire Agreement of the parties hereto with respect to the subject matter hereof. 3.5 DEATH. If you become entitled to receive a benefit under this Agreement but die before receiving the benefit, the Corporation shall pay the benefit to which you were entitled to your surviving spouse, or to your personal representative if there is no surviving spouse. 3.6 EXPENSE REIMBURSEMENT. In the event that any dispute arises between you and the Corporation as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, the Corporation shall reimburse you 5 NameTitle Address Page 5 for all costs and expenses (including reasonable attorneys' fees) arising from such dispute, regardless of the outcome thereof. Such reimbursement shall be paid within ten (10) days after you furnish the Corporation written evidence reasonably satisfactory to the Corporation of any costs or expenses incurred by you. 3.7 GOVERNING LAW. This Agreement shall be construed, administered, and enforced in accordance with the laws of the State of Delaware. 3.8 HEADINGS. The headings and subheadings of this Agreement have been inserted for convenience of reference only and shall not affect the construction of the provisions thereof. 3.9 INTERNAL REVENUE CODE SECTION 280G. (a) The benefit provided under this Agreement shall be provided without regard to any limitations imposed by Section 280G or 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). (b) In the event that you become entitled to the benefits provided under this Agreement (the "Agreement Benefits"), if any of the Agreement Benefits will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Corporation shall pay to you an additional amount (the "Gross-up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Benefits (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the Gross-up Payment provided for by this subsection (vi), but before deduction for any federal, state or local income tax on the Agreement Benefits, shall be equal to the "Total Benefits," as defined below. (c) For purposes of determining whether any of the Agreement Benefits will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by you in connection with a change in control of the Corporation or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a change of control of the Corporation or any person affiliated with the Corporation or such person) (which, together with the Agreement Benefits, shall constitute the "Total Benefits") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Corporation's independent auditors such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise 6 NameTitle Address Page 6 Tax, (ii) the amount of the Total Benefits which shall be treated as subject to the Excise Tax shall be equal to the lessor of (A) the total amount of the Total Benefits or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280(G)(d)(3) and (4) of the Code. (d) For purposes of determining the amount of the Gross-up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made and the applicable state and local income taxes a the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, you shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the portion of the Gross-up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 3.10 LIMITATION OF RIGHTS. Neither the establishment of this Agreement nor any amendment thereof shall be construed as giving you or any other person any legal or equitable right against the Corporation (including the creation of any employment contract), except as provided by the express terms of this Agreement, and in no event shall your terms of employment or service (including your eligibility for any plan, program, policy or practice provided by the Corporation) be modified or in any way affected by the establishment of this Agreement or any amendment hereof. This Agreement is not in substitution for any other rights and claims you may have against the Corporation with respect to accrued amounts due you on your Termination Date, such as base salary for periods worked and not yet paid, expense reimbursements which may be due you, and other claims for accrued sums to the Termination Date. 3.11 NO MITIGATION OR SETOFF. In no event shall you be required to seek other employment or take any other action to mitigate the amount of the benefit provided under this Agreement, and such amount shall not be reduced whether or not you obtain other 7 NameTitle Address Page 7 employment. The Corporation's obligation to pay the benefit provided under this Agreement shall not be subject to or affected by any setoffs, counterclaims or defenses that the Corporation might have against you or others. 3.12 NOTICE OF TERMINATION. Any termination by the Corporation for Gross Misconduct, or by you for Good Reason, shall be communicated to the other party hereto given in accordance with Section 3.16 of this Agreement. The notice shall (i) indicate the specific termination provision in this Agreement being relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated, and (iii) specify the date of termination. 3.13 NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, when received and signed for, or (iii) sent by facsimile with receipt confirmed: (a) If to you, to: (b) If to the Corporation, to: American Management Systems, Incorporated 4050 Legato Road Fairfax, Virginia 22033 fax: (703) 267-5111 Attention: Chief Financial Officer With a copy (which shall not constitute notice) to: Shaw Pittman 2300 N Street, N.W. Washington, D.C. 20037 fax: (202) 663-8007 Attention: Barbara M. Rossotti, Esq. or to such other address as may have been furnished to you by the Corporation or to the Corporation by you, as the case may be. 3.14 SEVERABILITY. In the event that any provision of this Agreement is held unlawful, such provision shall be of no force and effect, and this Agreement shall be treated as if such provision had not been contained herein. 3.15 SUCCESSORS. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Corporation, by a merger or consolidation in which the 8 NameTitle Address Page 8 Corporation is not the surviving corporation, by a transfer of all or substantially all of the Corporation's assets, or by any other event that constitutes a Change in Control. In the event of such merger, consolidation, transfer or other event, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the surviving corporation or the corporation to which the stock or assets of the Corporation are transferred or the Corporation's other legal successors, and the Corporation shall require such successor to agree expressly to be bound by the provisions of this Agreement. 3.16 WITHHOLDING. The Corporation may make any appropriate arrangements to deduct from all benefits provided under this Agreement any taxes reasonably determined to be required to be withheld by any government or government agency. You (or your representative or beneficiary, if applicable) shall bear all taxes on benefits provided under this Agreement to the extent that no taxes are withheld, irrespective of whether withholding is required. * * * * Thank you for your ongoing service to American Management Systems, Incorporated. Please sign and date this letter on the spaces provided below to acknowledge your acceptance of this Agreement. Sincerely, AMERICAN MANAGEMENT SYSTEMS, INCORPORATED By: ------------------------------------- Name: ----------------------------------- I hereby agree to and accept the terms and conditions of this Change in Control Executive Retention Agreement. -------------------------------------------- Name: NameTitle ------------------------------------- Date: ------------------------------------- EX-10.16 6 w46812ex10-16.txt FORM OF EMPLOYMENT AGREEMENT 1 EXHIBIT 10.16 FORM OF EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("the Agreement") is made effective January 1, 2001 between American Management Systems, Incorporated, a corporation formed under the laws of the State of Delaware with its principal place of business at 4000 and 4050 Legato Road, Fairfax, VA 22033 ("AMS" or "the Employer"), and [Executive's Name] ("the Employee"). WHEREAS, AMS desires to engage the services of the Employee as Executive Vice President, and the Employee is willing to render such services to AMS in consideration of the terms and conditions agreed to by the parties; and WHEREAS, the Board of Directors of AMS ("the Board") has approved the employment of the Employee on the terms and conditions set forth in this Agreement; NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, AMS agrees to employ the Employee, and the Employee agrees to perform services for AMS as an employee, effective as of January 1, 2001 upon the terms and conditions set forth herein. 1. TERM. The initial term of this Agreement shall end on June 30, 2002, unless it is terminated earlier as provided herein. Beginning on that date, and on each anniversary thereafter, unless it is terminated earlier as provided herein or AMS delivers written notice to the Employee of its intention not to extend the Agreement at least 90 days before such anniversary date, the term of this Agreement shall automatically be extended for one additional year. The restrictive covenants in Sections 9 and 10 hereof shall survive the termination of this Agreement. 2. TITLE AND DUTIES. The Employee shall be employed as Executive Vice President of AMS. The Employee shall perform such services consistent with his position as might be assigned to him from time to time and are consistent with the bylaws of AMS. The Board has appointed the Employee to serve as the __________________________ and shall have such responsibilities and authority as is commensurate with such offices and as may be prescribed by the Board and by-laws of AMS. 3. LOCATION. The Employee's place of employment shall be the Employer's offices described above, or at such other location within a 25 mile radius of the location of the offices described above as the Board shall reasonably direct. 2 4. EXTENT OF SERVICES. a. GENERAL. The Employee agrees not to engage in any business activities during the term of this Agreement except those that are for the benefit of AMS, and to devote his entire business time, attention, skill and effort to the performance of his duties under this Agreement. Notwithstanding the foregoing, the Employee may engage in charitable, professional and civic activities that do not impair the performance of his duties to AMS, as the same may be changed from time to time. Nothing contained herein shall prevent the Employee from managing his own personal investments and affairs, including but not limited to investing his assets in the securities of publicly traded companies; provided, however, that the Employee's activities do not constitute a conflict of interest, violate securities laws, or otherwise interfere with the performance of his duties and responsibilities as described herein. The Employee agrees to adhere to AMS's published policies and procedures affecting directors, officers, employees, and agents and shall use his best efforts to promote AMS's interest, reputation, business and welfare. b. CORPORATE OPPORTUNITIES. The Employee agrees that he will not take personal advantage of any AMS business opportunities that arise during his employment with AMS and that might be of benefit to AMS. All material facts regarding such opportunities must be promptly reported to the Board for consideration by AMS. 5. COMPENSATION AND BENEFITS. a. BASE SALARY. The Employee's base salary for calendar year 2001 shall be $375,000. The base salary shall be payable in accordance with AMS's standard payroll practices. The Employee's annual base salary shall be reviewed no less frequently than annually for increases in the discretion of the AMS Compensation Committee and/or Board, taking into account the compensation level for employees with similar skills and responsibilities at companies comparable to AMS, and the Employee's value to AMS relative to other members of the executive management committee; provided, however, that at no time during the term of this Agreement shall the Employee's base salary be decreased from the base salary then in effect except as part of an general program of salary adjustment by AMS applicable to all vice presidents and above. b. INCENTIVE COMPENSATION. The Employee shall participate in an incentive compensation plan for the year 2001 and subsequent years. The incentive compensation plan target for each year shall be reasonably achievable. The incentive compensation plan for each year shall provide that at least 50% of the potential payout under the plan at each level of achievement 3 is based on individual performance, and shall provide for a total potential payout that is at least 200% of his base salary in the case of a 2-year plan or 150% in the case of a 1-year plan. If the Employee's employment terminates before the end of a fiscal year for any reason other than termination for Cause, as defined herein, the Employee shall be entitled to the incentive bonus for that year, based on actual results for the entire year but prorated for the period of actual employment, at the time that the incentive bonus otherwise would have been paid. To the extent that the Compensation Committee determines that any of the foregoing objectives cannot be accomplished in a manner consistent with the 1996 Incentive Compensation Plan for Executive Officers (the "1996 Plan"), or would require AMS to make payments that do not qualify for the exception from Section 162(m) of the Internal Revenue Code for qualified performance-based compensation ("Performance-Based Compensation"), then, as soon as practicable but in any event no later than September 30, 2001, AMS shall adopt amendments to, or a supplement or replacement for, the 1996 Plan (subject to shareholder approval if the Board or the Compensation Committee determines that such approval is appropriate or necessary) that will accomplish the foregoing objectives to the greatest extent possible without requiring AMS to make any payments that do not qualify as Performance-Based Compensation. c. ADDITIONAL COMPENSATION. If the Employee is an employee in good standing of AMS on June 30, 2001 he shall be paid, as additional compensation, the sum of $150,000 in a lump sum; provided, however, that if before June 30, 2001 a change in control occurs as defined in the Agreement between AMS and the Employee entered into on or about September 15, 2000, styled "American Management Systems, Incorporated Change In Control Executive Retention Agreement" ("the Change in Control Agreement"), this payment shall be increased to $450,000. If the Employee is an employee in good standing of AMS on June 30, 2002 he shall be paid, as additional compensation, the sum of $250,000 in a lump sum. The payments described in this paragraph shall be due the Employee within 30 days of the stated dates. d. OTHER BENEFITS. The Employee shall be entitled to paid vacation, sick leave, and holiday pay in accordance with AMS's policies in effect from time to time, and to participate in such life, health, and disability insurance, pension, deferred compensation and incentive compensation plans, stock options and awards, performance bonuses and other benefits as AMS extends, as a matter of policy, to its executive employees. At no time during the term of this Agreement shall the Employee's participation in, or benefits received under, such plans or programs be reduced without the written consent of the Employee except as part of a general reduction that applies to substantially all employees. 4 (i) On the date that the Employee's employment terminates for any reason, regardless of the Employee's actual age he shall be treated as satisfying the requirements under the AMS Retiree Medical Program that he must be at least age 55 and that his age plus years of AMS service must equal at least 65; provided, however, that if the employee is precluded from participating in said plan as described, for any reason, he shall be provided with the after-tax economic equivalent of the benefits he would have received under the Program. The economic equivalent of the benefits he would have received under the Program shall be the lowest cost that would be incurred by the Employee in obtaining health insurance coverage for himself and his eligible dependents that will provide benefits comparable to the benefits offered under the AMS Retiree Medical Program, as AMS shall modify the Program from time to time, less any required contributions under the Program. (ii) Upon the termination of the Employee's employment for any reason, if the Employee's account balance under the American Management Systems, Inc. Executive Deferred Compensation Plan is payable to him in a lump sum or, in the case of retirement benefits, in a form elected by the Employee pursuant to Section 5.4 of that Plan, under no circumstances shall 10% of the Employee's account balance be retained by AMS (as permitted under certain circumstances by Section 5.6 of that Plan). (iii) Upon the termination of the Employee's employment for any reason, the Employee shall have the continued right to exercise any stock options that are not forfeited for the remainder of the terms of the options or, if earlier, for the maximum period permitted under the AMS stock option plan under which the options were granted. e. REIMBURSEMENT OF BUSINESS EXPENSES. AMS shall promptly reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of such supporting information and documentation as AMS may reasonably request in accordance with company policy and the requirements of the Internal Revenue Code. 6. TERMINATION OF EMPLOYMENT. a. TERMINATION DUE TO DEATH. The Employee's employment and this Agreement shall terminate immediately upon his death. If the Employee's employment is terminated due to his death, his estate or his beneficiaries, as the case may be, shall be entitled to: (i) payment of any unpaid portion of his base salary through the effective date of such termination; 5 (ii) reimbursement for any outstanding reasonable business expense he has incurred in performing his duties hereunder; (iii) the right to elect continuation coverage of insurance benefits to the extent required by law; (iv) any pension survivor benefits that may become due pursuant to any employee benefit plan or program of AMS; and (v) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of AMS, this Agreement, or any other agreement between AMS and the Employee. b. TERMINATION DUE TO DISABILITY. AMS may terminate the Employee's employment at any time if the Employee becomes disabled, upon written notice by AMS to the Employee. If the Employee's employment is terminated due to his disability, he shall be entitled to: (i) payment of any unpaid portion of his base salary through the effective date of such termination; (ii) reimbursement for any outstanding reasonable business expense he has incurred in performing his duties hereunder; (iii) the right to elect continuation coverage of insurance benefits to the extent required by law; and (iv) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of AMS, this Agreement, or any other agreement between AMS and the Employee. In addition, as soon as possible after the execution of this Agreement, AMS shall make available to the Employee and other similarly-situated employees a disability benefit, paid by AMS, that is in addition to the disability benefits provided under its existing disability program and that will be sufficient to ensure that the benefits otherwise payable to the Employee under the terms of that program, together with the new benefit and any benefits from other sources that are taken into account in determining the amount of benefits payable under the existing program, are at least 60% of his base pay and continue, during the term of this Agreement, for as long as he remains disabled, up to age 65. c. TERMINATION FOR CAUSE. AMS may terminate the Employee's employment at any time for Cause, provided that it gives written notice of termination to the Employee as set forth below. If the Employee's employment is terminated for Cause, as defined below, he shall be entitled to: 6 (i) payment of any unpaid portion of his base salary through the effective date of such termination; (ii) reimbursement for any outstanding reasonable business expense he has incurred in performing his duties hereunder; (iii) the right to elect continuation coverage of insurance benefits to the extent required by law; and (iv) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of AMS, this Agreement, or any other agreement between AMS and the Employee. For purposes of this Agreement, a termination "for Cause" shall mean: (1) the conviction of the Employee of, or the entry of a plea of guilty or nolo contendere by the Employee to, any felony or misdemeanor involving moral turpitude; (2) fraud, misappropriation or embezzlement by the Employee; (3) the Employee's willful failure, gross negligence or gross misconduct in the performance of his assigned duties for AMS; (4) the Employee's breach of a fiduciary duty to AMS; (5) any act or omission of the Employee not at the express direction of the board or other appropriate authority that reflects adversely on the integrity and reputation for honesty and fair dealing of AMS; or (6) the breach by the Employee of any material term of this Agreement. If AMS exercises its right to terminate the Employee for Cause, AMS shall: (1) give the Employee written notice of termination at least twenty (20) days before the date of such termination specifying in detail the conduct constituting such Cause; and (2) deliver to the Employee a copy of a resolution duly adopted by a majority of the entire membership of the Board, after reasonable notice to the Employee and an opportunity for the Employee to be heard in person by members of the Board, finding that the Employee has engaged in such conduct. d. TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION WITHOUT CAUSE. AMS may terminate the Employee's employment at any time without Cause, provided that it gives written notice of termination at least 60 days before the date of such termination. If the Employee's employment is terminated without Cause, or if there is a constructive termination without Cause, as defined below, the Employee shall be entitled to receive from AMS the following: (i) payment of any unpaid portion of his base salary through the effective date of such termination; (ii) reimbursement for any outstanding reasonable business expense he has incurred in performing his duties hereunder; (iii) the right to elect continuation coverage of insurance benefits to the extent required by law; 7 (iv) full vesting of any unexercised stock options; (v) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of AMS, this Agreement, or any other agreement between AMS and the Employee; (vi) payment of amounts equal to any premiums for health insurance continuation coverage under any AMS health plans that is elected by the Employee or his beneficiaries pursuant to Section 4980B of the Internal Revenue Code, at a time or times mutually agreed to by the parties, but only so long as the Employee is not eligible for coverage under a health plan of another employer (whether or not he elects to receive coverage under that plan); and (vii) a severance benefit in an amount equal to 250% if such termination occurs on or before June 30, 2002, and 100% if such termination occurs after June 30, 2002, of the Employee's annual base salary in effect immediately preceding such termination, but only if (1) the Employee executes a release substantially identical to the release attached hereto, (2) the period for revoking such release has expired, and (3) the Employee has complied with the requirements of Sections 9 and 10 hereof. AMS shall pay to the Employee 75% of the severance benefit in paragraph (vii) within 30 days after all of the applicable conditions are satisfied. The other 25% of the severance benefit shall be placed in an interest-bearing escrow account for 12 months. If the Employee complies with the covenants in Sections 9 and 10 hereof throughout that period, the amount credited to the account shall be paid to him within 30 days after the end of the period. If the Employee does not comply with the requirements of Sections 9 and 10 hereof throughout that period, the amount credited to the account shall be paid to AMS. All severance benefits paid to the Employee shall be paid subject to all legally required payroll deductions and withholdings for sums owed by the Employee to AMS. For purposes of this Agreement, constructive termination without Cause shall mean a termination of the Employee at his own initiative following the occurrence, without the Employee's prior written consent, of one or more of the following events not on account of Cause: (1) a significant diminution in the nature or scope of the Employee's authority or the duties that the Employee performs, unless the Employee is given new authority or assigned new duties (whichever is applicable) that are substantially comparable to his previous authority and duties; (2) a significant reduction in the Employee's then current base salary, or a significant reduction in his opportunities for earnings under his incentive compensation plans, or the termination or significant reduction of any employee benefit or perquisite enjoyed by him (in each case except as part of 8 a general reduction that applies to substantially all employees or participants); (3) the relocation of the Employee's office from its present location to a location, more than 25 miles from Fairfax, Virginia, without his prior written consent; or (4) the failure of AMS to obtain an assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the assets of AMS within 45 days after a merger, consolidation, sale or similar transaction. In the event the Employee is terminated without Cause or there is a constructive termination without Cause, each party shall provide the other with written notice not less than 30 days before the effective date of the termination of employment. e. VOLUNTARY TERMINATION. If the Employee voluntarily terminates his employment on his own initiative for reasons other than his death, disability, or constructive termination without Cause, he shall be entitled to: (i) payment of any unpaid portion of his base salary through the effective date of such termination; (ii) reimbursement for any outstanding reasonable business expense he has incurred in performing his duties hereunder; (iii) the right to elect continuation coverage of insurance benefits to the extent required by law; and (iv) payment of any accrued but unpaid benefits, and any other rights, as required by the terms of any employee benefit plan or program of AMS, this Agreement, or any other agreement between AMS and the Employee. A voluntary termination under this paragraph shall be effective upon 30 days' prior written notice to AMS unless the parties mutually agree to extend the effective date. 7. MITIGATION AND OFFSET. If the Employee's employment is terminated during the term of this Agreement pursuant to the provisions of paragraph 6.d., above, the Employee shall be under no duty or obligation to seek or accept other employment, and no payment or benefits of any kind due him under this Agreement shall be reduced, suspended or in any way offset by any subsequent employment. The obligation of AMS to make the payments provided for in this Agreement shall not be affected by any circumstance including, by way of example rather than limitation, any set-off, counterclaim, recoupment, defense, or other right that AMS may assert, or due to any other employment or source of income obtained by the Employee. 9 8. ENTITLEMENT TO OTHER BENEFITS. Except as expressly provided herein, this Agreement shall not be construed as limiting in any way any rights or benefits the Employee, his spouse, dependents or beneficiaries may have pursuant to any other employee benefits plans or programs. 9. CONFIDENTIALITY. The Employee acknowledges that all confidential information regarding the business of AMS and its subsidiaries and affiliates is the exclusive property of AMS. On or before the date that his employment with AMS terminates, the Employee shall return to AMS all copies of any material involving such confidential information to AMS, and the Employee agrees that he will not, directly or indirectly, divulge or use such information, whether or not such information is in written or other tangible form. The Employee also shall return to AMS by that date any other items in his possession, custody or control that are the property of AMS. The Employee understands that even after the date that his employment with AMS terminates he will remain bound by the terms of the American Management Systems, Incorporated Intellectual Property Rights Agreement, the AMS Employee Confidentiality Agreement, the AMS Guide for Ethical Business Conduct, and the restrictive covenants contained herein in paragraphs 9 and 10. This paragraph is intended to cover confidential information of AMS that relates to the business of AMS that has not otherwise been made public and shall not apply to employee responses that may be required by proper governmental or judicial inquiry. No breach of this Section shall be deemed to have occurred unless AMS provides written notice to the Employee of the breach within 90 days after AMS becomes aware of it. 10. NON-SOLICITATION. Effective on the date that his employment with AMS terminates and for a period of 12 months thereafter, the Employee shall not directly (a) employ or solicit for employment, or assist in any way in solicitation for employment, any person employed by AMS or any of its affiliates then or at any time within the preceding 12 months; or (b) solicit, or assist in any way in the solicitation of business from any of AMS's or its affiliates' clients or prospective clients, either for the Employee's own benefit or the benefit of anyone other than AMS, unless the business being solicited is not competitive with the services or products provided by AMS or its affiliates. Clause (b) shall not apply unless the business being solicited is in a line of business in which AMS was already engaged or already had under active consideration while the Employee was employed by AMS or is a natural extension of such a line business with a client that was an existing client of AMS during that time. 11. EMPLOYEE REPRESENTATION. The Employee represents and warrants to AMS that he is not now under any obligation of a contractual or other nature to any person, business or other entity that is inconsistent or in conflict with this Agreement or that would prevent him from performing his obligations under this Agreement. 10 12. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall, if AMS or the Employee so elects, be settled by arbitration, in accordance with the Commercial Arbitration Rules procedures of the American Arbitration Association. Arbitration shall occur before a single arbitrator, provided, however, that if the parties cannot agree on the selection of such arbitrator within 30 days after the matter is referred to arbitration, each party shall select one arbitrator and those arbitrators shall jointly designate a third arbitrator to comprise a panel of three arbitrators. The decision of the arbitrator shall be rendered in writing, shall be final, and may be entered as a judgment in any court in the Commonwealth of Virginia. AMS and the Employee each irrevocably consent to the jurisdiction of the federal and state courts located in Virginia for this purpose. The arbitrator shall be authorized to allocate the costs of arbitration between the parties. Notwithstanding the foregoing, AMS, in its sole discretion, may bring an action in any court of competent jurisdiction to seek injunctive relief in order to avoid irreparable harm and such other relief as AMS shall elect to enforce the Employee's covenants in Sections 9 and 10 hereof. 13. LEGAL EXPENSES. Except as provided in Section 12 hereof, if any dispute or controversy arises under or in connection with this agreement, AMS shall promptly pay all the Employee's legal fees and expenses, including, by way of example rather than limitation, reasonable attorneys' fees incurred by the Employee in seeking to obtain or enforce any right or benefit under this Agreement, provided, however, that this obligation of AMS shall not apply unless the Employee prevails in whole or in part. This obligation shall apply irrespective of whether the dispute or controversy is resolved by arbitration, litigation, or a settlement thereof. In addition, AMS shall pay to the Employee interest at the prime lending rate as announced from time to time by Citibank, N.A. on all or any part of any amount to be paid to the Employee hereunder that is not paid when due. 11 14. INDEMNIFICATION. a. AMS agrees that if the Employee is made a party, or, is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative, or investigative (a "Proceeding"), by reason of the fact that he is or was a director, officer or employee or AMS, or is or was serving at the request of AMS as a director, officer, member, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether or not the basis of such Proceeding is the Employee's alleged action in an official capacity while serving as a director, officer, member, employee or agent, the Employee shall be Indemnified and held harmless by AMS to the fullest extent permitted or authorized by AMS's certificate of incorporation and by-laws. To the extent consistent with the foregoing, this obligation to indemnify the Employee and hold him harmless shall continue even if he has ceased to be a director, officer, member, employee or agent of AMS or other such entity described above, and shall inure to the benefit of the Employee's heirs, executors and administrators. AMS shall advance to the Employee all reasonable costs and expenses incurred by him in connection with a Proceeding within 20 days after receipt by AMS of a written request for such advance. Such request shall include an undertaking by the Employee to repay the amount of such advance if it shall ultimately be determined that the Employee is not entitled to be indemnified against such costs and expenses. b. Neither the failure of AMS (including its Board, independent legal counsel or stockholders) to have made a determination before such Proceeding concerning payment of amounts claimed by the Employee under the subparagraph above that indemnification of the Employee is proper because he has met the applicable standards of conduct, nor a determination by AMS (including its Board, independent legal counsel or stockholders) that the Employee has not met such applicable standards of conduct, shall create a presumption that the Employee has not met the applicable standards of conduct. 15. ASSIGNABILITY AND BINDING NATURE. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, heirs (in the case of the Employee) and assigns. No rights or obligations may be assigned or transferred by AMS except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which AMS is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of AMS, provided that the assignee or transferee is the successor to all or substantially all of the assets of AMS and such assignee or transferee assumes the liabilities, obligations, and duties of AMS, as contained in this Agreement, either contractually, or as a matter of law. AMS further agrees, that in the event of a sale of assets or liquidation as described in the foregoing sentence, it shall take whatever action it is legally entitled to take in order to Cause the assignee or transferee to expressly assume the liabilities, obligations, and duties of AMS under this Agreement. Notwithstanding any such assignment, AMS shall not be relieved from liability under this Agreement. No rights or obligations of the Employee 12 under this Agreement may be assigned or transferred by the Employee other than his right to receive compensation and benefits, provided such assignment or transfer is otherwise permitted by law. 16. NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effective: (1) upon personal delivery; (2) upon deposit with the United States Postal Service, by registered or certified mail, postage prepaid; or (3) in the case of delivery by nationally recognized overnight delivery service, when received, addressed as follows: If to AMS to: American Management Systems, Incorporated 4050 Legato Road Fairfax, VA 22033 Attention: Chairman, Compensation Committee of the Board of Directors. With a copy (which shall not constitute notice) to: Shaw Pittman 2300 N Street, N.W. Washington, DC 20037 Attention: Barbara M. Rossotti, Esq. If to the Employee, to: ---------------------- ---------------------- ---------------------- or to such other address or addresses as either party shall designate to the other in writing from time to time by like notice. 17. AMENDMENT. This agreement may be amended or modified only by a written instrument executed by both AMS and the Employee. 18. PRONOUNS. Whenever the context might require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 13 19. CAPTIONS. The captions appearing herein are for convenience of reference only an in no way define, limit or affect the scope or substance of any section hereof. 20. TIME. All reference herein to periods of days are to calendar days, unless expressly provided otherwise. Where the time period specified herein would end on a weekend or holiday, the time period shall be deemed to end on the next business day. 21. ENTIRE AGREEMENT. Except for other agreements specifically referenced herein, this Agreement constitutes the entire agreement between AMS and the Employee and supersedes all prior agreements and understandings, whether written or oral relating to the subject matter hereof. 22. SEVERABILITY. In case any provision hereof shall be held by a court or arbitrator with jurisdiction over AMS or the Employee to be invalid, illegal or otherwise unenforceable, such provision shall be restated to reflect as nearly as possible the original intentions of AMS and the Employee in accordance with applicable law, and the validity, legality and enforceability of the remaining provisions shall in not way be affected or impaired thereby. 23. WAIVER. No delays or omission by AMS or the Employee in exercising any right hereunder shall operate as a waiver of that or any other right. A waiver or consent given by AMS or the Employee or any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 24. GOVERNING LAW. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Virginia, without regard to its conflicts of laws principles. 25. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of both AMS and the Employee and their respective successors and assigns, including any entity with which or into which AMS might be merged or that might succeed to its assets or business or any entity to which AMS might assign its rights and obligations hereunder; provided, however, that the obligations of the Employee are personal and shall not be assigned or delegated by him. 14 26. WITHHOLDING. AMS may make any appropriate arrangements to deduct from all benefits provided hereunder any taxes reasonably determined to be required to be withheld by any government or government agency. The Employee shall bear all taxes on benefits provided hereunder to the extent that no taxes are withheld, irrespective of whether withholding is required. 27. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instruments. 28. CONSTRUCTION WITH PRE-EXISTING CHANGE IN CONTROL RETENTION AGREEMENT The Change in Control Agreement referenced above is incorporated herein by reference. If as a result of his termination of employment following a Change in Control the Employee would otherwise be entitled to receive both the benefit provided in Section 2 of the Change in Control Agreement and the severance benefit provided in Section 6.d. hereof, the Employee shall instead receive the greater of the two benefits, and not both. IN WITNESS WHEREOF, AMS and the Employee have executed this Agreement effective as of January 1,2001. EMPLOYEE American Management Systems, Incorporated By: - --------------------------------- -------------------------------- Date: Date: -------------------------- ------------------------------ EX-13 7 w46812ex13.txt 2000 FINANCIAL REPORT 1 Exhibit 13 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 2000 FINANCIAL REPORT CONTENTS - -------------------------------------------------------------------------------- Business of AMS 1 Financial Statements and Notes 4 Report of Independent Accountants 27 Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Assumptions Underlying Certain Forward-Looking Statements and Factors That May Affect Future Results 35 Five-Year Financial Summary 37 Five-Year Revenues by Target Market 38 Selected Quarterly Financial Data 39 Other Information 40
2 BUSINESS OF AMS OVERVIEW The business of American Management Systems, Incorporated and its wholly owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance and create value for clients. AMS provides a full range of consulting services from strategic business analysis to the full implementation of solutions. AMS's suite of next generation products, deep industry expertise and business alliances provide a foundation of management and technology services that integrate the latest technologies with existing IT infrastructures and internal processes providing productivity gains for clients. AMS measures success based on the results and business benefits achieved by its clients. The Company focuses on expanding its delivery of enterprise-wide business solutions - including eBusiness solutions - tailored to clients in financial services, new media and communications, federal, state and local governments as well as health care and utilities. These solutions help firms achieve greater cost savings, deliver improved customer service and leverage cross-sell and up-sell opportunities in their markets. AMS is a trusted business partner for many of the largest and most respected organizations in the markets in which it specializes. AMS is a company that transforms organizations into Next Generation Enterprises. A key element of this is establishing an extensive network of strategic alliances, partnerships and joint ventures to provide "best of breed" solutions and to extend AMS's market reach in all of the Company's target markets. Each year, approximately 85% of the Company's business comes from clients it worked with in previous years. The Company, which operates as one segment, focuses on clients in specific industries, which are referred to as target markets. The Company is targeting high value sectors within these target markets and striving to be the market leader in providing Next Generation Enterprise solutions. Organizations in AMS's target markets - new media and communications firms; financial services institutions; state and local governments and education organizations; federal government agencies; and other corporate clients -- have a crucial need to exploit the potential benefits of information and systems integration technology. The Company helps clients fulfill this need by ensuring quality project execution and continuing to build a professional staff, which is composed of experts in the necessary technical and functional disciplines. The Company is focused on consolidating operating activities to create new opportunities for growth and leveraging its deep industry knowledge and existing client relationships to support that growth. A significant component of AMS's business is the development of proprietary software products, either with its own funds or on a jointly funded basis with other organizations. These products are principally licensed as elements of custom tailored systems, and, to a lesser extent, as stand-alone applications. The Company expended $76.2 million in 2000, $102.3 million in 1999, and $77.4 million in 1998 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $45.3 million in 2000, $47.1 million in 1999, and $35.4 million in 1998 for research and development associated with proprietary software, including amortization. In 2000, the Company reduced the unamortized costs by $5.9 million representing collections from funding partners, compared to $21.8 million in 1999. As a percentage of revenues, license and maintenance fee revenues were less than 10% during each of the last three years. In order to serve clients outside of the United States, AMS has established subsidiaries or foreign branches. Exhibit 21 of this Form 10-K provides a complete listing of all twenty-six active AMS subsidiaries (and branches), showing name, year organized or acquired, and place of incorporation. 1 3 Revenues attributable to AMS's non-US clients were approximately $196.3 million in 2000, $226.7 million in 1999, and $208.4 million in 1998. Additional information on revenues and assets attributable to AMS's geographic areas of operation is provided in Note 12 of the consolidated financial statements appearing in Exhibit 13 of this Form 10-K. Founded in 1970, AMS services clients worldwide. AMS's approximately 8,500 employees serve clients from corporate headquarters in Fairfax, Virginia and from 51 offices worldwide. NEW MEDIA AND COMMUNICATIONS FIRMS AMS markets systems consulting and integration services to both local exchange and interexchange carriers, cellular and wireless telephone companies as well as cable, new media, DSL eCommerce, and eBusiness organizations. AMS's services encompass developing and implementing AMS's next generation software products specializing in customer care, billing, order processing, accounts receivable, and collections, as well as integrating leading industry partner products to create solutions for clients. FINANCIAL SERVICES INSTITUTIONS AMS provides systems consulting and integration services, as well as application software products to financial institutions and insurance companies worldwide. The Company specializes in corporate and international banking, consumer credit management, customer value and global risk management. The Company focuses on providing next generation solutions by incorporating its own suite of products while partnering with leading industry providers as well as clients to deliver Customer Value Management and facilitate business transformation for clients. STATE AND LOCAL GOVERNMENTS AND EDUCATION AMS provides information technology consulting and systems integration services to state, county, and municipal governments as well as universities and colleges. AMS provides these organizations industry experience and expertise in delivering financial, tax, and revenue management applications as well as enhancing human resources, social services, public safety and transportation functions, and environmental systems. The Company specializes in designing, developing, and implementing next generation- eGovernment- services and application software products that create productivity gains for clients through integrating the latest technologies with existing IT infrastruture and internal services. AMS is working with both clients and leading industry providers to develop statewide electronic malls to allow all state and local agencies to purchase goods and services from approved vendors over the web. 2 4 FEDERAL GOVERNMENT AGENCIES AMS's clients include civilian and defense agencies as well as aerospace companies. AMS's long-term relationships with Federal Government Agencies continue to enhance a deep industry expertise that is central to providing management consulting services and systems integration that generate solutions for these clients. AMS's services include developing and implementing eProcurement and next generation financial solutions as well as providing information technology consulting, systems re-engineering, large scale systems integration and maintenance support. OTHER CORPORATE CLIENTS AMS provides enterprise-wide business and technology solutions for firms in other industries, including health care and utilities. AMS's suite of management and technology solutions (including eBusiness) supports projects with several large organizations in the healthcare and utilities market place, which AMS intends to pursue further. 3 5 FINANCIAL STATEMENTS AND NOTES American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 (In millions except per share data) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- REVENUES $ 1,279.3 $ 1,240.3 $ 1,057.8 EXPENSES: Client Project Expenses 676.5 653.8 576.2 Other Operating Expenses 401.4 380.0 305.7 Corporate Expenses 91.2 88.6 79.0 Provision for Specific Contract -- 20.0 7.0 Provision for Contract Litigation Settlement 35.2 -- -- --------- --------- --------- 1,204.3 1,142.4 967.9 INCOME FROM OPERATIONS 75.0 97.9 89.9 OTHER (INCOME) EXPENSE: Interest (Income) Expense 3.4 -- 0.8 Other (Income) Expense (5.0) (2.8) 1.1 Loss on Equity Investments 2.4 4.3 0.7 --------- --------- --------- 0.8 1.5 2.6 INCOME BEFORE INCOME TAXES 74.2 96.4 87.3 INCOME TAXES 30.4 39.5 35.5 --------- --------- --------- NET INCOME $ 43.8 $ 56.9 $ 51.8 ========= ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING 41.5 41.9 42.1 ========= ========= ========= BASIC NET INCOME PER SHARE $ 1.06 $ 1.36 $ 1.23 ========= ========= ========= WEIGHTED AVERAGE SHARES AND EQUIVALENTS 41.9 42.6 42.9 ========= ========= ========= DILUTED NET INCOME PER SHARE $ 1.05 $ 1.34 $ 1.21 ========= ========= =========
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 4 6 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS
December 31 (In millions) 2000 1999 - ---------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------- CURRENT ASSETS: Cash and Cash Equivalents $ 43.2 $111.3 Accounts and Notes Receivable 311.2 285.4 Prepaid Expenses and Other Current Assets 22.9 13.1 ------ ------ 377.3 409.8 Deferred Income Taxes -- 6.9 ------ ------ 377.3 416.7 FIXED ASSETS: Equipment 49.4 50.5 Furniture and Fixtures 26.8 25.5 Leasehold Improvements 24.0 19.1 ------ ------ 100.2 95.1 Accumulated Depreciation and Amortization (65.2) (63.9) ------ ------ 35.0 31.2 OTHER ASSETS: Purchased and Developed Computer Software (Net of Accumulated Amortization of $97.5 and $74.5) 141.9 114.7 Intangibles (Net of Accumulated Amortization of $6.6 and $5.5) 25.4 6.2 Other Assets (Net of Accumulated Amortization of $1.1 and $0.9) 66.3 31.6 ------ ------ 233.6 152.5 ------ ------ TOTAL ASSETS $645.9 $600.4 ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 5 7 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS
December 31 (In millions, except share data) 2000 1999 - -------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------------- CURRENT LIABILITIES: Notes Payable and Line of Credit $ 41.1 $ 6.1 Accounts Payable 15.1 24.6 Accrued Incentive Compensation 24.2 51.7 Other Accrued Compensation and Related Items 50.1 40.7 Deferred Revenues 43.0 48.1 Other Accrued Liabilities 13.0 12.8 Accrued Contract Losses 0.8 27.0 Income Taxes Payable 7.5 7.0 ------ ------ 194.8 218.0 Deferred Income Taxes 7.1 -- ------ ------ 201.9 218.0 NONCURRENT LIABILITIES: Notes Payable 10.3 16.5 Deferred Compensation 35.3 27.5 Deferred Income Taxes 38.0 28.9 ------ ------ 83.6 72.9 ------ ------ TOTAL LIABILITIES 285.5 290.9 STOCKHOLDERS' EQUITY: Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized, None Issued or Outstanding) Common Stock ($0.01 Par Value; 200,000,000 Shares Authorized, 51,057,214 and 51,057,214 Issued and 41,527,563 and 41,018,387 Outstanding) 0.5 0.5 Capital in Excess of Par Value 91.6 89.5 Deferred Compensation (5.3) -- Retained Earnings 341.0 297.2 Accumulated Other Comprehensive Loss (18.0) (12.2) Common Stock in Treasury, at Cost (9,529,651 and 10,038,827 Shares) (49.4) (65.5) ------ ------ 360.4 309.5 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $645.9 $600.4 ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 6 8 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (In millions) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 43.8 $ 56.9 $ 51.8 Adjustments to Reconcile Net Income to Net Cash (Used in) Provided by Operating Activities: Depreciation 9.3 12.5 17.0 Amortization 25.4 25.1 21.6 Amortization of Stock Compensation 1.5 -- -- Loss on Equity Investments 5.9 4.3 0.7 Deferred Income Taxes 23.1 (4.0) 7.7 Provision for Doubtful Accounts 6.7 6.2 10.9 Loss on Disposal of Assets -- 5.6 2.6 Changes in Assets and Liabilities: Increase in Trade Receivables (32.4) (31.3) (30.3) Increase in Prepaid Expenses and Other Current Assets (9.8) (4.4) (0.3) Increase in Other Assets (28.1) (14.6) (10.6) (Decrease) Increase in Accrued Incentive Compensation (23.9) 1.1 31.1 Increase in Accounts Payable, Other Accrued Compensation and Liabilities 7.9 23.8 26.0 (Decrease) Increase in Deferred Revenue (5.1) 10.3 (2.0) (Decrease) Increase in Accrued Contract Losses (26.2) 19.7 7.3 Increase (Decrease) in Income Taxes Payable 0.5 (2.1) 0.3 ------ ------ ------ Net Cash (Used In) Provided by Operating Activities (1.4) 109.1 133.8 ------ ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Fixed Assets (13.0) (9.3) (10.6) Purchase and Development of Computer Software (51.6) (53.3) (45.1) Other Investments and Intangibles (32.9) (4.5) (2.3) ------ ------ ------ Net Cash Used in Investing Activities (97.5) (67.1) (58.0) ------ ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings 88.0 -- -- Payments on Borrowings (59.1) (5.4) (7.5) Proceeds from Common Stock Options Exercised 12.3 14.2 20.9 Payments to Acquire Treasury Stock (4.5) (52.9) (21.2) ------ ------ ------ Net Cash Provided by (Used in) Financing Activities 36.7 (44.1) (7.8) ------ ------ ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (5.9) (5.9) 1.7 ------ ------ ------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (68.1) (8.0) 69.7 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 111.3 119.3 49.6 ------ ------ ------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 43.2 $111.3 $119.3 ====== ====== ====== NON-CASH OPERATING AND FINANCING ACTIVITIES: Treasury Stock Utilized to Satisfy Accrued Incentive Compensation Liabilities $ 3.6 $ 5.2 $ -- Tax Benefit Related to Exercise of Common Stock Options $ 2.5 $ 5.1 $ 7.3 Treasury Stock Utilized to Satisfy Stock Options Exercised $ 7.2 $ 12.3 $ 4.7
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 7 9 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31, 2000, 1999, and 1998 (In millions)
Common Common Stock Stock Capital in Accumulated Other Shares (Par Value Excess of Comprehensive Outstanding $0.01) Par Value Loss - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 41.5 $ 0.5 $ 84.1 $ (8.0) Common Stock Options Exercised 1.2 -- 5.3 Tax Benefit Related to Exercise of Common Stock Options 7.3 Currency Translation Adjustment 1.7 Common Stock Repurchased (0.7) 1998 Net Income ------ ------ ------ ------ Balance at December 31, 1998 42.0 0.5 96.7 (6.3) Common Stock Options Exercised 0.7 -- (12.3) Tax Benefit Related to Exercise of Common Stock Options 5.1 Currency Translation Adjustment (5.9) Common Stock Repurchased (1.9) Restricted Stock Award 0.2 1999 Net Income ------ ------ ------ ------ Balance at December 31, 1999 41.0 0.5 89.5 (12.2) Common Stock Options Exercised 0.6 -- (7.2) Tax Benefit Related to Exercise of Common Stock Options 2.5 Currency Translation Adjustment (5.8) Deferred Compensation on Restricted Stock 6.8 Amortization of Deferred Compensation on Restricted Stock Common Stock Repurchased (0.2) Restricted Stock Award 0.1 2000 Net Income ------ ------ ------ ------ Balance at December 31, 2000 41.5 $ 0.5 $ 91.6 $(18.0) ====== ====== ====== ====== Total Retained Deferred Treasury Stockholders' Earnings Compensation Stock Equity - ------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 $188.5 -- $(26.4) $238.7 Common Stock Options Exercised 8.3 13.6 Tax Benefit Related to Exercise of Common Stock Options 7.3 Currency Translation Adjustment 1.7 Common Stock Repurchased (21.2) (21.2) 1998 Net Income 51.8 51.8 ------ ------ ------ ------ Balance at December 31, 1998 240.3 -- (39.9) 291.9 Common Stock Options Exercised 21.4 9.1 Tax Benefit Related to Exercise of Common Stock Options 5.1 Currency Translation Adjustment (5.9) Common Stock Repurchased (52.9) (52.9) Restricted Stock Award 5.3 5.3 1999 Net Income 56.9 56.9 ------ ------ ------ ------ Balance at December 31, 1999 297.2 -- (65.5) 309.5 Common Stock Options Exercised 16.9 9.7 Tax Benefit Related to Exercise of Common Stock Options 2.5 Currency Translation Adjustment (5.8) Deferred Compensation on Restricted Stock (6.8) -- Amortization of Deferred Compensation on Restricted Stock 1.5 1.5 Common Stock Repurchased (4.5) (4.5) Restricted Stock Award 3.7 3.7 2000 Net Income 43.8 43.8 ------ ------ ------ ------ Balance at December 31, 2000 $341.0 $ (5.3) $(49.4) $360.4 ====== ====== ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 8 10 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31 (In millions) 2000 1999 1998 - --------------------------------------------------------------------------------- NET INCOME $43.8 $56.9 $51.8 OTHER COMPREHENSIVE INCOME (LOSS): Currency Translation Adjustment (5.9) (5.9) 1.7 ----- ----- ----- COMPREHENSIVE INCOME $37.9 $51.0 $53.5 ===== ===== =====
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 9 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES The business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. The Company has a thirty-year history of designing, developing and implementing technology solutions that redefine entire enterprises. AMS is an international business and information technology consulting firm that provides leading edge business and technology solutions featuring a full range of services: eBusiness strategy, business re-engineering, change management, systems integration, and systems development and implementation. AMS is headquartered in Fairfax, Virginia, with 51 offices worldwide. The Company, which operates as a leading international business and technology consulting service provider, considers its business to be one segment that focuses on the following primary target markets: new media communications, financial services institutions, state and local governments and education, federal government agencies and other corporate clients. A. Revenue Recognition Revenues on fixed-price contracts are generally recorded using the percentage of completion method based on the relationship of costs incurred to the estimated total costs of the project. Revenues on cost reimbursable contracts and time and material contracts are recorded as labor and other expenses are incurred. The Company recognizes revenue from software license arrangements in accordance with AICPA Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2) and related interpretations as amended. SOP 97-2 requires that revenue recognized from software arrangements be allocated to each element of the arrangement based on the relative fair values of the elements, such as software products and services, post contract customer support, web site design and development. The Company recognizes revenues on the percentage of completion method for contracts involving both software license fees and the provision of significant software modifications and customized services or where services are considered essential to the functionality of the software. For all other software license contracts, where services are not considered essential to the functionality of the software, revenues are recorded upon execution of the contract, provided that all shipment obligations have been met, fees are fixed or determinable, and collection is deemed probable. Revenues from software maintenance contracts are recognized ratably over the maintenance period. On benefit-funded contracts (contracts whereby the amounts due the Company are payable based on actual benefits derived by the client), the Company defers recognition of revenues until a point at which management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward, revenues are recognized on a percentage of completion basis. All of the current large multi-year benefit-funded contracts are currently recognized on a percentage of completion basis. When adjustments in the contract value or estimated costs are determined, any changes from prior estimates are reflected in earnings in the current period. Any anticipated losses on contracts in progress are charged to earnings when identified. The costs associated with cost-plus government contracts are subject to audit by the U.S. Government. In the opinion of management, no significant adjustments or disallowances of costs are anticipated beyond those provided for in the financial statements. B. Software Development Costs 10 12 The Company develops proprietary software products using its own funds, or on a jointly funded basis with other organizations. These software products are then licensed to customers, either as stand-alone applications, or as elements of custom-built systems. The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86 -- "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" and for software jointly developed in accordance with Statement of Position 97-2, "Software Revenue Recognition". For projects funded by the Company, significant development costs incurred after technological feasibility has been established are capitalized. After the product is available for general release to customers, such costs are amortized on a straight-line basis over a period of 3 to 5 years or such other period as deemed appropriate. For projects where the Company has a funding partner, the capital asset is reduced by the amount collected from the partner. The Company recorded $19.5 million of amortization in 2000, $16.6 million of amortization in 1999, and $14.5 million of amortization in 1998. Unamortized costs were $133.4 million, $106.7 million, and $79.1 million at December 31, 2000, 1999, and 1998, respectively. In 2000, the Company reduced the unamortized costs by $5.9 million representing collections from funding partners, compared to $21.8 million in 1999. The Company evaluates the net realizable value of capitalized software using the estimated, undiscounted, net-cash flows of the underlying products. The Company capitalizes costs incurred for the development or purchase of internal use software in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Once the product is substantially complete and ready for its intended use, capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. The Company expended $76.2 million in 2000, $102.3 million in 1999, and $77.4 million in 1998 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $45.3 million in 2000, $47.1 million in 1999, and $35.4 million in 1998 for research and development associated with proprietary software. C. Fixed Assets, Purchased Computer Software Licenses and Intangibles Fixed assets and purchased computer software licenses are recorded at cost. Furniture, fixtures, and equipment are depreciated over estimated useful lives ranging from 3 to 10 years. Leasehold improvements are amortized ratably over the lesser of the applicable lease term or the useful life of the improvement. For financial statement purposes, depreciation is computed using the straight-line method. Purchased software licenses are amortized over 2 to 5 years using the straight-line method. Intangibles are generally amortized over 5 to 15 years. 11 13 D. Income Taxes Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse. Deferred income taxes are provided for temporary differences in recognizing certain income, expense, and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the methods of accounting for revenue, capitalized software development costs, restricted stock, and the timing of deductibility of certain reserves and accruals for income tax purposes. A valuation allowance is recorded if it is "more likely than not" that some portion or all of a deferred tax asset will not be realized. E. Earnings Per Share Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and is computed using the treasury stock method. F. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these instruments. G. Currency Translation For operations outside the United States with functional currencies other than the U.S. dollar, the Company translates income statement amounts at the average monthly exchange rates throughout the year. The Company translates assets and liabilities at exchange rates prevailing as of the balance sheet date. The resulting translation adjustments and gains and losses on intercompany transactions which are long-term in nature are shown as other comprehensive income. H. Principles of Consolidation The consolidated financial statements include the accounts of American Management Systems, Incorporated and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. The Company's investments in companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for under the equity method, with the remaining investments carried at cost. I. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Future actual results could be different due to these estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include: management's forecasts of contract costs and progress towards completion which are used to determine revenue recognition under the percentage-of-completion method, management's estimates of allowances for doubtful accounts, tax valuation allowances, and management's estimates of the net realizable value of purchased and developed computer software and intangible assets. 12 14 J. Foreign Currency Hedging From time to time, the Company has entered into foreign exchange contracts as a hedge against market fluctuations. Hedges are established in order to reduce the risk of market fluctuations associated with changes in exchange rates. Market gains and losses are recognized, and the resulting credits and debits offset foreign exchange gains and losses on those transactions when settled. No contracts were outstanding as of December 31, 2000. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 as amended by statements No. 137 and 138 entitled "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will adopt this new accounting standard effective January 1, 2001. The adoption of this standard will have no material impact on the Company's consolidated financial statements. K. Reclassifications Certain prior year information has been reclassified to conform with the current year presentation. L. Comprehensive Income The Company's principal components of comprehensive income are net income and foreign currency translation adjustments. M. Investments The Company's uses the equity method of accounting for investments in companies and other investments in which the Company has significant influence, generally this represents common stock ownership or partnership equity of at least 20% or more. Employing this method the Company records the initial investment at cost and subsequently adjusts the carrying amount of the investment to reflect the Company's share of income or loss of the investee and to reflect when applicable any dividends received from the investee. NOTE 2 -- ACCOUNTS AND NOTES RECEIVABLE
December 31 (In millions) 2000 1999 - ----------------------------------------------------------------- Trade Accounts Receivable Amounts Billed and Billable $228.6 $226.8 Amounts Not yet Billable 77.6 58.4 Contract Retention 13.0 11.0 ------ ------ Total 319.2 296.2 Allowance for Doubtful Accounts (8.0) (10.8) ------ ------ Total $311.2 $285.4 ====== ======
13 15 The Company enters into large, long-term contracts and, as a result, periodically maintains individually significant receivable balances with certain major clients. At December 31, 2000, the ten largest individual receivable balances totaled approximately $112.7 million. Management believes that credit risk, with respect to the Company's receivables, is low due to the creditworthiness of its clients and the diversification of its client base across different industries and geographies. In addition, the Company is further diversified in that it enters into a range of different types of contracts, such as fixed price, cost-plus, time and material, and benefits funded contracts. The Company may also, from time to time, work as a subcontractor on particular contracts. The Company performs ongoing evaluations of contract performance as well as evaluations of the client's financial condition. NOTE 3 - OTHER ASSETS
December 31 (In millions) 2000 1999 - ---------------------------------------------------------------------------- Company Owned Life Insurance $32.6 $28.1 Long Term Contract Receivables 14.4 -- Other Investments 7.1 0.4 Other Assets, Net of Accumulated Amortization 12.2 3.1 ----- ----- Total $66.3 $31.6 ===== =====
NOTE 4 -- NOTES PAYABLE AND LINE OF CREDIT Effective January 9, 1998, the Company entered into a syndicated five-year $120 Million Multi-Currency Revolving Credit Agreement with Bank of America and Wachovia Bank (the "1998 Agreement") as agents. A term loan (the "Term Loan"), which was funded by Wachovia Bank and Bank of America on January 6, 1997 under a term loan agreement, remains outstanding and is presently governed by the 1998 Agreement. The weighted average borrowings under all revolving credit agreements was approximately $34.1 million in 2000, and $0.4 million in 1999 at weighted daily average interest rates of approximately 6.5% in 2000, and 5.7% in 1999. The maximum amount outstanding under all agreements was $106.1 million in 2000 and $37.8 million in 1999. At December 31, 2000 the Company had $35 million outstanding under its revolving credit facility and $16.4 million in term loans compared to no amounts outstanding under its revolving credit facility and $22.6 million outstanding in term loans at December 31, 1999. The Company and most of its existing subsidiaries may borrow funds under the 1998 Agreement in the approved currencies, subject to certain minimum amounts per borrowing. Interest on such borrowings generally ranged from LIBOR plus 12.5 basis points to LIBOR plus 45 basis points, depending upon the ratio of total debt to EBITDA. The Company also was required to pay a facility fee ranging from 12.5 basis points to 20 basis points of the total facility, based upon the same performance measure. In addition, if 50% or more of the facility was utilized, an additional usage fee of 12.5 basis points applied. Based upon such measures, at December 31, 2000, interest payments were based upon an interest rate of approximately 6.8%. The 1998 Agreement, and the Term Loan, both contain certain financial covenants with which the Company must comply. These covenants include: (i) maintain at the end of each fiscal quarter for the four quarters ending on such a date a fixed charge coverage ratio of not less than 2.5 to 1.0, (ii) maintain total debt to EBITDA ratio of no more than 3.0 to 1.0, (iii) restrictions on using net worth to acquire other companies or transferring assets to a subsidiary, and (iv) restrictions on declaring or paying cash dividends 14 16 in any one fiscal year in excess of twenty-five percent of its net income for such year. As of December 31, 2000, the Company was in compliance with these covenants. The following schedule summarizes the total outstanding notes; there are no outstanding capitalized lease obligations.
December 31 (In millions) 2000 1999 - --------------------------------------------------------------------------------- Revolving Line-of-Credit $35.0 $ -- Unsecured Notes With Interest at 5.250% - 6.938% Principal and Interest Payable Monthly Through January 2004 16.4 22.6 ----- ----- Total $51.4 $22.6 ===== =====
Principal amounts are repayable as shown below:
2001 41.1 2002 5.3 2003 4.0 2004 1.0 ----- 51.4 Less Current Portion 41.1 ----- Long-Term Portion $10.3 =====
Interest paid by the Company totaled $4.5 million in 2000, including approximately $0.7 million related to additional borrowings associated with the Mississippi settlement (see Note 11), $4.2 million in 1999, and $4.2 million in 1998. NOTE 5 -- EQUITY SECURITIES The Company has an equity incentive plan which as amended (Plan F), provides for the issuance of 5,800,000 shares of the Company's common stock either as incentive stock options (ISOs) or non-qualified stock options (NSOs). The maximum lifetime for options range from five to ten years in the case of NSOs and eight to ten years in the case of ISOs. Plan F allows the Compensation Committee to grant stock options to Outside Directors generally on a discretionary basis. On December 3, 1999 the Board approved the 1999 Contractor Stock Option Plan. The purpose of the plan is to offer certain non-employees ("contractors"), who contribute materially to the successful operation of the Company, additional incentive to continue to serve as contractors by increasing their participation in the Company through stock ownership. Under the plan, the Company is authorized to issue up to 20,000 shares of common stock as NSOs that will expire on a date no later than five years from the date of issuance. During 2000, 1,500 options were granted under this plan for which the Company recorded compensation expense of $23,760. No grants were made during 1999. Under all plans, the exercise price of an ISO granted is not less than the fair market value of the common stock on the date of grant and for NSOs, the exercise price is either the fair market value of the 15 17 common stock on the date of the grant or, when granted in connection with one-year performance periods under the Company's incentive compensation program, the exercise price may be determined by a formula selected by the Board or appropriate Board committee that is based on the fair market value of the common stock as of a date, or for a period, that is within three months of the date of grant. In cases where the market value exceeds the exercise price on the date of grant, the differential is recorded as compensation expense. Options granted are exercisable immediately, in monthly installments, or at a future date, as determined by the appropriate Board committee or as otherwise specified in the plan. At December 31, 2000 there were 826,346 shares available for grant under Plan F. No options remain available for grant under any previous stock option plan. The following table summarizes information with respect to stock options outstanding at December 31, 2000 under all plans.
Options Exercisable Total Options Outstanding at 12/31/00 at 12/31/00 -------------------------------------------------------- --------------------------------- Weighted Average Remaining Weighted Weighted Contractual Average Average Range of Number Life Exercise Number Exercise Exercise Prices of Shares (Years) Price of Shares Price - ----------------------------------------------------------------------------------------------------------------- $ 8.33 - $14.83 238,822 1.61 $11.75 203,307 $11.42 16.13 - 16.31 1,286,250 9.78 16.31 0 0.00 16.44 - 23.72 884,897 4.12 20.52 515,177 19.01 23.75 - 28.81 926,715 2.98 26.17 608,853 26.00 29.25 - 32.75 866,541 8.83 31.70 342,972 31.75 33.00 - 39.00 987,091 6.68 36.05 363,287 33.86 --------- --------- 5,190,316 6.48 $24.90 2,033,596 $25.15
16 18 Additional information with respect to stock options awarded pursuant to such plans is summarized in the following schedule.
Number of Weighted Option Average Shares Exercise Price - ------------------------------------------------------------------------------------------- Balance Outstanding at December 31, 1997 3,779,302 $15.31 For the Year Ended December 31, 1998: Options Granted 731,244 25.34 Options Canceled (122,325) 21.88 Options Exercised (1,204,535) 11.20 ---------- Balance Outstanding at December 31, 1998 3,183,686 18.92 For the Year Ended December 31, 1999: Options Granted 1,084,684 30.73 Options Canceled (150,473) 24.06 Options Exercised (725,322) 12.64 ---------- Balance Outstanding at December 31, 1999 3,392,575 23.81 For the Year Ended December 31, 2000: Options Granted 3,002,008 25.92 Options Canceled (645,740) 30.51 Options Exercised (558,527) 17.17 ---------- Balance Outstanding at December 31, 2000 5,190,316 24.90 ==========
The Company has chosen to continue to account for stock-based compensation using the method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has adopted, for disclosure purposes only, Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS No. 123). If the Company determined compensation cost for these plans in accordance with SFAS No. 123, the Company's pro-forma net income and earnings per share for fiscal year 2000, 1999 and 1998 would have been decreased to the pro-forma amounts indicated below:
December 31 (In millions, except per share data): 2000 1999 1998 - ----------------------------------------------------------------------------------------- Reported: Net Income $ 43.8 $ 56.9 $ 51.8 ====== ====== ====== Basic Net Income per Share $ 1.06 $ 1.36 $ 1.23 ====== ====== ====== Diluted Net Income per Share $ 1.05 $ 1.34 $ 1.21 ====== ====== ====== Pro-Forma: Net Income $ 36.6 $ 51.1 $ 48.8 ====== ====== ====== Basic Net Income per Share $ 0.88 $ 1.22 $ 1.16 ====== ====== ====== Diluted Net Income per Share $ 0.87 $ 1.20 $ 1.14 ====== ====== ======
17 19 The Company has ten-year, eight-year and five-year options. For disclosure purposes, the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Under the Black-Scholes model, the total value of the ten-year options granted in 2000 and 1999 was $38.9 million and $8.7 million, respectively, for which certain options would be amortized on a graded vesting schedule on a pro-forma basis over a seven-year period, and others would be amortized ratably on a pro-forma basis over a ten-year period (which varies between four months and ten years). The weighted-average fair value of the ten-year options granted in 2000 and 1999 was $12.97 and $15.63, respectively. In accordance with the amendment to Plan F ratified on May 21, 1999, there were no eight-year or five-year options granted in 2000. The total value of the eight-year options granted in 1999 and 1998 was $0.4 million and $2.8 million, respectively, which would be amortized on a graded vesting schedule on a pro-forma basis over a seven-year period. The weighted-average fair value of the eight-year stock options granted in 1999 and 1998 was $17.82 and $12.37, respectively. The total value of the five-year stock options granted in 1999 and 1998 was $8.0 million and $5.2 million, respectively. These would be amortized ratably on a pro-forma basis over a five-year period (which varies between four months and five years). The weighted-average fair value of the five-year stock options granted in 1999 and 1998 was $16.00 and $10.18, respectively. Additionally, the following weighted average assumptions were used for the ten-year, eight-year and five-year stock options granted in 2000, 1999 and 1998 respectively.
Ten Year Eight Year Five Year -------------------------- ------------------------ ------------------------ December 31 2000 1999 1998 2000 1999 1998 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- Expected Volatility 47.11% 44.44% -- -- 44.99% 43.86% -- 49.92% 45.44% Risk-Free Interest Rate 6.12% 6.09% -- -- 4.90% 5.36% -- 4.99% 5.48% Expected Life 5 yrs 8 yrs -- -- 6 yrs 5 yrs -- 4 yrs 4 yrs Expected Dividend Yield 0% 0% -- -- 0% 0% -- 0% 0%
On September 21, 1999, the Company announced that its Board of Directors had authorized the purchase, from time to time, of up to 2 million shares of its common stock through open market and negotiated purchases. This authorization is in addition to the actions in August of 1998 and in February 1999, where in both cases the Board of Directors authorized the purchase of 1 million shares. The Company repurchased approximately 190,000, 1,900,000, and 720,000 shares of its common stock during 2000, 1999, and 1998, respectively, for a total of $78.6 million. In addition, the Company has been funding stock option exercises through the reissuance of previously acquired treasury shares. The Company has a Restricted Stock Profit Sharing Plan whereby restricted shares may be issued to employees if the Company meets performance objectives. The Board of Directors specifies the total award pool as a fixed dollar amount as set at the beginning of the performance period. The total shares distributed are based upon the number of shares to which the pool converts using the fair market value of the Company's common stock on the date of grant. These shares generally vest over a three year period. Total shares issued were 0, 140,393 and 186,165 for the years ended December 31, 2000, 1999 and 1998 respectively, with compensation expense being recorded of $3.7 million, $5.3 million and zero for the years then ended. In fiscal year 2000 the Board authorized the issuance of 415,800 Restricted Shares under an employee retention program. These shares vest over a three year period. The Company recorded compensation expense of $1,507,276 for the year ended December 31, 2000, resulting in a remaining deferred compensation balance of $5,275,463 at December 31, 2000. 18 20 NOTE 6 -- EARNINGS PER SHARE RECONCILIATION
Year Ended December 31 (In millions except per share data) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Basic Earnings per Share Computation - ------------------------------------ Net Income (Numerator) $ 43.8 $ 56.9 $ 51.8 ------ ------ ------ Weighted Average Shares (Denominator) 41.5 41.9 42.1 ------ ------ ------ Basic Net Income per Share $ 1.06 $ 1.36 $ 1.23 ====== ====== ====== Diluted Earnings per Share Computation - -------------------------------------- Net Income (Numerator) $ 43.8 $ 56.9 $ 51.8 ------ ------ ------ Weighted Average Shares and Equivalents: Weighted Average Shares Outstanding 41.5 41.9 42.1 Shares Issuable Upon Exercise of Stock Options 2.5 2.7 3.3 Less Shares Assumed to be Repurchased at Fair Market Value (2.1) (2.0) (2.5) ------ ------ ------ Total Weighted Average Shares and Equivalents (Denominator) 41.9 42.6 42.9 ------ ------ ------ Diluted Net Income per Share $ 1.05 $ 1.34 $ 1.21 ====== ====== ======
19 21 NOTE 7 -- INCOME TAXES
Year Ended December 31 (In millions) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- Income before income taxes for the year ended December 31 was derived in the following jurisdictions: U.S $57.9 $59.7 $58.5 Non-U.S 16.3 36.7 28.8 ----- ----- ----- $74.2 $96.4 $87.3 ===== ===== ===== The provision for income taxes is comprised of the following: Current: U.S. Federal $(1.0) $21.7 $15.5 U.S. State (0.2) 5.1 4.1 Non-U.S 8.5 16.7 8.1 Deferred: U.S. Federal 21.5 (1.7) 6.4 U.S. State 4.0 (0.2) (1.9) Non-U.S (2.4) (2.1) 3.3 ----- ----- ----- Total Provision $30.4 $39.5 $35.5 ===== ===== ===== The differences between the U.S. federal statutory income tax as measured based on pre-tax income and the Company's effective rate are: U.S. federal statutory income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 1.4 4.1 3.3 Change in valuation allowance (0.4) (0.2) 0.7 Research tax credits (0.5) (1.5) (0.4) Meals and entertainment 3.3 2.7 2.4 Goodwill and Other Non-deductibles 1.4 0.8 0.6 Benefit of Non-U.S. Subsidiary Conversion -- -- (1.7) Impact of Non-U.S. jurisdictions 2.0 2.4 1.4 Other (1.2) (2.3) (0.6) ----- ----- ----- Effective Rate 41.0% 41.0% 40.7% ===== ===== =====
20 22
Year Ended December 31 (In millions) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------- The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are as follows: Deferred Tax Assets: Accrued Expenses $ 0.0 $ 10.3 $ 3.2 Employee Related Compensation 23.9 19.3 13.7 Deferred Revenue 1.6 1.7 1.0 Allowance for Doubtful Accounts 3.3 4.5 3.9 Loss and Credit Carryforwards 6.7 5.2 3.5 Other 7.5 6.9 5.0 ------- ------- ------- Subtotal 43.0 47.9 30.3 Valuation Allowance (0.6) (0.9) (1.1) ------- ------- ------- Total Deferred Tax Assets $ 42.4 $ 47.0 $ 29.2 ------- ------- ------- Deferred Tax Liabilities: Unbilled Receivables $ (35.1) $ (27.1) $ (19.9) Capitalized Software (51.0) (42.4) (29.2) Other (1.4) 0.5 (6.1) ------- ------- ------- Total Deferred Tax Liabilities (87.5) (69.0) (55.2) ------- ------- ------- Net Deferred Tax Liabilities $ (45.1) $ (22.0) $ (26.0) ======= ======= =======
Certain of the Company's subsidiaries have net operating losses totaling $22.4 million. Losses of $8.1 million expire on or before the close of year 2020. Losses of $14.3 million carry forward over an indefinite period. As a result of restrictions on the utilization of certain losses, a valuation allowance has been placed on those losses. The net changes in total valuation allowance for the years ended December 31, 2000, 1999, and 1998 were a decrease of $0.3 million, a decrease of $0.2 million, and an increase of $0.6 million respectively. The Company also has jobs tax credits of $0.3 million that expire between 2010 and 2012. The Company has not provided for U.S. federal income and foreign withholding taxes on $15.7 million of non-U.S. subsidiaries' undistributed earnings as of December 31, 2000, because such earnings are intended to be reinvested indefinitely. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings. If these earnings were distributed, foreign tax credits would become available under current law to reduce or eliminate the resulting U.S. income tax liability. The Company paid income taxes of approximately $13.0 million, $43.0 million, and $23.4 million, in 2000, 1999, and 1998, respectively. NOTE 8 -- DEFERRED COMPENSATION PLAN The Company has deferred compensation plans which were implemented in late 1996, and permit eligible employees and directors to defer a specified portion of their compensation. The deferred compensation earns a specified rate of return. As of year end 2000 and 1999 the Company had accrued $36.4 million and $28.3 million, respectively, for its obligations under these plans. The Company 21 23 expensed $2.6 million,$1.8 million, and $1.4 million in 2000, 1999 and 1998, respectively, related to the earnings by the deferred compensation plan participants. To fund these plans, the Company purchases corporate-owned life insurance contracts. Proceeds from the insurance policies are payable to the Company upon the death of the insured. During 1999 the Company received proceeds of $1.2 million associated with one of the policies, which were subsequently re-invested in the existing corporate-owned life insurance contracts. The cash surrender value of these policies, included in "Other Assets", was $32.6 million at December 31, 2000 and $28.1 million at December 31, 1999. There were no outstanding loans at December 31, 2000 or December 31, 1999 on these policies. NOTE 9 -- EMPLOYEE PENSION PLAN The Company has a simplified employee pension plan, which became effective January 1, 1980. This plan is a defined contribution plan whereby contributions are based on the application of a percentage specified by the Company to the qualified gross wages of eligible employees. The Company makes annual contributions to the plan equal to the amount accrued for pension expense. Total expense of the plan was $16.7 million in 2000, $14.0 million in 1999, and $11.5 million in 1998. NOTE 10 -- JOINT VENTURE AND ACQUISITION In 1998, the Company established a joint venture with Bank of Montreal to provide online loan application and decisioning services to small and mid-size financial institutions via a new limited liability company, Competix L.L.C. In October 1999, Competix converted from a limited liability company to a C-corporation in which the Company currently maintains a 40% interest. Competix is authorized to issue up to 20% of its stock to its employees, issuable upon the exercise of stock options. At such time or times as Competix employees exercise these stock options, AMS's percent ownership in Competix will be reduced. The Company recorded a gain of $3.5 million during fiscal year 2000 in connection with the sale of a portion of the Company's then current holdings. In 2000 and 1999, the Company invested $3.8 million and $1.8 million, respectively, in connection with its interest in Competix, which investment was reduced by $4.2 million and $4.3 million related to the Company's share of the losses incurred by Competix in 2000 and 1999 respectively. These losses have reduced the Company's investment to zero as of December 31, 2000. The Company has a note receivable from Competix with a gross value of $4.3 million at December 31, 2000. Approximately $1.7 million was charged to earnings as a "Loss on Equity Investment" which served to reduce this note receivable during fiscal year 2000 bringing the net balance to $2.6 million. In September 2000, the Company acquired Synergy Consulting, Inc., a California based provider of systems integration, eBusiness and management consulting services in a purchase business combination for a cash payment of $20 million. The Company recorded Goodwill associated with the acquisition of approximately $20.0 million, which will be amortized over 15 years. In addition, the Company has a contingent obligation to pay the seller up to an additional $15 million based upon certain financial and/or project related targets being met. These payments, if made, will be added to the acquisition price and recorded as additional Goodwill. The results of Synergy have been included in the Company's Statement of Operations since September 1, 2000. NOTE 11 -- COMMITMENTS AND CONTINGENCIES The Company occupies production facilities and office space (real property) and uses various equipment under operating lease agreements, expiring at various dates through the year 2011. 22 24 The commitments under these agreements, as of December 31, 2000, are summarized in the table below. Payments under the real property leases are generally subject to escalation based upon increases in the Consumer Price Index, operating expenses, and property taxes. Gross Rentals and Maintenance Payments
(In millions) Real Property Equipment Total - ------------------------------------------------------------- 2001 44.9 15.0 59.9 2002 41.9 7.6 49.5 2003 37.1 2.3 39.4 2004 31.2 1.3 32.5 2005 and beyond 139.1 -- 139.1 ------ ------ ------ Total $294.2 $ 26.2 $320.4 ====== ====== ======
Operating lease expense for 2000, 1999, and 1998 was approximately $67.4 million, $51.0 million and $45.1 million, respectively. The Company has an extended leave program for certain employees that provides for compensated leave of eight weeks after seven years of service. The leave is not vested and can be taken only at the discretion of management. Because of the extended period over which the leave accumulates and the highly discretionary nature of the program, the amount of extended leave accumulated at any period end which will ultimately be taken is indeterminable. Consequently, the Company expenses such leave as it is taken. On April 22, 1999 the Company was served with a complaint alleging that it failed to deliver software conforming to a contract that it entered into with the State of Mississippi (the State). The matter proceeded to trial and on August 23, 2000, a jury awarded the State actual and punitive damages totaling $474.5 million. On August 28, 2000 the Company reached a fully negotiated settlement with the State for $185.0 million and on the same day the court signed an order dismissing the matter with prejudice in recognition of the settlement. The present value of the settlement was approximately $135.0 million, of which approximately $102.0 million was paid by the Company's insurers. The Company recorded a charge of $35.2 million to earnings for the quarter ended September 30, 2000 for the settlement and the related expenses. Approximately $34.4 million of this liability was paid during fiscal year 2000, $12.3 million of which was used to purchase guaranteed funding contracts. The guaranteed funding contracts were purchased from two large insurance companies, in the names of the State agencies which are to receive the settlement payments to fund all remaining amounts owed under the settlement. In the remote event that the insurance companies are unable to pay the amounts, the Company remains contingently liable. The Company's balance sheet does not reflect either the assets (guaranteed funding contracts) or the contingent liability. On September 11, 2000 the Company filed a lawsuit against National Union Fire Insurance Company, one of its insurance carriers, seeking damages arising from National Union's failure to take advantage of opportunities to settle the Mississippi litigation (discussed in the preceding paragraph) well within National Union's policy limits. Federal Insurance Company (Federal) has joined in that claim to recover the amount of secondary excess coverage that it contributed to the Mississippi settlement. On November 13, 2000, National Union filed a motion to dismiss the case, to stay the matter pending decision in a case that it filed against the Company and Federal in the Fairfax County Circuit Court (discussed in the following paragraph), or in the alternative, to transfer the case from the United States District Court for the Southern District of Mississippi to the United States District Court for the Eastern District of Virginia. The 23 25 Company and Federal have responded to the motion and it is pending before the court. The motion to stay may be rendered moot by actions of the Fairfax County Circuit Court (discussed below). The court has set a schedule under which discovery is to be completed by June 1, 2001, substantive motions are to be filed by June 15, 2001, and a pretrial conference is to be held on September 14, 2001. The case is scheduled for trial during the period from October 1, 2001 to October 19, 2001. On September 22, 2000 the Company was served with a declaratory judgement complaint filed by National Union in the Circuit Court for Fairfax County, Virginia. National Union seeks a determination that it did not breach its obligation to the Company in the failure to settle the Mississippi action and further seeks a court determination that its excess policy has been exhausted as a consequence of National Union's payment toward the settlement. The Company and Federal have filed a motion to dismiss or stay the Virginia lawsuit in favor of the lawsuit filed by the Company and Federal in Mississippi. On January 11, 2001, the Fairfax County Court denied the requests to dismiss or stay the case. The court invited the parties to move for reconsideration of its order and both the Company and Federal have done so. On February 9, 2001, the Company and Federal asserted defenses to National Union's complaint. On the same day, National Union filed a motion to amend its complaint to add (i) a request for a declaration that National Union has no liability for any existing or potential claim that otherwise would be within the coverage of the National Union policy and (ii) a claim that the Company breached duties of cooperation and participation under the National Union policy and that the Company is liable to National Union for damages in the amount of $37 million plus interest. On March 28, 2001, the Court issued a ruling dismissing National Union's claims without prejudice, with the exception of the counterclaim for $37 million plus interest, which is stayed pending the outcome of the case pending in Mississippi. On September 9, 1999 Bezeq, an Israeli Company, filed suit against a subsidiary of the Company alleging that the subsidiary was in breach of a contract with Bezeq. In the complaint, Bezeq sought damages in the approximate amount of $39.0 million, which amount included amounts secured by bank guarantees made in favor of Bezeq. On January 19, 2000, the Company's subsidiary filed a counterclaim against Bezeq alleging, among other things, breach of contract and seeking approximately $58.8 million in damages. On September 21, 2000, the Company's subsidiary and Bezeq entered into a settlement agreement, pursuant to which, among other things, neither party admitted any fault and each party released the other and the other's affiliates from any claims. The total amount paid by the Company's subsidiary to Bezeq pursuant to the settlement agreement did not exceed the amount previously reserved for potential losses under the contract. In light of the settlement, the applicable court dismissed both the claim and counterclaim with prejudice on October 24, 2000. The settlement agreement has been performed fully and the mutual releases contained therein are effective. The Company recorded approximately $3.7 million in other income for the year ended December 31, 2000 related to the recovery of certain previously recorded costs associated with this project. AMS performs, at any point in time, under a variety of contracts for many different clients. Situations can occasionally arise where factors may result in the renegotiation of existing contracts. Additionally, certain contracts may provide the client the right to suspend or terminate the contracts. To the extent any contracts may provide the client with such rights, the contracts generally provide for AMS to be compensated for work performed to date and may include provisions for payment of certain termination costs. However, business and other considerations may at times influence the ultimate outcome of contract renegotiations, suspension and/or cancellation. 24 26 NOTE 12 -- SEGMENT REPORTING AND SIGNIFICANT CUSTOMERS The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" as required and comparative information for earlier years is presented below. The Company engages in business activities in one operating segment that provides information technology consulting services to large clients in targeted vertical markets. The chief operating decision-maker is provided information about the revenues generated in key client industries. The resources needed to deliver the Company's services are not separately reported by industry. The Company markets its services worldwide, and its operations are grouped into two main geographic areas according to the location of each of the Company's subsidiaries. The Company's long-lived assets are located primarily in the United States. The two groupings consist of United States locations and non-US locations. Pertinent financial data is summarized below.
Year Ended December 31 (In millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------ Revenues by Target Market New Media and Communications Firms $ 317.4 $ 337.6 $ 266.6 Financial Services and Institutions 213.9 193.9 210.2 State and Local Governments and Education 327.6 346.3 282.1 Federal Government Agencies 353.2 300.3 241.3 Other Corporate Clients 67.2 62.2 57.6 -------- -------- -------- Consolidated Total $1,279.3 $1,240.3 $1,057.8 ======== ======== ======== Revenues by Geographic Area U.S. Companies $1,100.2 $1,048.4 $ 873.3 Non-US Companies 179.1 191.9 184.5 -------- -------- -------- Consolidated Total $1,279.3 $1,240.3 $1,057.8 ======== ======== ========
Revenues from AMS's U.S. Companies include export sales to non-US clients of $17.2 million in 2000, $34.8 million in 1999, and $23.9 million in 1998. As a result the Company's total non-US client revenues, primarily in Western Europe, were as follows:
Year Ended December 31 (In millions) 2000 1999 1998 - --------------------------------------------------------------------------------------- Exports By U.S. Companies $ 17.2 $ 34.8 $ 23.9 Non-US Companies 179.1 191.9 184.5 ------- ------- ------- Total Non-US Client Revenues $ 196.3 $ 226.7 $ 208.4 ======= ======= ======= Percent of Total Revenues 15.3% 18.3% 19.7% ======= ======= =======
Long lived assets located within the U.S. were approximately $166.9 million, $135.7 million and $108.2 million for fiscal year 2000, 1999 and 1998, respectively. Long lived assets held outside the U.S. were approximately $10.0 million, $10.2 million and $13.0 million for 2000, 1999 and 1998, respectively. 25 27 Significant Customers: Total revenues from the U.S. Government, comprising 91 clients in 2000, 112 clients in 1999, and 109 clients in 1998, were approximately $342.2 million in 2000, $288.2 million in 1999, and $224.8 million in 1998. No other customer accounted for 10% or more of total revenues in 2000, 1999, or 1998. 26 28 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of American Management Systems, Incorporated Fairfax, Virginia We have audited the accompanying consolidated balance sheets of American Management Systems, Incorporated and subsidiaries (the Company) as of December 31, 2000 and 1999, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of American Management Systems, Incorporated and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP McLean, Virginia February 14, 2001 27 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains certain forward-looking statements. In addition, the Company or its representatives from time to time may make, or may have made, certain forward-looking statements, orally or in writing, including, without limitation, any such statements made in this MD&A, press releases, or any such statements made, or to be made, in the MD&A contained in other filings with the Securities and Exchange Commission. The Company wishes to ensure that such forward-looking statements are accompanied by meaningful cautionary statements so as to ensure, to the fullest extent possible, the protections of the safe harbor established by Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Accordingly, such forward-looking statements made by, or on behalf of, the Company are qualified in their entirety by reference to, and are accompanied by, the discussion herein of important factors that could cause the Company's actual results to differ materially from those projected in such forward-looking statements. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of total revenues of major items in the Consolidated Statements of Operations and the percentage change in such items from period to period (see "Financial Statements and Notes"), excluding percentage changes in de minimus dollar amounts. The effect of inflation and price changes on the Company's revenues, income from operations, and expenses, is generally comparable to the general rate of inflation in the U.S. economy.
Period-to-Period Percentage of Total Revenues Change ---------------------------- ------------------ 2000 1999 vs. vs. 2000 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------- Revenues .................................... 100.0% 100.0% 100.0% 3.1% 17.3% Expenses Client Project Expenses ............... 52.9 52.7 54.5 3.5 13.5 Other Operating Expenses .............. 31.4 30.7 28.8 5.6 24.3 Corporate Expenses .................... 7.1 7.1 7.5 2.9 12.2 Provision for Specific Contract ....... -- 1.6 0.7 -- 185.7 Provision for Contract Litigation Settlement .......................... 2.7 -- -- -- -- ----- ----- ----- 94.1 92.1 91.5 5.4 18.0 Income from Operations ...................... 5.9 7.9 8.5 (23.4) 8.9 Other (Income) Expense ...................... 0.1 0.1 0.2 (46.7) (42.3) ----- ----- ----- Income Before Income Taxes .................. 5.8 7.8 8.3 (23.0) 10.4 Income Taxes ................................ 2.4 3.2 3.4 (23.0) 11.3 ----- ----- ----- Net Income .................................. 3.4 4.6 4.9 (23.0) 9.8 Weighted Average Shares Outstanding ......... (1.0) (0.5) Basic Net Income per Share .................. (22.1) 10.6 Weighted Average Shares and Equivalents ..... (1.6) (0.7) Diluted Net Income per Share ................ (21.6) 10.7
28 30 RESULTS OF OPERATIONS (continued) REVENUES Revenues increased 3% for the year ended December 31, 2000, compared to 17% for the fiscal year ended December 31, 1999. Approximately 85% of each year's revenues came from clients for whom the Company performed services in prior years. Looking ahead to 2001, the Company expects revenue growth to continue at rates moderately above the rates experienced in 2000. Through leveraging existing client relationships, ensuring quality execution, and targeting new clients, the Company expects revenues within the Federal Government market and Other Corporate clients market to grow faster than the overall growth rate of the Company while revenues in all other markets will approximate the Company's overall growth rate. The Company continues to focus on expanding its delivery of enterprise-wide business and technology solutions - including eBusiness solutions- tailored to clients in financial services, new media and communications, federal, state and local governments as well as health care and utilities. These solutions help our clients to improve business performance by creating tools for businesses to achieve greater cost savings, deliver improved customer service, and leverage cross-sell and up-sell opportunities in their markets. Business with non-US clients decreased 14% to $196 million during 2000 compared to an increase of 9% to $227 million during 1999. The decrease in revenues during 2000 was a result of lower than expected revenue growth in the New Media and Communications Firms market driven by the ramping down of large projects across Europe and slower than expected project starts. A principal contributor to this decrease in revenues was a slowdown in the growth of the telecommunications industry worldwide, which experienced significant industry market consolidations, and larger than expected decreases in industry wide spending. Business with non-US clients represented 15% and 18% of the Company's total revenues for 2000 and 1999, respectively. The Company continues to focus on positioning itself to achieve growth in non-US business going forward and expanding the number of services offered to these clients. For fiscal year 2001, the Company expects revenues for non-US business to be in line with the overall Company revenue growth rate when compared to the same 2000 periods. In the New Media and Communications Firms market, a market characterized by large projects with relatively few clients, revenues decreased 6% in fiscal 2000 when compared to 1999 and increased 27% during 1999 when compared to 1998. The completion of large projects in 1999, as well as certain new projects not ramping up as quickly as anticipated, produced lower revenues than the Company expected in 2000. Non-US revenues decreased 21% in 2000 and increased 19% in 1999 when compared to 1998. As previously discussed, a principal contributor to these decreases in revenues was a slowdown in the growth of the telecommunications industry world-wide that experienced significant industry market consolidations and larger then expected decreases in spending. Despite industry slow-downs throughout 2000, the Company experienced continued success with key clients and emerging work in this market. By continuing to focus on key client relationships and quality project execution during 2001, the Company expects revenue growth in this market to increase at rates similar to the Company's overall revenue growth rate. In the first half of 2000, the Company substantially completed work related to its joint development contract with a European client for its next generation customer care and billing software known as "Tapestry." The Company therefore began amortizing this asset which resulted in approximately $6.4 million of amortization expense for fiscal 2000. The asset will continue to be amortized in the amount of approximately $3.9 million each quarter. On October 19, 2000 the Company announced a multi-year, multi-million dollar contract for implementation of its Tapestry customer care and billing product suite to its first North American client, a multi-billion dollar Fortune 100 company. The Company has since signed a second smaller contract and there continues to be significant market interest in Tapestry. 29 31 Notwithstanding projected revenue growth, there continues to be risks in this market. Competition for experienced staff is especially intense in the telecommunications field, and staffing remains one of the Company's critical challenges. Additionally, the Company works in countries located in regions other than Western Europe and North America from time to time and the delivery risks in some of these other countries may be higher. Revenues in the New Media and Communications Firms market in these other locations were less than 3% of the Company's total revenues for the years ended 2000 and 1999. In the Financial Services Institutions target market, revenues increased 10% in 2000 and decreased 8% in 1999. The increase in revenues during 2000 was driven by increased business with new clients and a rebounding of the retail banking and insurance marketplace from last year's slowdown associated with Year 2000 "lockdowns" and business consolidation activity. Business with non-US clients accounted for approximately 34% of both fiscal 2000 and 1999 revenues in this market (approximately $73 million and $67 million respectively). In 2001, industry projections point to a slower demand for IT services in the financial services sector and increased competition for new client business. Throughout 2001, the Company expects to leverage its existing client relationships, next generation product solutions and strategic alliance relationships with leading industry providers to achieve revenue growth at rates in line with the Company's overall anticipated revenue growth rate for 2001. In the State and Local Governments and Education target market, revenues decreased 5% in fiscal 2000 and increased 23% in 1999. The Company's reduction in revenues was driven by the completion of several large projects as well as a longer than expected slowdown in the marketplace from Year 2000 "lockdowns," which led to slower project starts. During 2001, the Company will focus on repositioning itself for continued growth in revenues by consolidating operations to establish a targeted enterprise-wide focus for our clients as well as expand and leverage our eGovernment capabilities and existing client relationships. Revenues in the State and Local Governments and Education target market are expected to increase in 2001 at rates below the company's overall growth rate. On certain contracts with state taxation departments, the Company's fees are paid out of the benefits (increased collections) that the client achieves. The Company defers recognition of revenues on these contracts until that point at which management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward, revenues are recognized on a percentage of completion basis. Revenues on all of the current large multi-year benefits-funded contracts are currently recognized on a percentage of completion basis. Revenues in the Federal Government Agencies target market increased 18% in 2000 and 24% in 1999. The Company's leadership in financial systems and procurement business solutions combined with the continued expansion and extension of contracted work with the Department of Defense for its Standard Procurement System ("SPS") continued to drive the growth rate in revenues in this market above the Company's overall growth rate in 2000. Revenues with the Department of Defense accounted for approximately one-third of revenue growth in 2000 and 1999. For fiscal year 2001, the Company expects revenue growth in this market to exceed the Company's overall revenue growth rate when compared to the same 2000 period. These revenue increases will continue to be driven by the SPS contract, contracts with clients using the Company's federal financial systems and contracts leveraging the Company's strategic alliance relationships with both Seibel and Ariba. Revenues in the Other Corporate Clients market increased 8% in both fiscal years 2000 and 1999. The Company continues to expand its business with clients in the utilities and healthcare marketplace. For fiscal year 2001, the Company expects revenue growth in this market to increase at rates above the Company's overall growth rate. 30 32 EXPENSES Client project expenses and other operating expenses together increased 4% during 2000, which was slightly above the growth rate in revenues. Comparing 1999 to 1998, client project and other operating expenses increased 17%, which was in line with the growth in revenues. The Company has made significant expenditures related to development of the "Tapestry" software which have been capitalized. Key software deliveries were completed late in the first half of 2000 and the Company began amortization of this asset yielding approximately $6.4 million of amortization expense for 2000. Amortization expense is expected to be approximately $3.9 million per quarter going forward. In February 2001, the Company announced a restructuring plan that will realign the Company's internal operations to a shared services model to significantly streamline support activities across the corporation. In addition, the Company is placing increased emphasis on employee skill-fit and performance. During fiscal 2001 the Company will take a restructuring charge of between $14 million and $19 million related to these efforts of which approximately $13 million will be recorded in the first quarter. The Company expects the increased emphasis on employee skill-fit and performance and the move to shared services to impact approximately 10% of the Company's US- based workforce by year end of 2001. Corporate expenses increased 3% and 12% in 2000 and 1999 respectively. The Company slowed the increase in Corporate expenses during fiscal year 2000 by focusing on reducing overall corporate expenses. In addition in 2000 there were no longer any significant Y2K remediation expenses that were part of corporate expenses driving the comparable 1999 period. As part of the restructuring plan previously discussed, in 2001 the Company will realign internal operations to streamline support activities by moving to a shared services model for internal functions such as Human Resources and internal IT support. For fiscal 2001, the Company expects corporate expenses to grow at rates corresponding to the Company's overall revenue growth rate due to focused efforts on streamlining the Company's business model as well as reductions in corporate level performance based incentive compensation and profit based compensation under the Company's restricted stock program. As discussed more fully in the section of this Form 10-K entitled "Legal Proceedings," the Company recorded a charge of $35.2 million to pre-tax earnings in the second half of 2000 due to the settlement of a lawsuit filed by the State of Mississippi and the payment of related expenses. During the second half of 2000 the Company made payments of approximately $34.4 million in relation to the settlement, and expects to pay the remaining liability of $0.8 million through the first quarter of fiscal year 2001. Approximately $12.3 million of the $34.4 million paid, as well as amounts paid by the Company's insurers, was used to purchase guaranteed funding contracts in the names of the State agencies which are to receive the settlement payments. In the remote event that the insurance companies from which the Company purchased the guaranteed funding contracts are unable to make the settlement payments, the Company remains contingently liable. INCOME FROM OPERATIONS Income from operations decreased 23% in 2000 compared to an increase of 9% in 1999. The 2000 decrease was primarily driven by the above-mentioned contract litigation settlement with the State of Mississippi. Additionally, throughout 2000 the Company made substantial investments in marketing, training, and infrastructure focusing on the Company's strategic alliances as well as business development efforts. Importantly, the Company's operating profit margins have continued to remain strong due to an ongoing emphasis on well-structured and well-priced engagements, tightly managed delivery risk, and focused reductions in indirect costs company-wide. For 2001, the Company will continue to focus on streamlining its corporate support activities and controlling expenses while emphasizing managed growth. 31 33 OTHER (INCOME) EXPENSE The Company incurred $3.4 million of interest expense net of interest income in 2000 compared to no interest (income) expense in 1999 and $0.8 million net interest expense in 1998. The increase in 2000 was due to temporary increases in the amounts of short-term borrowings driven by the Company's increased investments in strategic alliances, the Company's acquisition of Synergy Consulting, Inc. and the Company's settlement with the State of Mississippi. Other Expense decreased in both 2000 and 1999 over the preceding years. The continued decrease in 2000 was primarily driven by approximately $3 million in expenses recovered related to the finalization of the contract settlement with an Israeli telecommunications firm, Bezeq, discussed in detail in "Legal Proceedings," which offset losses recorded for the Company's investment in Competix, which is described below. The Company continues to develop its investment strategy and evaluate opportunities presented by certain business relationships that would generate additional income for its core business, leverage its existing assets (customers, competencies, relationships, and technologies) and maximize shareholder value. In late 1998, the Company established a joint venture with Bank of Montreal to provide online processing services for loan applications to small and mid-size financial institutions via a new firm, Competix.com (formerly Competix, L.L.C.). The Company's share of Competix.com's losses was $5.9 million in 2000, $4.3 during 1999, and $0.7 in 1998, related to the Competix.com joint venture. During the first half of 2000 the Company sold a small portion of its investment in Competix.com. This sale generated a $3.5 million gain. At year-end 2000, the Company's remaining basis in its investment is a $2.6 million note receivable due from Competix.com. In 2001, the Company will continue to recognize its share of losses to write-down this receivable. INCOME TAXES The Company's effective tax rate for 2000 and 1999 was 41% compared to 40.7% in 1998. The Company expects that its effective tax rate in 2001 will be generally consistent with its historical rates. FOREIGN CURRENCY EXCHANGE Approximately 15% of the Company's total revenues in 2000, 18% in 1999, and 20% in 1998 were derived from non-US clients. The Company's practice is to negotiate contracts in the same currency in which the predominant expenses are incurred, thereby mitigating the exposure to foreign currency exchange fluctuations. It is not possible to accomplish this in all cases; thus, there is some risk that profits will be affected by foreign currency exchange fluctuations. In a further effort to mitigate foreign currency exchange risk, the Company has established a notional cash pool with a European bank. This arrangement allows the Company to better utilize its cash resources among all of the Company's subsidiaries, without incurring foreign currency conversion risks, thereby mitigating foreign currency exposure for these transactions. The Company also actively manages the excess cash balances in the cash pool, which tends to increase net interest income. In the past, the Company had employed limited hedging of inter-company balance sheet transactions through derivative instruments (foreign currency swap contracts); however, as of December 31, 2000 the Company had no such outstanding derivative contracts. 32 34 LIQUIDITY AND CAPITAL RESOURCES The Company provides for its operating cash requirements primarily through funds generated from operations. Through an available bank facility, the Company can also provide for cash and currency management with respect to the short-term impact of certain cyclical uses, such as annual payments of incentive compensation as well as financing, from time to time, accounts receivable and other obligations. At December 31, 2000, the Company's cash and cash equivalents totaled $43.2 million, down from $111.3 million at the end of 1999. Cash used in operating activities during 2000 was $1.4 million compared to cash provided by operating activities of $109.1 million in 1999. The primary drivers of cash used in operating activities during 2000 were payments associated with the losses related to Bezeq and the litigation settlement with the State of Mississippi. Other drivers include payments for incentive compensation and a reduction in contract pre-payments (deferred revenue). During 2000, the Company invested approximately $97.5 million in fixed assets, software purchases, internally developed computer software and other investments compared to $67.1 in 1999. The Company's expansion of its strategic alliances and business ventures as well as the creation of the next generation software products drive these investments for the State and Local Government and Financial Services markets. During the second half of 2000 the Company invested approximately $20 million in the purchase of Synergy Consulting, Inc., a California based provider of systems integration, eBusiness, and management consulting services. This investment continues to build on the Company's core competencies in the State and Local Governments and Education markets. This investment has been accretive to earnings in fiscal 2000 and is expected to be so in fiscal 2001 and beyond. Revolving line of credit borrowings were $35 million at December 31, 2000 compared to zero at December 31, 1999. During 2000, the Company made principal payments of $59.1 million on outstanding debts owed to banks compared to $5.4 million in 1999. The aggregate weighted average short-term borrowings were approximately $34.1 million in 2000 and $0.4 million in 1999 at weighted daily average interest rates of 6.5% and 5.7% respectively. In 2000, the Company received proceeds of approximately $12.3 million from the exercise of stock options compared to $14.2 million in 1999. The Company repurchased approximately 190,000 shares of common stock in the open market during 2000 at a cost of approximately $4.5 million compared to 1.9 million shares repurchased in 1999 at a cost of approximately $52 million. The Company has authorization from the Board of Directors to purchase up to an additional 1.2 million shares. The Company's material unused source of liquidity at the end of 2000 consisted of approximately $85 million under the $120 million multi-currency revolving credit agreement with Bank of America and Wachovia Bank as agents ("the 1998 Agreement"). In March 2001, the Company and certain of its subsidiaries amended the 1998 Agreement (the "March 2001 Amendment"), and the 1998 Agreement, as amended (the "Amended 1998 Agreement") became effective as of March 21, 2001. Under the Amended 1998 Agreement, interest on borrowings will generally range from LIBOR plus 62.5 basis points to LIBOR plus 77.5 basis points, dependent upon the fixed charge coverage ratio. In addition, under the Amended 1998 Agreement, the facility fee will range from 25 to 35 basis points of the total facility, based upon the same performance measure. Previously under the 1998 Agreement, if 50% or more of the facility was utilized, an additional usage fee of 12.5 basis points applied. The March 2001 Amendment eliminated the utilization fee. The Company believes that its liquidity needs can be met from the sources described above. 33 35 NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 as amended by statements No. 137 and 138 entitled "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will adopt this new accounting standard effective January 1, 2001. The adoption of this standard will have no material impact on the Company's consolidated financial statements. 34 36 ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS Over the next several years, the Company expects to continue to experience managed growth in revenues. The continuing controlled growth in revenues should enable the Company to continue improving its profit margins, which have been reduced from time to time for after-tax reserves related to troubled contracts. The Company faces continuing risks in the area of project delivery and staffing. AMS has established a reputation in the marketplace of being a firm that delivers on time and in accordance with specifications regardless of the complexity of the application and the technology. The Company's customers often have a great deal at stake in being able to meet market and regulatory demands, and demand very ambitious delivery requirements. In order to meet its contractual commitments, AMS must continue to recruit, train, and assimilate successfully large numbers of entry-level and experienced employees annually, as well as to provide sufficient senior managerial experience on engagements, especially on large, complex projects. Moreover, this staff must be re-deployed on projects globally. Staffing projects in certain less industrialized countries can pose special risks and challenges. The Company must also manage rates of attrition, in view of increased competition for its talent. There is also the risk of failing to successfully manage large projects and the risk that the unanticipated delay, suspension, renegotiation or cancellation of a large project could have an adverse impact on operating results. Any such development in a project could result in a decline in revenues or profits, the need to relocate staff, a lawsuit or other dispute with a client regarding money owed, or damages incurred as a result of alleged non-performance by AMS and a diminution of AMS's reputation. Changing client requirements, such as scope changes and process issues, and delays in client acceptance of interim project deliverables, are other examples of risks of non-performance, especially in large complex projects. All of these risks are magnified in the largest projects and markets simply because of their size. The Company's business is characterized by large contracts producing high percentages of the Company's revenues. For example, 40% of the Company's total revenues in 2000 was derived from business with 17 clients. There is also the risk of revenues not being realized when expected, such as in certain contracts in the State and Local Governments market. On certain large contracts, the Company's fees are paid out of the benefits (for example, increased revenues from tax collections) that the client achieves. The Company historically has deferred recognition of such revenues until management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward revenues are recognized on a percentage of completion basis. As the number of such contracts, and the Company's experience with predicting the timing and certainty of such revenues, have increased over time, the Company expects to be able to recognize revenues earlier on such contracts in the future. The Company also faces the risk of increased competition in the markets in which it participates. In addition to any risk that the Company's competitors may create, some of the Company's current or prospective clients may decide to perform projects with their in-house staff that the Company might otherwise have undertaken. The Company also faces the risk of shrinking markets resulting from mergers and other consolidations of clients or prospective clients. Increased competition from industry rivals, as well as decisions by clients to outsource fewer projects or to consolidate with others in the Company's markets, could have a negative effect on pricing, revenues and margins. 35 37 Events such as declines in revenues or profits, downturns in the industry in which the Company operates and downturns in the stock markets generally could result in immediate fluctuations in the trading price and volume of the Company's stock. Certain other risks, including, but not limited to, the Company's international scope of operations, are discussed elsewhere in this Form 10-K. The Company conducts business in countries other than Western Europe and North America. Contracts being performed in such non-Western countries can have higher delivery risks for a variety of reasons. Because the Company operates in a rapidly changing and highly competitive market, additional risks not discussed in this Form 10-K may emerge from time to time. The Company cannot predict such risks or assess the effect, if any, that such risks may have on its business. Consequently, the Company's various forward-looking statements, made, or to be made, should not be relied upon as a prediction of actual results. 36 38 FIVE-YEAR FINANCIAL SUMMARY
Year Ended December 31 (In millions except share and per share data) 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS - ---------------------------------------------------------------------------------------------------------------------------- Revenues $1,279.3 $1,240.3 $1,057.8 $872.3 $812.2 Client Project Expenses 676.5 653.8 576.2 485.0 525.9 Other Operating Expenses 401.4 380.0 305.7 271.6 201.9 Corporate Expenses 91.2 88.6 79.0 61.4 56.8 Provision for Specific Contract -- 20.0 7.0 -- -- Provision for Contract Litigation Settlement 35.2 -- -- -- -- -------- -------- -------- ------ ------ Total Operating Expenses 1,204.3 1,142.4 967.9 818.0 784.6 Income From Operations 75.0 97.9 89.9 54.3 27.6 Other (Income) Expense 0.8 1.5 2.6 2.9 1.4 -------- -------- -------- ------ ------ Income Before Income Taxes 74.2 96.4 87.3 51.4 26.2 Income Taxes 30.4 39.5 35.5 20.2 10.7 -------- -------- -------- ------ ------ Net Income $ 43.8 $ 56.9 $ 51.8 $ 31.2 $ 15.5 ======== ======== ======== ====== ====== PER COMMON SHARE DATA - ---------------------------------------------------------------------------------------------------------------------------- Basic Net Income per Common Share $ 1.06 $ 1.36 $ 1.23 $ 0.75 $ 0.38 Weighted Average Shares 41,482,378 41,917,762 42,133,843 41,361,967 40,656,760 Diluted Net Income per Common Share $ 1.05 $ 1.34 $ 1.21 $ 0.74 $ 0.37 Weighted Average Shares and Equivalents 41,912,696 42,558,786 42,938,896 42,304,018 41,925,353 Common Shares Outstanding at Year End 41,527,563 41,018,387 42,026,510 41,544,299 40,939,209 FINANCIAL POSITION - ---------------------------------------------------------------------------------------------------------------------------- Total Assets $645.9 $600.4 $537.6 $421.4 $424.2 Fixed Assets, Net 35.0 31.2 37.6 45.2 48.0 Working Capital 175.4 198.7 202.4 168.9 125.0 Notes Payable 10.3 16.5 22.7 27.9 13.7 Noncurrent Liabilities 83.6 72.9 59.7 52.7 22.3 Stockholders' Equity 360.4 309.5 291.9 238.7 203.1
37 39 FIVE-YEAR REVENUES BY TARGET MARKET
Year Ended December 31 (In millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Revenues New Media and Communications Firms(1) $317.4 $337.6 $266.6 $283.0 $331.9 Financial Services Institutions 213.9 193.9 210.2 181.1 154.1 State and Local Governments and Education 327.6 346.3 282.1 171.4 140.7 Federal Government Agencies 353.2 300.3 241.3 189.2 135.7 Other Corporate Clients 67.2 62.2 57.6 47.6 49.8 -------- -------- -------- -------- -------- Total Revenues $1,279.3 $1,240.3 $1,057.8 $872.3 $812.2 ======== ======== ======== ======== ========
- ---------------------------- (1) Formerly referred to as Telecommunications Firms 38 40 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following summary represents the results of operations for the two years in the period ended December 31, 2000. (In millions except per share data)
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Total - ---------------------------------------------------------------------------------------------------------------- 2000: - ---------------------------------------------------------------------------------------------------------------- Revenues $311.1 $318.0 $322.8 $327.4 $1,279.3 Income Before Income Taxes 25.9 27.3 (7.1) 28.1 74.2 Net Income (Loss) 15.3 16.1 (4.2) 16.6 43.8 Basic Earnings per Share 0.37 0.39 (0.10) 0.40 1.06 Diluted Earnings per Share 0.36 0.39 (0.10) 0.40 1.05 1999: - ---------------------------------------------------------------------------------------------------------------- Revenues $290.9 $305.3 $321.9 $322.2 $1,240.3 Income Before Income Taxes 26.8 7.8 30.6 31.2 96.4 Net Income 15.8 4.6 18.1 18.4 56.9 Basic Earnings per Share 0.37 0.11 0.43 0.45 1.36 Diluted Earnings per Share 0.37 0.10 0.43 0.44 1.34
The Company has never paid any cash dividends on its common stock and does not anticipate paying dividends in the foreseeable future. Its policy is to invest retained earnings in the operation and expansion of its business. Future dividend policy with respect to its common stock will be determined by the Board based upon the Company's earnings, financial condition, capital requirements, and other then-existing conditions. STOCK MARKET INFORMATION The common stock of American Management Systems, Incorporated, is traded on the NASDAQ over-the-counter market under the symbol AMSY. References to the stock prices are the high and low bid prices during the calendar quarters.
2000 1999 --------------------- --------------------- High Low High Low - ----------------------------------------------------------------------------- 1st Quarter $44.375 $25.500 $39.375 $31.375 2nd Quarter 44.440 31.750 35.000 25.875 3rd Quarter 34.063 14.000 32.060 23.563 4th Quarter 22.938 15.563 35.250 20.188
The approximate number of shareholders of record of the Company's common stock as of March 23, 2001 was 1,158. 39 41 OTHER INFORMATION TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. Ridgefield Park, N.J. INDEPENDENT ACCOUNTANTS Deloitte & Touche LLP McLean, Virginia COUNSEL Shaw Pittman Washington, D.C. STOCKHOLDER AND 10-K INFORMATION Financial inquiries should be directed to Ronald L. Schillereff, Chief Financial Officer, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. Telephone (703) 267-8000. A complimentary copy of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission will be provided upon written request. ANNUAL MEETING The annual shareholders meeting has been scheduled for May 11, 2001 in Fairfax, Virginia, for stockholders of record on March 22, 2001. 40 EX-21 8 w46812ex21.txt SUBSIDIARIES OF THE COMPANY 1 Exhibit 21 SUBSIDIARIES OF THE COMPANY The following are all of the active subsidiaries of the Registrant and are included in its audited consolidated financial statements filed with its Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Each subsidiary listed is either wholly-owned by the Registrant or by the Registrant and another of its subsidiaries listed below.
Place of Subsidiary (Year Organized or Acquired) Incorporation --------------------------------------- ------------- AMS Technical Systems, Inc. (1983) Delaware Branch Office in Korea (1995) Branch Office in Israel (1997) AMS Management Systems Canada Inc. (1983) Canada American Management Systems Operations Corporation (1984) Delaware AMS Management Systems Australia Pty Limited (1989) Australia AMS Management Systems U.K. Ltd. (1989) England AMS Management Systems Europe, S.A./N.V. (1990) Belgium AMS Management Systems Deutschland GmbH (1990) Germany AMS Management Systems Mexico, S.A. de C.V. (1994) Mexico AMSY Management Systems Netherlands B.V. (1994) The Netherlands Nordic Business Management Systems AB (1994) Sweden AMS Management Systems Espana, S.A. (1995) Spain AMS Management Systems (Switzerland) AG (1995) Switzerland AMS Management Systems Italia, S.p.A (1996) Italy AMS Management Systems Portugal, Lda (1997) Portugal AMS Management Systems France S.A. (1997) France AMS Management Systems Poland Sp. ZO.O (1997) Poland AMS Management Systems International, Inc. (1999) Delaware Budgeting Technologies, Inc. (1999) Maryland AMS Management Systems Norway AS (1999) Norway NACAR Tecnologias De La Informacion, S.L. (2000) Spain InsideOut Technologies, Inc. (2000) Delaware Synergy Consulting, Inc. (2000) Delaware AMS Management Systems Brasil Ltda.(2000) Brazil AMSY Management Systems Hellas E.P.E. (2000) Greece
EX-23 9 w46812ex23.txt CONSENT OF INDEPENDENT ACCOUNTANTS 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements Nos. 333-00563, 333-01557, and 333-08371 of American Management Systems, Incorporated on Form S-8 of our reports dated February 14, 2001, incorporated by reference in the Annual Report on Form 10-K of American Management Systems, Incorporated for the year ended December 31, 2000. DELOITTE & TOUCHE LLP McLean, Virginia March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----