e10vq

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 whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No

The number of shares of the registrant’s common stock outstanding as of October 31, 2003 was 42,399,276.


		Page

PART I. FINANCIAL INFORMATION

	Item 1. Unaudited Consolidated Condensed Financial Statements and Notes		1

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

	Item 3. Quantitative and Qualitative Disclosures about Market Risk		30

	Item 4. Controls and Procedures		30

PART II. OTHER INFORMATION

	Item 1. Legal Proceedings		31

	Item 2. Changes in Securities and Use of Proceeds		32

	Item 3. Defaults Upon Senior Securities		32

	Item 4. Submission of Matters to a Vote of Security Holders		32

	Item 5. Other Information		32

	Item 6. Exhibits and Reports on Form 8-K		32

SIGNATURES			33

American Management Systems, Incorporated
CONSOLIDATED CONDENSED INCOME STATEMENTS
Unaudited
(In thousands, except per share data)


		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,
		2003			2002			2003			2002

REVENUES		$	248,122		$	247,480		$	707,105		$	750,607

EXPENSES:
	Cost of Revenues		155,067			143,369			435,952			437,867
	Selling, General and Administrative		77,471			82,290			232,199			239,508
	Research and Development		2,892			5,981			9,907			19,809
	Restructuring Charge		—			6,000			24,785			22,087
	Software Asset Impairments		—			—			9,555			—
	Contract Litigation Settlement Expense		—			—			45,489			—


INCOME (LOSS) FROM OPERATIONS			12,692			9,840			(50,782	)		31,336

OTHER (INCOME) EXPENSE, NET:
	Interest Expense (Income)		338			(1,074	)		852			19
	Other (Income) Expense		(130	)		870			(426	)		1,179

			208			(204	)		426			1,198


INCOME (LOSS) BEFORE INCOME TAXES			12,484			10,044			(51,208	)		30,138

INCOME TAXES			3,852			1,707			(19,459	)		9,946

NET INCOME (LOSS)		$	8,632		$	8,337		$	(31,749	)	$	20,192


WEIGHTED AVERAGE SHARES OUTSTANDING
	Basic		42,348			42,169			42,309			42,032
	Diluted		42,733			42,372			42,309			42,460

EARNINGS (LOSS) PER SHARE
	Basic	$	0.20		$	0.20		$	(0.75	)	$	0.48
	Diluted	$	0.20		$	0.20		$	(0.75	)	$	0.48

American Management Systems, Incorporated
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)


			September 30, 2003
			(Unaudited)		December 31, 2002

ASSETS

CURRENT ASSETS:
	Cash and Cash Equivalents		$	55,394	$	136,191
	Accounts Receivable, Net			251,421		212,098
	Prepaid Expenses and Other Current Assets			29,601		35,126

		Total Current Assets		336,416		383,415

NONCURRENT ASSETS:
	Property and Equipment (Net of Accumulated Depreciation and Amortization of $48,799 and $44,751)			22,568		24,518
	Purchased and Developed Computer Software (Net of Accumulated Amortization of $155,890 and $136,591)			116,501		90,797
	Intangible Assets (Net of Accumulated Amortization of $600)			16,747		—
	Goodwill, Net			60,600		24,331
	Cash Value of Life Insurance			25,307		29,830
	Other Assets			8,985		69,605

		Total Noncurrent Assets		250,708		239,081


TOTAL ASSETS			$	587,124	$	622,496

American Management Systems, Incorporated
CONSOLIDATED CONDENSED BALANCE SHEETS — continued
(In thousands, except share data)


			September 30, 2003
			(Unaudited)			December 31, 2002

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
	Accounts Payable		$	30,670		$	17,118
	Accrued Compensation and Related Items			48,975			52,674
	Deferred Revenues			18,321			26,115
	Accrued Liabilities			16,788			14,592
	Accrued Restructuring Charge			13,004			7,988
	Income Taxes Payable			368			1,061
	Deferred Income Taxes			1,454			17,159

		Total Current Liabilities		129,580			136,707

NONCURRENT LIABILITIES:
	Deferred Compensation and Other Noncurrent Liabilities			30,359			36,364
	Deferred Income Taxes			20,588			20,044
	Accrued Restructuring Charge			9,844			9,356

		Total Noncurrent Liabilities		60,791			65,764


TOTAL LIABILITIES				190,371			202,471

COMMITMENTS AND CONTINGENCIES — See Note 11

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 42,351,969 and 42,324,218 Outstanding)			510			510
	Capital in Excess of Par Value			82,298			80,309
	Unearned Compensation			(847	)		(2,146	)
	Retained Earnings			353,314			385,063
	Accumulated Other Comprehensive Loss			(6,455	)		(14,915	)
	Treasury Stock, at Cost (8,705,245 and 8,732,996 Shares)			(32,067	)		(28,796	)

		Total Stockholders’ Equity		396,753			420,025


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	587,124		$	622,496

American Management Systems, Incorporated
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)


			For the Nine Months
			Ended September 30,
			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income			$	(31,749	)	$	20,192
Adjustments to Reconcile Net (Loss) Income to Net Cash (Used in) Provided by Operating Activities
	Depreciation			5,138			5,701
	Amortization			25,042			27,118
	Stock Compensation Expense			1,070			2,446
	Deferred Income Taxes			(20,324	)		333
	(Increase) Decrease in Cash Surrender Value of Life Insurance			(1,355	)		840
	Loss on Disposal of Assets			405			324
	Provision for Doubtful Accounts			750			—
	Software Asset Impairments			9,555			—
	Contract Litigation Asset Write-off			30,489			—
	Changes in Assets and Liabilities, Net of Acquisition:
		(Increase) Decrease in Accounts Receivable		(21,403	)		19,311
		Decrease in Prepaid Expenses and Other Assets		19,106			4,170
		Increase (Decrease) in Accounts Payable and Accrued Liabilities		4,225			(5,526	)
		Decrease in Accrued Compensation and Related Items		(21,241	)		(5,292	)
		Decrease in Deferred Revenue		(8,478	)		(13,196	)
		Increase (Decrease) in Accrued Restructuring Charge		5,504			(1,380	)
		Decrease in Income Taxes Payable		(755	)		(13,947	)

Net Cash (Used in) Provided by Operating Activities				(4,021	)		41,094

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment				(2,542	)		(1,069	)
Purchase and Development of Computer Software				(40,347	)		(19,227	)
Acquisition of R.M. Vredenburg & Co., Net of Cash Acquired				(41,236	)		—
Other Assets				5,627			(1,100	)

Net Cash Used in Investing Activities				(78,498	)		(21,396	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Employee Stock Purchase Plan and Common Stock Options Exercised				3,649			6,889
Payments to Acquire Treasury Stock				(5,019	)		(2,948	)
Payment of R.M. Vredenburg & Co. Debt Acquired				(2,660	)		—

Net Cash (Used in) Provided by Financing Activities				(4,030	)		3,941

Effect of Exchange Rate Changes on Cash				5,752			1,779


NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(80,797	)		25,418
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				136,191			53,347

CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	55,394		$	78,765

American Management Systems, Incorporated
SUPPLEMENTAL CONSOLIDATED REVENUES BY MARKET
Unaudited
(In thousands)


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2003		2002		2003		2002

Federal Government Agencies	$	101,219	$	86,639	$	271,645	$	254,825

State and Local Governments and Education		65,852		68,634		192,752		210,199

Communications, Media and Entertainment		44,790		45,689		130,546		151,866

Financial Services Institutions		30,132		30,366		92,062		89,949

Other Corporate Clients		6,129		16,152		20,100		43,768


Total Revenues	$	248,122	$	247,480	$	707,105	$	750,607

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
(In thousands, except per share amounts)

The accompanying unaudited interim consolidated condensed financial statements of American Management Systems, Incorporated (“AMS” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should therefore be read in conjunction with the consolidated financial statements and notes for the fiscal year ended December 31, 2002, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2003. The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the full year. Certain prior period amounts have been reclassified to conform to the current period presentation.

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the statement include certain employee severance costs that are associated with a restructuring, lease termination costs, costs to close or consolidate facilities, or other exit or disposal activities. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The provisions of SFAS No. 146 were applied to activities initiated during the current year included with the Company’s restructuring charge for the nine months ended September 30, 2003. The application of SFAS No. 146 did not represent a material change in the accounting for restructuring costs when compared to the charges taken during the nine months ended September 30, 2002.

In November 2002, the Emerging Issues Task Force issued a final consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” Issue No. 00-21 provides guidance on how and when to recognize revenues from arrangements requiring delivery of more than one product or service. It also addresses how consideration should be measured and allocated to the separate units of accounting in an arrangement. To the extent that a deliverable in an arrangement is within the scope of other existing higher-level authoritative literature, Issue No. 00-21 does not apply. Issue No. 00-21 is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of Issue No. 00-21 is not expected to have a significant effect on the Company’s financial statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. It also requires that a guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee.

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

The initial recognition and measurement provisions of FIN 45 are applicable only on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002.

The disclosure provisions of FIN 45 apply to indemnification agreements that may contingently require a guarantor to make payments. AMS enters into licensing arrangements with its customers for the use of intellectual property with which AMS may indemnify the licensee against liability and damages arising from any third-party claims of patent, copyright, trademark or trade secret infringement. Any third-party claims are subject to contest by AMS and dispute resolution procedures specified in the particular contract. As such, payment by AMS under such indemnification clauses is generally conditional on the claim and thus AMS cannot determine or predict the maximum amount of potential future payments. As of September 30, 2003, the Company was not aware of any indemnification agreements that would require material payments. The adoption of FIN 45 did not have a material effect on the Company’s financial statements.

In December 2002, AMS adopted SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The effect of the adoption of SFAS No. 148 was the addition of a significant accounting policy in Note 1 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. In addition, see Note 2 of this Report for the required quarterly disclosures.

In January 2003, the FASB issued Interpretation No. 46 “Consolidation of Variable Interest Entities – an Interpretation of Accounting Research Bulletin (“ARB”) No. 51” (“FIN 46”). FIN 46 requires the primary beneficiary to consolidate a variable interest entity (“VIE”) if it has a variable interest that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. The provisions of FIN 46 are effective immediately for VIEs created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. FIN 46 will be effective for the first reporting period ending after December 15, 2003. The Company does not currently have any VIEs. Consequently, the adoption of FIN 46 is expected to have no impact on the Company’s results of operations or financial position.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) and not as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective beginning July 1, 2003. The adoption of SFAS No. 150 did not have a material effect on AMS’s financial statements.

At September 30, 2003, the Company accounts for its stock-based compensation plans using the intrinsic value method in accordance with the recognition and measurement principles of the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, no stock-based employee compensation cost was reflected in net income, as all options granted under those plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant. The following table illustrates, in accordance with the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.


	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2003			2002			2003			2002

Net income (loss), as reported	$	8,632		$	8,337		$	(31,749	)	$	20,192

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,314	)		(2,511	)		(4,100	)		(6,422	)


Pro forma net income (loss)	$	7,318		$	5,826		$	(35,849	)	$	13,770


Earnings (loss) per share:
Basic – as reported	$	0.20		$	0.20		$	(0.75	)	$	0.48
Basic – pro forma	$	0.17		$	0.14		$	(0.85	)	$	0.33

Diluted – as reported	$	0.20		$	0.20		$	(0.75	)	$	0.48
Diluted – pro forma	$	0.17		$	0.14		$	(0.85	)	$	0.32

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

In accordance with SFAS No. 130, “Reporting Comprehensive Income,” the components of comprehensive income are as follows:

In accordance with SFAS No. 95 “Statement of Cash Flows,” the following table sets forth non-cash investing and financing activities:

See Note 7 for additional information about the fair value of assets acquired and liabilities assumed from the acquisition of R.M. Vredenburg & Co. (“Vredenburg”).

Basic earnings per share is computed by dividing net income or loss by the weighted average shares outstanding during the period. Diluted earnings per share is computed similarly to basic earnings per share except that the weighted average shares outstanding are increased to include equivalents, when their effect is dilutive.

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)


				For the Three Months				For the Nine Months
				Ended September 30,				Ended September 30,
				2003		2002		2003			2002

Basic EPS
	Numerator: Net Income (Loss)			$	8,632	$	8,377	$	(31,749	)	$	20,192
	Denominator: Weighted Average Shares Outstanding				42,348		42,169		42,309			42,032

	Basic EPS			$	0.20	$	0.20	$	(0.75	)	$	0.48

Diluted EPS
	Numerator: Net Income (Loss)			$	8,632	$	8,377	$	(31,749	)	$	20,192
	Weighted Average Shares and Equivalents:
		Weighted Average Shares Outstanding			42,348		42,169		42,309			42,032
		Effect of Other Dilutive Securities:
			Options		140		7		—			96
			Nonvested Restricted Stock		245		196		—			332

	Denominator: Total Weighted Average Shares and Equivalents				42,733		42,372		42,309			42,460

	Diluted EPS			$	0.20	$	0.20	$	(0.75	)	$	0.48

The following table summarizes the change in the carrying amount of goodwill for the nine months ended September 30, 2003.

On July 15, 2003, the Company announced the award of a subcontractor agreement with IBM Global Services (the “IBM Contract”) to build a statewide computer network to track child support payments for the California Department of Child Support Services. The AMS portion of the eight-year IBM Contract is valued at approximately $223,500. Under the terms of an asset purchase agreement dated August 21, 2000 between Synergy Consulting, Inc. (a wholly-owned subsidiary of AMS) and GLMRR Corp., the Company is obligated to make two additional purchase price payments totaling 3.5% of the value of the IBM Contract. These payments, totaling $7,824, are to be paid 50% upon execution of the IBM Contract and 50% after two years from the date the IBM Contract is executed or work commences, whichever is later. As of September 30, 2003 these accrued liabilities were recorded as additional goodwill. Information about the acquisition of Vredenburg can be found at Note 7.

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

During 2002, the Company held a minority interest in Proponix, a corporation that provided trade services outsourcing solutions for banks. On November 15, 2002 the Company entered into an agreement with Proponix and its other shareholders to restructure the ownership and operations of Proponix. In exchange for receiving certain assets of Proponix and contracts to provide trade processing services, AMS agreed to relinquish its minority ownership interest as well as make payments to partially sustain the operations of Proponix up to the closing date. The transaction closed on March 31, 2003. During the three months ended March 31, 2003, the Company relinquished its investment of $16,266 and made net cash payments to Proponix of $2,321. As a result of the transaction, AMS recorded a software asset of $16,140 and other intangible assets of $2,447. The software asset has an estimated useful life of five years and the intangible assets have a weighted average useful life of three years.

All of the Company’s intangible assets are subject to amortization and are being amortized on a straight-line basis. Aggregate amortization expense for the three and nine months ended September 30, 2003 was $397 and $600, respectively. The table below shows expected amortization for the next five years.

On August 1, 2003, the Company acquired 100% of the outstanding common shares of R.M. Vredenburg & Co., a leading provider of professional and technical services to the Department of Defense and U.S. Intelligence communities. The results of operations of Vredenburg have been included with the consolidated financial statements since that date. The acquisition adds critical infrastructure protection capabilities, sophisticated document management technologies, and new program management expertise to the Company’s offerings in financial management, acquisition and procurement, business intelligence, enterprise architecture, and technology consulting.

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

The aggregate purchase price, net of cash acquired, was $42,939 and included cash payments of $41,236 and a net liability of $1,703 that was subsequently paid in October 2003. The following table summarizes the fair values of assets acquired and liabilities assumed at the acquisition date based upon an independent third-party valuation.


		At August 1, 2003

Accounts Receivable		$	13,951
Other Current Assets, net of cash acquired			3,259
Other Noncurrent Assets			4,619
Developed Computer Software			3,480
Intangible Assets			14,900
Goodwill			28,445

	Total Assets Acquired		68,654

Short-Term Debt			(1,083	)
Accounts Payable and Other Current Liabilities			(16,554	)
Long-Term Debt			(1,577	)
Other Noncurrent Liabilities			(6,501	)

	Total Liabilities Assumed		(25,715	)


Net Assets Acquired		$	42,939

The $3,480 developed computer software assets have estimated useful lives of five years. The $14,900 of intangible assets represents customer relationships that have a weighted average useful life of 14 years. Of the $28,445 of goodwill, none is expected to be deductible for tax purposes. During the third quarter of 2003, the Company repaid the $2,660 in short-term and long-term debt along with $2,008 in executive management retention and severance agreements included in other current and noncurrent liabilities noted above. At September 30, 2003, a remaining liability for retention agreements of $2,292 is included in the consolidated balance sheet and is expected to be paid over the next two years. The stock purchase agreement also includes contingent purchase price payments of up to $4,000 if certain performance conditions are met. These payments will be made during the next nine months if the contingent performance conditions are met, and will be recorded as additional goodwill.

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

The following pro forma condensed financial information is based upon the historical financial statements of AMS and Vredenburg adjusted to give effect to the Vredenburg acquisition as if it had occurred on January 1, 2002.

NOTE 8 – RESTRUCTURING CHARGE
(Staff reductions reported in actual amounts, dollars in thousands)

In an effort to achieve cost reductions and align its work force with changing market conditions and revenue outlook, the Company recorded a charge of $18,689 in the second quarter of 2003 for severance and severance-related costs. The severance costs are for the separation of 241 employees in the U.S. and Europe and primarily relate to a reduction in senior level staff and management positions. In addition, during 2002 and 2001, the Company implemented restructuring plans and recorded charges totaling $54,781 for severance and severance-related costs related to a total of 2,128 staff reductions. Of the 2,369 total staff reductions related to the 2003, 2002, and 2001 plans, 34 individuals remain to be separated at September 30, 2003. The remaining $7,803 liability as of September 30, 2003 for severance and severance-related costs is expected to be paid over the next year.

During 2002 and 2001, the Company recorded charges totaling $25,481 for the closure and consolidation of facilities. During the second quarter of 2003, the Company recorded a charge of $2,642 related to changes in estimates of the timing and amount of anticipated subtenant rental payments associated with the prior facility restructuring plan. The Company also recorded an additional charge of $3,454 in the second quarter of 2003 related to the closure and consolidation of additional facilities. Of the remaining $15,045 total liability at September 30, 2003, $9,844 represents a noncurrent liability for costs to be incurred through 2010.

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

Restructuring reserve activities as of and for the nine months ended September 30, 2003 were as follows:


			Severance
			& Benefits			Facilities			Total

Restructuring Liability as of January 1, 2003			$	3,368		$	13,976		$	17,344

Restructuring Charge
	First Quarter			—			—			—
	Second Quarter			18,689			3,454			22,143
	Second Quarter Change in Estimate			—			2,642			2,642

		Total Restructuring Charge		18,689			6,096			24,785
Cash Payments				(14,254	)		(5,027	)		(19,281	)

Restructuring Liability as of September 30, 2003			$	7,803		$	15,045		$	22,848

During the nine months ended September 30, 2003 the Company recorded a software asset impairment charge of $9,555. This charge was for the write-off of certain non-performing purchased and developed software assets that are no longer expected to provide future value.

During the nine months ended September 30, 2003 the Company’s annual effective tax rate was 38.0% as compared to 33.0% for the nine months ended September 30, 2002. The 2002 annual effective tax rate of 33.0% reflected the expected value of tax refunds due from amending prior years’ Federal income tax returns to claim additional research and experimentation tax credits.

On June 20, 2003, AMS, the Federal Retirement Thrift Investment Board (the “Thrift Board”) and the United States entered into a written settlement agreement (“Settlement Agreement”) resolving all outstanding litigation and claims among them relating to AMS’s work on the Thrift Board contract. Under the terms of the settlement agreement, the Thrift Board agreed to pay AMS $10,000 for work performed under the contract for which payment remained outstanding. The remaining $30,489 contract receivable was written off in the second quarter of 2003. In addition, AMS agreed to pay $15,000 to the Thrift Savings Plan as partial reimbursement of the $31,000 the Company previously had received for other work it had performed under the Thrift Board contract. Accordingly, AMS recorded a contract litigation settlement expense of $45,489 for the three months ended June 30, 2003. All parties to the case — Gary A. Amelio, the current Executive Director of the Thrift Board, AMS, and the United States — further agreed to dismiss and terminate all litigation and claims relating to the Thrift Board contract.

American Management Systems, Incorporated
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — continued
Unaudited
(In thousands, except per share amounts)

On June 25, 2003, Thrift Savings Plan participant Roger W. Mehle (the former Executive Director of the Thrift Board) filed in the United States Court of Appeals for the District of Columbia Circuit, as a non-party, a Motion for Leave to Intervene. Among other things, Mr. Mehle requested that the Court of Appeals issue its ruling in the case, notwithstanding the settlement that had been reached by all parties to the case.

On July 1, 2003, the parties exchanged the payments contemplated under the Settlement Agreement and filed Stipulations of Dismissal in the United States Court of Federal Claims (“CFC”) and the United States Court of Appeals for the District of Columbia Circuit. On July 2, 2003, the CFC entered final dismissal of the action which had been pending in that court. On July 8, 2003, with respect to the matter in the United States Court of Appeals for the District of Columbia Circuit, Appellant Gary A. Amelio, the United States, and AMS each filed separate Oppositions to Mr. Mehle’s Motion for Leave to Intervene. On July 15, 2003, Mr. Mehle filed his initial Reply to all three opposition briefs, followed on July 17, 2003 by an Amended/Corrected Reply. By order filed on August 11, 2003, the United States Court of Appeals for the District of Columbia Circuit denied Mr. Mehle’s Motion for Leave to Intervene and dismissed the case.

On September 24, 2003, Mr. Mehle filed in the United States Court of Appeals for the District of Columbia Circuit a petition seeking a panel rehearing (those three members of the Court who had originally considered the Motion for Leave to Intervene) and a rehearing en banc (all the members of the Court) of that Court’s prior panel decision denying his Motion for Leave to Intervene. By written orders dated October 17, 2003, the United States Court of Appeals for the District of Columbia Circuit denied Mr. Mehle’s requests for a rehearing.

On September 22, 2003, AMS received notice of a federal whistleblower lawsuit which was filed by private relators. The lawsuit is pending in the United States District Court for the Southern District of Ohio (Western Division). The suit, which was originally filed on May 9, 2002, was recently unsealed following mandatory United States Department of Justice review of the allegations. The suit alleges that AMS invoiced the Ohio Department of Job and Family Services (“ODJFS”) for work performed on tasks unrelated to an ODJFS project that was the subject of a federal block grant and, as a result, received as payment from the State of Ohio federal monies for work that was not eligible for federal reimbursement. It further alleges that AMS utilized certain personnel who did not satisfy the requisite qualifications for assignment to the ODJFS project. The suit seeks damages and civil penalties. The United States Department of Justice, which is required to investigate and review all whistleblower actions of this nature, conducted its review in this case and declined to intervene in the suit. AMS has reviewed the matter and intends to vigorously defend against the allegations that have been advanced.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited consolidated condensed financial statements and notes included in this Quarterly Report on Form 10-Q and our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2002. We use the terms “AMS,” “we,” “our,” and “us” to refer to American Management Systems, Incorporated and its subsidiaries.

Investors are cautioned that this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to our operations that are based on our current expectations, estimates and projections. Words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Actual results may differ materially from what is expressed or forecast in these forward-looking statements. The reasons for this include changes in general economic and political conditions, including fluctuations in exchange rates and the following factors:

•

The current economic downturn has caused, and future economic downturns may cause, our revenues to decline.

•

Our business may be negatively affected if we are not able to anticipate and keep pace with rapid changes in technology.

•

The consulting, technology and outsourcing markets are highly competitive, and we may not be able to compete effectively.

•

Our success is highly dependent on our ability to recruit and retain talented employees.

•

We rely on relatively few customers for a significant portion of our business.

•

Adverse changes in government spending could have a negative effect on our business.

•

Profitability on our contracts may be adversely affected by project-related risks.

•

Our profitability will suffer if we are not able to maintain our pricing and utilization rates and control our costs.

•

Our profitability may decline due to financial and operational risks inherent in worldwide operations.

•

There are risks inherent in a strategy that includes the acquisition of other businesses.

•

We may face legal liabilities or damage to our professional reputation from claims made against our work.

•

Our services or solutions may infringe on the intellectual property rights of others.

•

Despite our efforts, our ability to fully protect our intellectual property rights is limited.

For a more detailed discussion of these factors, see the information under the heading “Business – Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002. We specifically disclaim any obligation to update these forward-looking statements. These forward-looking statements should not be relied on as representing our estimates or views as of any subsequent date.

AMS is a premier business and IT consulting firm to the government, financial services, and communications industries around the globe. We combine our IT and industry subject matter expertise and knowledge to drive high-performance results. Our mission is to improve business performance for our customers through the intelligent use of technology.

Known for our delivery and service excellence for more than 30 years, we specialize in enterprise resource planning, credit risk management, customer relationship management, and enterprise security. AMS applies both proprietary and partner technologies and provides solutions through business consulting, systems integration, and outsourcing.

We engage in business activities as one operating segment and we deliver our services through five target markets where we have significant industry knowledge. This knowledge has been gained through technology ingenuity, experience, and commitment. Our focus on specific industries allows us to tailor our offerings to reflect an understanding of the markets in which our customers operate.

We derive our revenues primarily from contracts for business and IT solutions. The economic environment and level of business activity from our customers affect our revenues. Due to the slowdown in the economy, political uncertainty and weak IT market since 2001, customers curtailed or postponed their spending on IT and consulting services reducing the number of new contracts into which we entered.

Revenues
Our contracts are generally fixed-price, time-and-materials or cost-reimbursable type contracts. With our fixed-price contracts, we believe that we have the ability to produce reasonably dependable estimates regarding the extent of progress toward completion. Revenues from these contracts are recognized using the percentage-of-completion basis of accounting based on the percentage of costs incurred in relation to total estimated costs to be incurred over the duration of the contract. We continually review these estimates during the term of the contract. Our review may result in the revision of recognized revenues and estimated total costs during the period when changes in circumstances are identified. Revenues from time-and-materials contracts are recognized to the extent of billable rates times hours delivered plus reimbursable expenses incurred. Revenues from cost-reimbursable contracts are recognized to the extent of costs incurred plus a proportionate amount of the fees earned.

Significant portions of our revenues are from contracts that include the sale of our proprietary software solutions. The majority of these contracts relate to large systems integration projects that provide for the

integration and customization of our core software. These long-term production-type contracts generally include the delivery of software, integration and customization services, training and maintenance. For these contracts, the entire contract value is generally recognized as revenues using the percentage-of-completion basis of accounting. Large systems integration projects with certain federal customers are structured in phases (e.g., base contract period plus option periods). Option periods for federal customers’ contracts are typically exercised on government appropriations and at the customers’ discretion. These federal contracts require formal acceptance at the end of each phase. Phases may be on a time-and-materials and/or fixed-price basis. As these federal customers only commit to one phase at a time, we recognize revenues by phase for these contracts.

We also enter into contracts with clients that we refer to as benefits-funded contracts. These contracts are similar to our other large systems integration fixed-price contracts; however, the amounts due to us are payable from actual monetary benefits derived by the customer. Benefits-funded contracts are used solely in situations where the customer receives tangible and quantifiable monetary benefits directly from the new system and processes we implemented. These customers have historically been state or city departments of revenue or taxation, with the systems implemented consisting of new integrated tax systems that enable the organizations to find incremental lost tax revenues. For these contracts, we recognize revenues only to the extent that we can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the value on which revenue recognition is based.

Less than 5% of our revenues include the sale of off-the-shelf software for which there are no significant integration or modification services necessary. These contracts often bundle maintenance or other services along with the sale of the software. Maintenance and product support services sold with software generally provide for minor programming corrections, new releases and help desk support. The terms of the maintenance agreements vary with each customer but maintenance is generally sold for a twelve-month period, with renewals occurring annually, based on renewal rates stated in the original contract. For contracts that include off-the-shelf software and maintenance or other services, we assign part of the contract value to each element of the contract based on its relative fair value and recognize revenues for the license fee once the software has been delivered. Maintenance revenues are recognized ratably over the maintenance period and service revenues are recognized as services are delivered.

Additionally, we enter into contracts with customers that do not include the sale or integration of software. These contracts offer management consulting or training services and are typically performed on a time-and-materials or cost-reimbursable basis.

Certain of our contracts relate to systems that we implement and host for customers. Revenues are recognized from these contracts in accordance with the contractual terms on a straight-line or transaction-volume basis, as appropriate.

On all of our contracts, expense reimbursements, including those relating to travel and out-of-pocket expenses, are included in revenues, and an equivalent amount of reimbursable expenses are included in cost of revenues.

Operating Expenses
Our major types of operating expenses comprise the following:

•

Cost of Revenues include direct expenses to provide products and services to our customers such as compensation costs, travel and out-of-pocket expenses, costs for subcontractors, amortization of purchased and developed software for external sale to customers, product support and maintenance costs.

•

Selling, General and Administrative (“SG&A”) includes expenses indirectly related to the delivery of products or services such as compensation for support personnel, costs for information systems, selling and marketing expenses, recruiting and training expenses, depreciation expense, and amortization expense for internal-use software.

•

Research and Development includes expenses incurred as part of the software development cycle that are not capitalized.

•

Restructuring Charge includes expenses associated with employee severance and abandoned facilities.

•

Software Asset Impairments include significant expenses associated with the write-down of certain software assets to net realizable value.

•

Contract Litigation Settlement Expense includes costs associated with the settlement of litigation with the Federal Retirement Thrift Investment Board.

Interest Expense
Interest expense (net of interest income) is related to interest incurred on borrowings and fees on our revolving credit facility. It also includes interest expense related to our deferred compensation plans.

Other Income
Other income (net of other expense) contains activity not related to our primary business. For example, other income includes gains and losses on the disposal of assets and market gains and losses and premium expense on company-owned life insurance policies.

The discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated condensed financial statements. The preparation of these interim financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Application of these policies is particularly important to the portrayal of our financial condition and results of operations. Accounting policies and estimates that management believes are most critical to our financial condition and operating results pertain to revenue recognition, net realizable value of software, income taxes and variable compensation. We have discussed the application of these critical accounting policies with the Audit Committee of our Board of Directors.

Revenue Recognition
Our revenues are generated from contractual arrangements, some of which are complex in nature. Many of these contracts require significant revenue recognition judgments, particularly in the areas of progress toward completion, multiple-element arrangements and, primarily with respect to our benefits-funded contracts, collectibility. Our contracts are generally fixed-price, time-and-materials or cost-reimbursable type contracts. Revenues from fixed-price contracts are recognized using the percentage-of-completion

basis of accounting based on the percentage of costs incurred in relation to total estimated costs to be incurred over the duration of the contract. Revenues from time-and-materials contracts are recognized to the extent of billable rates times hours delivered plus reimbursable expenses incurred. Revenues from cost-reimbursable contracts are recognized to the extent of costs incurred plus a proportionate amount of the fees earned.

In using the percentage-of-completion basis of accounting for our fixed-price (including benefits-funded) contracts, we make important judgments in estimating total costs to complete the contracts in determining revenue recognition. These judgments underlie our determinations regarding overall contract value and contract profitability. As such, these estimates are continually reviewed during the term of the contract and may result in our revision of recognized revenues and estimated total costs during the period when changes in circumstances are identified. Circumstances that may result in changes to recognized revenues include changes in estimates of costs required to complete an engagement, changes in staffing mix and changes in customer participation, as well as other factors.

Our benefits-funded contracts are similar to our other large systems integration fixed-price contracts with the exception that the amounts due to us are payable from the actual monetary benefits derived by the customer. As such, these contracts require us to apply judgments in determining whether the full contract value will be funded and what the expected profitability on the contract will be. Benefits-funded contracts are used solely in situations where the customer receives tangible and quantifiable monetary benefits directly from the new system and processes we implemented. For these contracts, we recognize revenues only to the extent that we can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the value on which revenue recognition is based.

Net Realizable Value of Software
We develop software for external sale and capitalize the associated software development costs once technological feasibility has been established. We regularly evaluate the net realizable value of capitalized software using the estimated, undiscounted, net cash flows of the underlying products. Asset balances that exceed the expected net realizable value are written-off as software asset impairments.

Income Taxes
Determining the consolidated provision for income tax expense, deferred tax assets and liabilities and the related valuation allowance involves judgments. As a global company with subsidiaries in 16 foreign countries and the U.S., we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated levels of annual pre-tax income can affect our overall effective tax rate.

Variable Compensation
Variable compensation is a significant discretionary expense that is highly dependent on management’s estimates and judgments, particularly at each interim reporting date. In arriving at the amount of expense to recognize, management believes it makes reasonable estimates and judgments using all significant information available. Expenses accrued for variable compensation are based on actual quarterly and annual performance versus plan targets and other factors. Amounts accrued are subject to change in future periods until annual results are finalized. No amounts for variable compensation have been recorded during the nine months ended September 30, 2003.

The following table illustrates the unaudited percentage of revenues represented by items in our unaudited consolidated condensed income statements for the periods presented.


	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2003			2002			2003			2002

REVENUES		100	%		100	%		100	%		100	%

EXPENSES:
Cost of Revenues		62.5	%		57.9	%		61.7	%		58.3	%
Selling, General and Administrative		31.2	%		33.3	%		32.8	%		32.0	%
Research and Development		1.2	%		2.4	%		1.4	%		2.6	%
Restructuring Charge		—			2.4	%		3.5	%		2.9	%
Software Asset Impairments		—			—			1.4	%		—
Contract Litigation Settlement Expense		—			—			6.4	%		—


INCOME (LOSS) FROM OPERATIONS		5.1	%		4.0	%		(7.2	)%		4.2	%

OTHER (INCOME) EXPENSE, NET		0.1	%		(0.1	)%		n/m			0.2	%


INCOME (LOSS) BEFORE INCOME TAXES		5.0	%		4.1	%		(7.2	)%		4.0	%

INCOME TAXES		1.5	%		0.7	%		(2.7	)%		1.3	%


NET INCOME (LOSS)		3.5	%		3.4	%		(4.5	)%		2.7	%

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002

Revenues
Revenues for the three months ended September 30, 2003 were $248.1 million, an increase of $0.6 million, or 0.3%, compared to the same period in 2002. Revenues for the three months ended September 30, 2003 were positively influenced by the acquisition of R. M. Vredenburg & Co. (“Vredenburg”) on August 1, 2003 that increased our revenues by $14.5 million. Excluding the impact of the Vredenburg acquisition, revenues for the three months ended September 30, 2003 in our Federal Government Agencies target market were flat compared to the same period in 2002. Revenues in all other target markets declined from the same period of the prior year as customers reduced their spending on IT and consulting services due to the continued slowdown in the economy and the continued weakness in the IT market. For the three months ended September 30, 2003, in the State and Local Governments and Education target market, revenues dropped $2.8 million from the same period in 2002. Revenues in our Other Corporate Clients target market declined $10.0 million from the same period in 2002. The decline was largely influenced by the sale of our global utilities practice on December 31, 2002 as well as decreased activity with clients in the healthcare and energy industries. The proportion of our total revenues derived from the public sector for the three months ended September 30, 2003 was 67.3%, an

increase of 4.6% from the same period in 2002 due to our acquisition of Vredenburg. The public sector is composed of revenues attributable to our Federal Government Agencies and State and Local Governments and Education target markets.

Revenues from U.S. customers increased 1.3% to $214.9 million for the three months ended September 30, 2003, while revenues from international customers declined 5.8% to $33.2 million. Excluding Vredenburg revenues of $14.5 million in 2003 and global utilities practice revenues in 2002 of $5.9 million for U.S. customers and $2.4 million for international customers, revenues from U.S. customers declined 2.9% to $200.4 million for the three months ended September 30, 2003 while revenues from international customers increased 1.1% to $33.2 million. Revenues from international customers were derived primarily from work with customers in the Communications, Media and Entertainment and Financial Services Institutions target markets across Europe, Asia and the Pacific Rim. Excluding the net impact of revenues associated with Vredenburg in 2003 and the global utilities practice in 2002, business with international customers represented 14.2% of our total revenues for the three months ended September 30, 2003 compared to 13.7% for the same period in 2002.

Operating Expenses
Total operating expenses for the three months ended September 30, 2003 were $235.4 million, a decrease of $2.2 million, or 0.9%, compared to operating expenses for the same period in 2002. As a percentage of revenues, operating expenses decreased from 96.0% for the three months ended September 30, 2002 to 94.9% for the same period in 2003. During the three months ended September 30, 2002, we recorded a restructuring charge of $6.0 million. Excluding this item, operating expenses as a percentage of revenues were 93.6% for the three months ended September 30, 2002. Excluding restructuring charges, our operating profit margins were 5.1% and 6.4%, respectively, for the three months ended September 30, 2003 and 2002. We believe our presentation of operating profit margins excluding restructuring charges is useful in evaluating our ongoing business. In both bidding for new contracts and performing existing contracts, management closely monitors operating profit margins (revenues received from the contracts minus operating expenses excluding restructuring charges as a percentage of revenues). To management, this best presents the economic performance of the ongoing fundamental business of AMS. In computing operating profit margins for internal analysis, we exclude significant episodic costs, such as severance costs, which are not related to the staff, facilities and other costs that are required to perform the contracts from which revenues are received.

Cost of Revenues
Cost of revenues were $155.1 million for the three months ended September 30, 2003, an increase of $11.7 million, or 8.2%, compared with the same period in 2002. Excluding approximately $3.0 million associated with the sale of our global utilities practice, cost of revenues increased $14.7 million compared with the same period in 2002. The increase was attributable in part to added costs of $10.1 million related to the acquisition of Vredenburg and higher product development and support expenses of $1.4 million. Partially offsetting the increases were reduced incentive compensation of $1.0 million and reduced amortization expense of purchased and developed software for external sale to customers of $1.8 million. As a percentage of revenues, cost of revenues increased from 57.9% for the three months ended September 30, 2002 to 62.5% for the three months ended September 30, 2003. Excluding the activity associated with the sale of our global utilities practice and the acquisition of Vredenburg, cost of revenues, as a percentage of revenues, was 62.1% and 58.7% for the three months ended September 30, 2003 and 2002, respectively. The increase was attributable, in part, to approximately $6.0 million of revenues recorded for the three months ended September 30, 2002, for which we had no concurrent period cost of revenues. Pricing pressures from our competitors and clients have also adversely impacted our gross margins (revenues less cost of revenues).

Selling, General and Administrative
SG&A expenses were $77.5 million for the three months ended September 30, 2003, a decrease of $4.8 million, or 5.9%, compared with the same period in 2002. The decline was partly attributable to reduced expense for senior level management of $3.3 million as a result of our restructuring efforts. No variable compensation was included in SG&A for the three months ended September 30, 2003, while $2.0 million was recorded in the comparable 2002 period. The three months ended September 30, 2002 included $1.6 million of consulting fees related to the analysis and preparation of amended Federal income tax returns claiming additional research and experimentation tax credits, while the comparable period in 2003 did not. These reductions were offset in part by severance costs of $1.1 million and sales commissions of $3.3 million. Expenses for the three months ended September 30, 2002 related to the global utilities practice ($1.3 million) were comparable to expenses for the three months ended September 30, 2003 related to the acquisition of Vredenburg ($1.2 million), and therefore, the net acquisition and disposition activity had no impact on comparability. SG&A expenses as a percentage of revenues were 31.2% and 33.3% for the three-month periods ended September 30, 2003 and 2002, respectively. SG&A as a percentage of revenues on a comparable basis, apart from Vredenburg activity in 2003 and the global utilities practice activity in 2002, decreased to 32.7% for the three months ended September 30, 2003 from 33.8% for the three months ended September 30, 2002.

Research and Development
Research and development expenses were $2.9 million for the three months ended September 30, 2003, a decrease of $3.1 million, or 51.6%, compared with the same period in 2002. The decrease was primarily related to the transition of several software development projects related to our Federal Government Agencies target market from the initial research and development phase to capitalized development. The decrease was also due to a decline in non-capitalized development costs on our next generation customer care and billing software, Tapestry®, of $1.3 million.

Restructuring Charge
We incurred no restructuring charge for the three months ended September 30, 2003. The $6.0 million restructuring charge for the three months ended September 30, 2002 for severance and severance-related costs was incurred to align our workforce with market conditions and our revenue outlook, primarily with respect to the telecommunications market.

Interest Expense/Income
Interest expense was $0.3 million for the three months ended September 30, 2003. Interest income was $1.1 million for the three months ended September 30, 2002. Interest income for the three months ended September 30, 2002 included $1.4 million of interest income for amended prior year Federal income tax returns claiming additional research and experimentation tax credits, while the comparable period in 2003 did not. Interest expense related to our executive deferred compensation program for the three months ended September 30, 2003 was comparable to the same period in 2002.

Other Income/Expense
Other income was $0.1 million for the three months ended September 30, 2003. Other expense was $0.9 million for the three months ended September 30, 2002. This change was primarily related to the reduction in premium expense offset by the change in cash surrender value of company-owned life insurance which decreased $1.3 million for the three months ended September 30, 2003 as compared to the same period in 2002 as a result of the withdrawals from the policies in order to fund distributions from the executive deferred compensation program.

Income Taxes
Our consolidated effective income tax rate increased from 17.0% for the three months ended September 30, 2002 to 30.9% for the three months ended September 30, 2003. The rate for the three months ended September 30, 2002 included a true-up to the expected annual effective tax rate based upon expected refunds on prior year Federal income tax returns as a result of additional research and experimentation

tax credits. The rate for the three months ended September 30, 2003 did not include these prior year tax benefits.

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Revenues
Revenues for the nine months ended September 30, 2003 were $707.1 million, a decrease of $43.5 million, or 5.8%, compared to the same period in 2002. For the nine months ended September 30, 2003, $20.1 million of the $43.5 million decline in revenues was associated with the sale of our global utilities practice in December 2002. This was offset by an additional $14.5 million related to revenues from the Vredenburg acquisition on August 1, 2003. Excluding the net impact of acquisition and disposition activity, revenues for the nine months ended September 30, 2003 declined 5.2% or, $37.9 million, compared to the same period in 2002. The overall decline was attributable to our Communications, Media and Entertainment target market due to the continued global weakening in the telecommunications industry. Revenues in this target market dropped $21.3 million compared to the same period in 2002 as customers reduced their spending in response to the continued slowdown in the economy and the continued weakness in the IT market. We also experienced a significant revenue decline of $17.4 million in the State and Local Governments and Education target market as states and localities reacted to revenue shortfalls and budget deficits with reduced IT and consulting spending. Excluding revenues associated with the sale of our global utilities practice of $20.1 million, revenues in our Other Corporate Clients target market declined $3.6 million compared to the same period in 2002. The decline was attributable to decreased activity with clients in the healthcare and energy industries. Partially offsetting these declines, revenues for the nine months ended September 30, 2003 increased $16.8 million in our Federal Government Agencies target market and $2.1 million in our Financial Services Institutions target market, compared to the same period in 2002. Excluding the impact of acquiring Vredenburg, our Federal Government Agencies target market increased $2.3 million due to increased demand for our intelligence offerings. The proportion of our total revenues derived from the public sector for the nine months ended September 30, 2003 was 65.7%, an increase of 3.7%, from the same period in 2002 primarily due to our Vredenburg acquisition. Approximately 85% of our consolidated revenues continue to come from customers with whom we have previously performed work.

Revenues from U.S. customers declined 6.6% to $608.6 million for the nine months ended September 30, 2003. Revenues from international customers declined 0.6% to $98.5 million. Excluding Vredenburg revenues of $14.5 million in 2003 and global utilities practice revenues in 2002 of $14.3 million for U.S. customers and $5.8 million for international customers, revenues from U.S. customers declined 6.8% to $594.1 million for the nine months ended September 30, 2003 while revenues from international customers increased 5.7% to $98.5 million. Revenues from international customers were derived primarily from work with customers in the Communications, Media and Entertainment and Financial Services Institutions target markets across Europe, Asia and the Pacific Rim. Excluding the net impact of revenues associated with Vredenburg in 2003 and our global utilities practice in 2002, business with international customers represented 14.2% of our total revenues for the nine months ended September 30, 2003, compared to 12.8% for the same period in 2002.

Operating Expenses
Total operating expenses for the first nine months of 2003 were $757.9 million, an increase of $38.6 million, or 5.4%, compared to operating expenses in the same period in 2002. As a percentage of revenues, operating expenses increased from 95.8% for the nine months ended September 30, 2002 to 107.2% for the same period in 2003. Operating expenses excluding restructuring charges of $22.1 million for the nine months ended September 30, 2002 were $697.2 million. Total operating expenses excluding restructuring charges, software asset impairments and contract litigation settlement expense for

the nine months ended September 30, 2003 were $678.1 million, a decrease of $19.1 million, or 2.7%, compared to operating expenses excluding the restructuring charge in the comparable period in 2002. As a percentage of revenues, operating expenses before restructuring charges, software asset impairments and contract litigation settlement expense increased from 92.9% for the nine months ended September 30, 2002 to 95.9% for the same period in 2003. Operating profit margins excluding episodic charges decreased from 7.1% for the nine months ended September 30, 2002 to 4.1% for the same period in 2003. We believe our presentation of operating profit margins excluding these charges is useful in evaluating our ongoing business. In both bidding for new contracts and performing existing contracts, management closely monitors operating profit margins (the revenues received from the contracts minus operating expenses excluding restructuring charges, software asset impairments and contract litigation settlement expense as a percentage of revenues). To management, this best represents the economic performance of the ongoing fundamental business of AMS. In computing operating profit margins for internal analysis, we exclude significant episodic costs, such as severance costs and litigation costs, which are not related to the staff, facilities and other costs that are required to perform the contracts from which revenues are received.

Cost of Revenues
Cost of revenues were $436.0 million for the nine months ended September 30, 2003, a decrease of $1.9 million, or 0.4%, compared with the same period in 2002. Excluding approximately $8.1 million of costs in 2002 related to our global utilities practice that was sold in 2002, cost of revenues increased $6.2 million compared with the same period in 2002. The increase was attributable in part to added costs of $10.1 million related to the acquisition of Vredenburg, higher product development and support expenses of $1.4 million and higher bad debt expense of $0.8 million related to the write-off of a specific client receivable. These increases were offset in part by incentive compensation of $3.0 million recorded in 2002 and reduced amortization expense of purchased and developed software for external sale to customers of $2.2 million. As a percentage of revenues, cost of revenues increased from 58.3% for the nine months ended September 30, 2002 to 61.7% for the nine months ended September 30, 2003. Excluding cost of revenues of $8.1 million associated with our global utilities practice in 2002 and $10.1 million for Vredenburg in 2003, cost of revenues, as a percentage of revenues, was 61.5% and 58.8% for the nine months ended September 30, 2003 and 2002, respectively. Approximately 0.5% of the 2.9% decrease in cost of revenues as a percentage of revenue is related to $6.0 million of revenues for the nine months ended September 30, 2002, for which there were no associated costs in the period. Pricing pressures from our competitors and clients, as well as increased cost of revenues attributable to higher project-related costs in connection with certain fixed-price client engagements, have also adversely affected our gross margins.

Selling, General and Administrative
SG&A expenses were $232.2 million for the nine months ended September 30, 2003, a decrease of $7.3 million, or 3.1%, compared with the same period in 2002. The decline was attributable to reduced incentive compensation of $4.4 million for personnel not directly related to the delivery of services. In addition, we realized reduced expense for senior level management of $4.2 million as a result of our restructuring efforts. Additionally, approximately $4.0 million of expenses related to the global utilities practice were incurred for the nine months ended September 30, 2002, but not during the same period of 2003. These reductions were offset in part by increased business development expense of $1.7 million and increased severance costs of $1.1 million for the nine months ended September 30, 2003 compared to the same period of 2002. We also experienced increased recruiting expenses of $1.8 million for senior-level professionals to support new business strategies and professionals with security clearances to support our defense and intelligence agency business for the nine months ended September 30, 2003 compared to the same period of 2002. Additionally, approximately $1.2 million of expenses from the Vredenburg acquisition were incurred for the nine months ended September 30, 2003, but not during the same period in 2002. SG&A expenses as a percentage of revenues were 32.8% and 32.0% for

the nine month periods ended September 30, 2003 and 2002, respectively. SG&A as a percentage of revenues on a comparable basis, apart from Vredenburg activity in 2003 and our global utilities practice activity in 2002, increased from 32.2% for the nine months ended September 30, 2002 to 33.4% for the nine months ended September 30, 2003.

Research and Development
Research and development expenses were $9.9 million for the nine months ended September 30, 2003, a decrease of $9.9 million, or 50.0%, compared with the same period in 2002. The decrease was primarily related to the transition of several software development projects related to our Federal Government Agencies target market and our State and Local Governments and Education market from the initial research and development phase to capitalized development. The decrease was also due to a decline in non-capitalized development costs on our next generation customer care and billing software, Tapestry®.

Restructuring Charge
In an effort to align our workforce with market conditions and our revenue outlook, we incurred a $24.8 million restructuring charge for the nine months ended September 30, 2003. The charge included $18.7 million for severance and severance-related expense costs. The severance costs primarily relate to a reduction in senior level staff and management positions. In total, 241 employees are being separated in the U.S. and Europe. In addition, the charge included $2.6 million related to changes in estimates associated with our liability for the closure and consolidation of facilities, primarily due to declining real estate market conditions and the timing of anticipated subtenant rental agreements, and $3.5 million for the additional closing of facilities. We incurred a $22.1 million restructuring charge for the nine months ended September 30, 2002. The restructuring charge for the first nine months of 2002 included $17.6 million for severance and severance-related costs and $4.5 million for consolidation of facilities.

Software Asset Impairments
The $9.6 million software asset impairment charge for the nine months ended September 30, 2003 represented the write-down of certain purchased and internally developed assets that were not expected to provide future value and no longer fit our business strategies. We incurred no software asset impairment charge for the nine months ended September 30, 2002.

Contract Litigation Settlement Expense
The $45.5 million charge for the nine months ended September 30, 2003 related to our agreement with the United States and the Federal Retirement Thrift Investment Board to settle all outstanding litigation and claims from a contract dispute. Under the terms of the settlement agreement, the Thrift Board paid us $10.0 million for work performed under the contract. The remaining $30.5 million contract receivable was written off. In addition, we paid the Thrift Board $15.0 million as a partial reimbursement of the $31.0 million we had previously received for other work performed under the contract.

Interest Expense
Interest expense was $0.9 million for the nine months ended September 30, 2003, an increase of $0.8 million compared with the same period in 2002. The increase in interest expense was primarily due to $1.4 million of interest income for amended prior year Federal income tax returns claiming additional research and experimentation tax credits recorded for the nine months ended September 30, 2002. This increase was offset, in part, by reduced interest expense of $0.4 million related to our executive deferred compensation program for the nine months ended September 30, 2003.

Other Income/Expense
Other income was $0.4 million for the nine months ended September 30, 2003. Other expense was $1.2 million for the nine months ended September 30, 2002. This change was primarily related to the reduction in premium expense offset by the decrease in the cash surrender value of company-owned life insurance which decreased $2.7 million for the nine months ended September 30, 2003 from the same period in 2002 as a result of withdrawals from the policies in order to fund distributions from the executive deferred compensation program.

Income Taxes
Our consolidated effective income tax rate increased from 33.0% for the nine months ended September 30, 2002 to 38.0% for the nine months ended September 30, 2003. The rate for the nine months ended September 30, 2002 included expected refunds on prior year Federal income tax returns as a result of additional research and experimentation tax credits. The rate for the nine months ended September 30, 2003 did not include these prior year tax benefits.

As of September 30, 2003, our liquidity was composed of $55.4 million of cash and cash equivalents and our $200 million bank credit facility reduced by $0.8 million of outstanding letters of credit.

Cash used in operating activities for the nine months ended September 30, 2003 was $4.0 million compared with cash provided by operating activities of $41.1 million for the nine months ended September 30, 2002. The $45.1 million decline in operating cash flows was primarily related to a decrease in customer collections. This decrease was attributable to lower revenues as well as an increase in the number of customers, primarily from our State and Local Governments and Education target market, that pay us between 30 and 90 days as they practice tighter cash management policies. This change was evidenced by the $21.4 million increase in accounts receivable balances for the first nine months of 2003 as compared to a $19.3 million decrease in such balances for the first nine months of 2002. Also contributing to the decline were greater distributions from our executive deferred compensation plan related to restructuring activities that took place in 2003. These decreases in cash flows were partially offset by an increase in accounts payable for the nine months ended September 30, 2003 versus a decrease in the same period of 2002 as we exercised tighter cash management practices, lower income tax payments and approximately $3.9 million less in payments for restructuring activities.

Net cash used in investing activities for the nine months ended September 30, 2003 increased $57.1 million over the same period in 2002 due to $41.2 million paid (net of cash acquired) to acquire Vredenburg and $21.1 million more cash used to purchase and develop our software over the same period in 2002. The additional software investments spend in 2003 was primarily related to upgrading and replatforming our Advantage® and Momentum® software offerings to maintain their marketability in

web and java-based environments. These decreases in cash were offset by $4.2 million less cash paid in 2003 over the same period in 2002 for our investment in Proponix.

Cash used in financing activities was $4.0 million for the nine months ended September 30, 2003 compared to cash provided by financing activities of $3.9 million for the nine months ended September 30, 2002. Proceeds from common stock options exercised provided $3.7 million for the nine months ended September 30, 2002, whereas proceeds from common stock options exercised during 2003 were only $0.2 million. In addition, we paid $4.0 million during the nine months ended September 30, 2003 for shares repurchased under AMS’s stock repurchase program. We did not repurchase any shares on the open market during the same period in 2002. Finally, we paid $2.7 million for debt acquired as part of the Vredenburg acquisition. These decreases in cash were offset by a slight increase in proceeds from the Employee Stock Purchase Plan and less cash paid to repurchase shares from employees for restricted stock distributions for the nine months ended September 30, 2003 compared to the same period of 2002.

Bank Credit Facility
In addition to our cash balance of $55.4 million at September 30, 2003, we have an unsecured revolving bank credit agreement with a group of lenders. Effective September 26, 2003, we increased this credit facility by $40 million to provide for borrowings not to exceed $200 million. This credit facility is available for working capital borrowings, capital expenditures, acquisitions, and other corporate purposes. At September 30, 2003, no borrowings were outstanding under our bank credit agreement and availability was reduced by $0.8 million of outstanding letters of credit.

AMS may borrow funds under this bank credit agreement in the approved currencies, subject to certain minimum amounts per borrowing. Interest rates on such borrowings will generally range from LIBOR plus 1.13% to 1.75% per annum, depending on our debt-to-EBITDA ratio, as defined in the agreement. We are required to pay a facility fee ranging from 0.50% to 0.65% per annum on the total facility based on our debt-to-EBITDA ratio.

Our $200 million revolving credit facility includes negative covenants, including, but not limited to, covenants limiting our ability to create or incur liens, make certain investments, incur certain indebtedness, undergo fundamental changes, make certain dispositions, make acquisitions not related to our lines of business, pay dividends, or repurchase stock in excess of specified thresholds. The credit agreement also contains certain affirmative covenants and financial covenants including a minimum consolidated net worth, a minimum consolidated fixed charge ratio and a maximum consolidated leverage ratio. Our bank credit agreement expires on November 13, 2005. At September 30, 2003, we were in compliance with the covenants and other restrictions imposed by this credit facility.

Significant Customer Receivables
We enter into large, long-term contracts and, as a result, periodically maintain significant receivable balances with certain major customers. Our three largest customers are the U.S. Government, the Commonwealth of Virginia and the City of New York. These customers’ receivables, under numerous contracts, accounted for 60.0% and 62.4% of our accounts receivable at September 30, 2003 and December 31, 2002, respectively. There were no other customers who individually represented greater than 10% of outstanding receivables as of September 30, 2003 or December 31, 2002.

Growth Opportunities
We are pursuing potential acquisition targets to supplement our existing service lines and/or industry sectors with like businesses. We are forging partnerships that enable us to attract new business and secure larger scale contracts.

Share Repurchases
We will continue to repurchase shares periodically when our stock value, cash position and the terms of our credit agreement allow. However, our priority remains leveraging our cash position to invest in existing business or new business growth opportunities.

Cost Containment
We will continue to address our cost base and strategies for cost reductions as our forward view of the market dictates.

For a discussion of our market risk associated with foreign currency risk, interest rate risk and marketable securities risk as of December 31, 2002, see “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A, of our Annual Report on Form 10-K for the fiscal year then ended. During the nine months ended September 30, 2003, there have been no material changes in our market risk exposure.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2003.

There have been no significant changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

There have been no significant changes in the Company’s internal controls over financial reporting resulting from deficiencies or material weaknesses that were identified subsequent to the end of the period covered by this report.

Roger W. Mehle v. American Management Systems, Inc., No. 01-1544 (United States District Court for the District of Columbia), on appeal, Gary A. Amelio v. American Management Systems, Inc., No. 01-7197 (United States Court of Appeals for the District of Columbia Circuit), and American Management Systems, Inc. v. United States, No. 01-586 (United States Court of Federal Claims).

On June 20, 2003, American Management Systems, Incorporated (“AMS”), the Federal Retirement Thrift Investment Board (the “Thrift Board”) and the United States entered into a written settlement agreement (“Settlement Agreement”) resolving all outstanding litigation and claims among them relating to AMS’s work on the Thrift Board contract. All parties to the case — Gary A. Amelio, the current Executive Director of the Thrift Board, AMS, and the United States - - further agreed to dismiss and terminate all litigation and claims relating to the Thrift Board contract.

On September 24, 2003, Mr. Mehle filed in the United States Court of Appeals for the District of Columbia Circuit a petition seeking a panel rehearing (those three members of the Court who had originally considered the Motion for Leave to Intervene), and a rehearing en banc (all the members of the Court) of that Court’s prior panel decision denying his Motion for Leave to Intervene. By written orders dated October 17, 2003, the United States Court of Appeals for the District of Columbia Circuit denied Mr. Mehle’s requests for a panel rehearing, and for a rehearing en banc.

United States of America ex rel Randall L. Smith, et al. v. American Management Systems, Inc., CA No. C-1-02-326 (United States District Court for the Southern District of Ohio).

It further alleges that AMS utilized certain personnel who did not satisfy the requisite qualifications for assignment to the ODJFS project. The suit seeks damages and civil penalties. The United States Department of Justice, which is required to investigate and review all whistleblower actions of this nature, conducted its review in this case, and declined to intervene in the suit. AMS has reviewed the matter and intends to vigorously defend against the allegations that have been advanced.

The Exhibits set forth in the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

On July 17, 2003, the Company filed a Form 8-K announcing its financial results for the second quarter ended June 30, 2003 and the purchase of R.M. Vredenburg & Co.

Pursuant to the requirements 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.


Exhibit
Number		Description

10.1		Separation Agreement, dated as of September 9, 2003, between the Company and John S. Brittain, Jr. (filed herewith).

10.2		Separation Agreement, dated as of October 28, 2003, between the Company and Larry R. Seidel (filed herewith).

10.3		Increased Commitment Notice and Added Lender Agreement dated September 26, 2003, by and among the Company and certain subsidiaries of the Company, as Borrowers, KeyBank National Association, and Bank of America, N.A., as Administrative Agent (filed herewith).

10.4		Employment Agreement, dated as of October 1, 2003, between the Company and James C. Reagan (filed herewith).

10.5		American Management Systems, Incorporated Deferred Compensation Plan for Executives, as amended July 3, 2003 (filed herewith).

10.6		American Management Systems, Incorporated Deferred Compensation Plan for Non-employee Directors, as amended July 3, 2003 (filed herewith).

31.1		Certification of CEO Pursuant to Exchange Act Rule 13a – 14(a) and 15d – 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of CFO Pursuant to Exchange Act Rule 13a – 14(a) and 15d – 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

THIS SEPARATION AGREEMENT AND GENERAL RELEASE (the “Agreement”) is made and entered into by and between John S. Brittain, Jr. (“Employee”), residing at 11300 Peacock Hill Way, Great Falls, VA 22066, and American Management Systems, Incorporated (“AMS”), with its principal place of business at 4050 Legato Road, Fairfax, VA, 22033, (each individually a “Party” and collectively “the Parties”), and is effective as of the date of execution by Employee.

WHEREAS, Employee is employed by AMS as an Executive Vice President and Chief Financial Officer; and

WHEREAS, pursuant to this Agreement, Employee and AMS agree to end the employment relationship as of September 30, 2003; and

WHEREAS, AMS wishes to provide Employee assistance in transitioning from AMS employment and so has offered, and Employee has agreed to accept, this Agreement as set forth below; and

WHEREAS, the Parties agree that it is in their mutual interest to resolve all matters between them on an amicable basis;

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth in this Agreement, the sufficiency of which the Parties acknowledge, it is agreed as follows:

Employee’s last day as an AMS employee will be September 30, 2003 (the “Separation Date”).


	ii) pay to Employee an additional payment in the amount of Three Hundred Sixty-Two Thousand Dollars ($362,000.00);

	iii) pay on behalf of Employee eighteen (18) months of premiums for health and dental insurance continuation coverage under any AMS health plan in which Employee is enrolled as of the Separation Date pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”), less the employee portion of such premiums which Employee agrees to timely pay on a monthly basis, such coverage not to extend beyond March 31, 2005. AMS’s share of the premiums paid for such plans shall not constitute taxable income to Employee. In the event that Employee secures alternative coverage before the expiration of this time period, AMS’s obligation hereunder will cease;

	iv) provide Employee with the option of recording an outgoing message for his AMS voicemail box that contains information as to where he can be reached. AMS will maintain the outgoing message in the voicemail system for three (3) months after the Separation Date. Employee shall provide AMS with the contents of this outgoing message and AMS shall have the right to approve of the contents of any such message;

	v) provide Employee with executive outplacement services through Right Management Consultants’ Professional Management Service program or another outplacement services company selected by Employee for a period of up to twelve (12) months after he first engages services with Right Management Consultants or another outplacement services company, subject to advance consultation with and written approval by AMS’s Chief Human Resources Officer; and

	vi) consult with Employee as to the content of any press release relating to his departure from AMS.

deposit into Employee’s bank account into which his paychecks are currently deposited. These payments shall be subject to all legally required withholdings and deductions. The remaining twenty-five percent (25%) of the payments contemplated under Sections 2(a)(i) and (ii) shall be paid with interest, at the federal prime rate, two (2) months after the Separation Date, provided Employee has fully complied with the obligations set forth in this Agreement. This second payment will be subject to all legally required withholdings and deductions. If Employee has not complied with the obligations in this Agreement, in particular Sections 11, 12, 13, 16, 17 and 21, Employee shall not be entitled to, nor shall Employee be paid, the remaining twenty-five percent (25%) of the severance payment referenced in Sections 2(a)(i) and (ii) above.

Employee understands that AMS will not provide him with severance pay or any of the other benefits listed above if he revokes his signature as provided for in Section 18 of this Agreement.

The Parties agree that AMS’s promises in Section 2 are in full, final and complete settlement of all claims Employee may have against AMS, its affiliates, past and present officers, directors, employees, agents, successors and assigns, and exceed those to which Employee otherwise would be entitled absent his promises in this Agreement.

The Employee was granted a nonqualified stock option for 65,000 shares of common stock of AMS at a strike price equal to $19.12 on March 11, 2002 and an additional nonqualified stock option grant for 40,000 shares of common stock of AMS at a strike price equal to $11.04 on March 6, 2003. All of Employee’s stock options shall fully vest on the Separation Date. Employee shall retain the right to exercise any of his outstanding stock options through September 30, 2004. Additionally, Employee’s Five Thousand (5,000) shares of AMS common stock granted in the form of deferred stock units shall fully vest on Separation Date. Employee acknowledges and recognizes that he is subject to all applicable laws and regulations with regard to trading in AMS securities. Accordingly, in order to ensure compliance with all applicable laws and regulations, Employee agrees to clear any intended acquisition or disposition of AMS securities with AMS’s Office of the General Counsel.

This Agreement does not affect in any way Employee’s rights to any vested amounts in his accounts under the American Management Systems, Inc. 401(k) Plan, the American Management Systems, Inc. WealthBuilder Plan, the American Management Systems, Incorporated Deferred Compensation Plan, and the American Management Systems, Incorporated StockBuilder Plan.

AMS will pay Employee any accrued but unused annual leave at current rate of pay as of his Separation Date, in accordance with AMS policies. Such payment will be disbursed by check made payable to Employee no later than the next regularly scheduled payday after the Separation Date and delivered to Employee’s home address.

AMS will reimburse Employee for legitimate business expenses incurred on or before the Separation Date in accordance with AMS’s expense reimbursement practices so long as such expenses are submitted on or before October 31, 2003.

Nothing in this Agreement shall be construed as an admission of liability by AMS, its affiliates, or its past and present officers, directors, employees or agents, and AMS specifically disclaims liability to or wrongful treatment of Employee on the part of itself, its affiliates, and its past and present officers, directors, employees and agents.

Employee represents that he has not filed any complaints or charges against AMS with the U.S. Department of Labor, the Equal Employment Opportunity Commission, or with any other federal, state or local agency or court, and covenants that he will not seek to recover on any claim released in this Agreement. To the extent permitted by law, Employee promises that he will not voluntarily assist any third party in pursuing any legal claim against AMS, and he will immediately notify AMS if he is asked to provide such assistance.


investigative (a “Proceeding”), by reason of the fact that he is or was a director, officer or employee of 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 twenty (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 Subsection (a) 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.

With respect to any claim(s) that may be advanced against Employee personally for actions lawfully taken during the ordinary course of his employment with AMS, Employee shall be entitled to the same right to indemnification by AMS that is afforded to similarly situated employees of AMS, namely the indemnification rights that may exist under AMS’s insurance policies or in an individual employment agreement. No provision in this Agreement shall be construed to create any additional rights to indemnification.

Employee shall take all steps reasonably requested by AMS to ensure an orderly transfer of his duties as an officer and/or director of AMS and its subsidiaries and shall take all steps reasonably necessary to ensure that the accounts of AMS and each of its subsidiaries of which Employee is a director or officer immediately prior to the Separation Date in respect of the 2002 financial year (or part thereof) are finalized and, if requested by AMS, approved by Employee on or prior to the Separation Date.

In the event that a third party pursues a legal claim against AMS relating in any way to any task or project on which Employee worked while at AMS, Employee agrees to provide reasonable and lawful cooperation to AMS in its defense against such claim. AMS shall pay any reasonable expenses incurred by Employee in connection with such cooperation. Employee voluntarily agrees to make himself available to AMS for interviews and to provide AMS with truthful and accurate information including, but not limited to, documents, testimony, or written or oral statements. Employee agrees to notify AMS, directly or through counsel, within five (5) days of receipt of any subpoena regarding his employment with AMS so that AMS may take any action that it deems appropriate to protect its proprietary and other interests.

Employee covenants not to sue, and fully and forever releases and discharges AMS, its subsidiaries, affiliates, divisions, successors and assigns, together with its past and present shareholders, directors, officers, employees, and agents (collectively, the “Releasees”) 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 tort, contract, or by federal, state or local statute, regulation or order, law or equity or otherwise, whether now known or unknown; provided, however, that nothing in this Agreement shall either waive any rights or claims of Employee that arise after the date Employee signs this Agreement or which, as a matter of law, cannot be released or waived. Moreover, nothing in this Agreement shall impair or preclude Employee’s right to claim reasonable expenses, legal fees or indemnification pursuant to Sections 10 and 12, or to take action 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 Age Discrimination in Employment Act, as amended, or the Americans with Disabilities Act; claims under the Worker Adjustment and Retraining Notification Act; claims for attorneys’ fees or costs; workers’ compensation claims; any and all claims regarding any employment contract, whether written, oral, implied or otherwise; claims relating to AMS’s right to terminate its employees; claims for salary, payments in lieu of extended leave, incentive payments or any other remuneration, or any other claims under federal, state, or local statute, regulation or ordinance, common law, or any other law whatsoever, to the fullest extent permitted by law. Employee expressly agrees and understands that this is a

Except as otherwise stated in this Section 14, AMS, on its sole behalf, agrees not to sue, and further agrees to release, Employee with respect to any claims, whether known or unknown, that it now has, has ever had, or may ever have, against Employee related to any act or omission arising from and during the course of Employee’s employment with AMS and occurring or existing on or prior to the date on which AMS executes this Agreement, except, however, this release is not intended, nor shall it be construed, to be a release of any claims that may be brought by AMS against Employee for fraud, embezzlement, misrepresentation, misappropriation, breach of fiduciary duty, or similar intentional wrongdoing. AMS confirms that it has not filed any legal proceedings against Employee; that it has not transferred any such claims to any other person or entity; and that as of the date of AMS’s execution of this Agreement, AMS is unaware of any claim that falls within the exceptions to this release as set forth in this Section 14. Furthermore, this release is not intended, and shall not be construed, to extend to any of Employee’s undertakings under this Agreement or under the AMS Confidentiality and Intellectual Property Rights Agreement signed by Employee on March 11, 2002.

Employee shall direct all employment verification inquiries to Ms. Patricia Bradshaw, Vice President, Human Resources Operations, AMS, 4050 Legato Road, Fairfax, VA 22033, who shall provide requestor only Employee’s dates of employment and last job title and shall confirm his most recent salary.

Employee acknowledges that all confidential information regarding the business of AMS compiled by, created by, obtained by, or furnished to, Employee during his employment with AMS is the exclusive property of AMS. On or before the Separation Date, Employee shall return to AMS all originals and copies of any material involving such confidential information. Employee further agrees that such confidential information is a valuable and unique asset of AMS and agrees that he will not at any time after execution of this Agreement, directly or indirectly, divulge or use such information, whether or not such information is in written or other tangible form unless required by law. Employee also shall return to AMS on or before the Separation Date any items in his possession, custody or control that are the property of AMS including, but not limited to, his computer, employee manual, passwords, office equipment, identification card, parking pass and office keys. In the event that AMS believes that Employee has not returned its confidential information or property, AMS shall notify Employee in writing of its belief and basis for its claim. Employee shall have seven (7) days to cure the alleged defect or verify in writing that he has returned the confidential information or company property.

Subject to Employee’s obligation to provide truthful and accurate information in legal proceedings, Employee agrees that he will not voluntarily make any negative or disparaging statements (written or oral) about AMS or any of its directors, officers or employees. It is not AMS management’s intent to disparage Employee’s work abilities or to impede Employee’s ability to secure alternate employment. In the event that Employee notifies the AMS Chief Human Resources Officer of an alleged disparagement by a specific AMS employee, AMS shall investigate such allegation, and if determined to be necessary, take appropriate action to deter any such conduct.

Employee acknowledges that he has been given at least twenty-one (21) days to consider this Agreement and that he has seven (7) days from the date he executes this Agreement in which to revoke it and that this Agreement will not be effective or enforceable nor the payments and other benefits set forth in Section 2(a) provided until after the seven (7) day revocation period ends. Employee’s signature below, on a date before the expiration of the twenty-one (21) day

review period, shows that he has waived any of the remaining time within the twenty-one (21) days. Revocation can be made by delivery of a written notice of revocation to Mr. Garry Griffiths, Chief Human Resources Officer, American Management Systems, Inc., 4050 Legato Road, Fairfax, VA, 22033, by midnight on or before the seventh (7th) calendar day after Employee signs the Agreement.

Employee acknowledges that he has been advised to consult with an attorney of his choice with regard to this Agreement. AMS agrees to contribute up to Three Thousand Dollars ($3,000.00) towards legal expenses incurred by Employee for legal consultation, provided AMS receives a written invoice for such expenses from Employee’s attorney representing that such services have, in fact, been provided. Monies paid to Employee for legal expenses will be considered taxable income to Employee. Furthermore, Employee hereby acknowledges that he understands the significance of this Agreement, and represents that the terms of this Agreement are fully understood and voluntarily accepted by him.

This Agreement shall be binding on AMS and Employee and upon their respective heirs, administrators, representatives, executors, successors and assigns, and shall run to the benefit of the Releasees and each of them and to their respective heirs, administrators, representatives, executors, successors and assigns.

Employee acknowledges that in the course of his employment with AMS he has been exposed to a significant amount of highly confidential information about AMS and its clients, business practices and strategies and that even inadvertent disclosure of this information would cause AMS great harm. Accordingly Employee agrees that:

(a) for twelve (12) months from the Separation Date (the “Restricted Period”) he will not, on his own behalf or on behalf of any other person or entity, directly or indirectly solicit for the provision of, or provide competitive products or services to, any AMS customers for which he provided products and services on behalf of AMS during the two (2) years prior to the Separation Date, or any prospective customers that AMS was actively soliciting to become clients during the two (2) years prior to his Separation Date and in which Employee had any


involvement in the solicitation or proposal process. “Competitive Products or Services” shall be defined as products or services, which are in whole or in part similar to AMS’s proprietary products or to services then available from AMS on the Separation Date;

(b) during the Restricted Period, Employee will not directly or indirectly, on his own behalf or in aid of another person or entity, hire or engage or solicit for hire or engagement any individual who was an employee of AMS in the three (3) months prior to the solicitation or hire;

(c) Employee agrees that the above restrictions are reasonable – including the short length of time, and the limitation as to AMS customers and prospective customers – and do not unreasonably restrict his ability to earn a living after the Separation Date. Employee further agrees that these restrictions protect AMS’s legitimate business interests. Employee also agrees that in addition to any other remedies, including an action for damages, AMS also may seek injunctive relief against Employee for violation of this Section.

At the sole discretion of AMS, any of the provisions of Section 21 may be waived by the Chief Human Resources Officer, but such waiver must be in writing.

This Agreement sets forth the entire agreement between Employee and AMS, and fully supersedes any and all prior agreements or understandings, whether written or oral, between them regarding its subject matter; provided, however, that nothing in this Agreement is intended to or shall be construed to modify, impair or terminate any obligation (a) of Employee pursuant to the AMS Confidentiality and Intellectual Property Rights Agreement signed by Employee on March 11, 2002, that by its terms imposes obligations that survive Employee’s separation from employment with AMS (copy attached as Exhibit A), or (b) of Employer pursuant to any agreements establishing the terms of benefit or long term compensation plans with the exception of any stock option agreements. Employee acknowledges that he has not relied upon any statement or representation, written or oral, by any AMS Releasee that is not set forth or referenced in this Agreement.

This Agreement may be modified only by written agreement signed by both Parties.

This Agreement shall be governed in all respects by the laws of the Commonwealth of Virginia, without regard to its conflict of laws principles.

Employee agrees to keep both the existence and the terms of this Agreement confidential and not reveal its contents to any person or entity (including former and current employees of AMS). Notwithstanding the foregoing, Employee may discuss this Agreement with his attorney, immediate family members, financial consultants, or as otherwise required by law. However, Employee must advise whomsoever he tells that he/she has the same confidentiality obligations as Employee. This confidentiality provision is an essential part of the consideration for AMS to enter into this Agreement and if breached, AMS would be irreparably harmed and entitled to recover damages.

This Agreement may be signed in counterparts and each such counterpart shall be deemed to be an original but together all such counterparts shall be deemed a single Agreement.

The language in this Agreement shall be construed as a whole and will be given its fair meaning. This Agreement will not be interpreted for or against any Party. In the event that any one or more of the provisions contained herein shall for any reason be held to be unenforceable in any respect under the law of any state or of the United States, such unenforceability shall not affect any other provision of this Agreement, but, with respect only to that jurisdiction holding the provision to be unenforceable, this Agreement shall be construed as if such unenforceable provision had never been in the Agreement.

Any dispute or controversy arising under or in connection with this Agreement shall be settled by arbitration, in accordance with the National Rules for the Resolution of Employment Disputes 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 thirty (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 the Commonwealth of 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 obligations undertaken by the Employee pursuant to Sections 12, 16, 17 and 21 hereof.

PLEASE READ CAREFULLY.
THIS AGREEMENT AND GENERAL RELEASE INCLUDES A
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
EMPLOYEE’S SIGNATURE BELOW ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT,
UNDERSTANDS ITS TERMS, AND HAS ENTERED INTO IT VOLUNTARILY AND KNOWINGLY.

THIS SEPARATION AGREEMENT AND GENERAL RELEASE (the “Agreement”) is made and entered into by and between LARRY R. SEIDEL (“Employee”), residing at 4431 Dittmar Road, Arlington, Virginia 22207 and AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (“AMS”), with its principal place of business at 4050 Legato Road, Fairfax, VA, 22033, (each individually a “party” and collectively “the parties”) and is effective as of the date on which the last party to execute this Agreement signs on the signature page hereof.

WHEREAS, Employee and AMS agreed to end the employment relationship effective July 31, 2003; and

WHEREAS, AMS wishes to provide Employee assistance in transitioning from AMS employment and so has offered and Employee has agreed to accept this Agreement as set forth below; and

WHEREAS, the parties agree that it is in their mutual interest to resolve all matters between them on an amicable basis;

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth in this Agreement, the sufficiency of which the parties acknowledge, it is agreed as follows:

Employee’s last day as an AMS employee was July 31, 2003 (the “Separation Date”).

(a)

In consideration for Employee’s promises in this Agreement, and in full settlement of any actual or potential claims for any bonus, incentive compensation and severance obligations for 2003 and prior years, and for the release of any other claims or potential claims described in Section 12 herein, AMS agrees to do the following:

pay to Employee the sum of One Million One Hundred Forty Thousand Dollars ($1,140,000.00);

ii)

(A) pay to Employee an amount equal to eighteen (18) months of premiums for health and dental insurance continuation coverage under any AMS health plans in which Employee is enrolled as of the Separation Date pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”); this amount will be “grossed up” so that the payment net of taxes will be Sixteen Thousand One Hundred Sixty-Five and 80/100 Dollars ($16,165.80);

(B) after COBRA coverage has expired (in general, COBRA coverage extends for eighteen (18) months from the Separation Date), AMS will provide Employee the after-tax economic equivalent of the benefits Employee would have received under the AMS Retiree Medical Program, had Employee qualified for that program on the Separation Date. The economic equivalent of the benefits Employee 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, less any required Employee contributions or premiums Employee would have paid under the Program. Employee agrees to work closely and cooperatively with AMS Benefits to “shop” for a comparable individual policy that most closely matches the coverage currently provided under the AMS Retiree Medical Program. AMS will pay the cost of this coverage, less the amounts Employee would have had to pay for premiums under the AMS Retiree Medical Program (which is two times the full premium cost for active employees). AMS’s obligation to provide the after-tax economic equivalent of the benefits Employee would have received shall continue until the date Employee becomes eligible for Medicare coverage at age 65; however, if AMS should terminate or materially reduce the coverage of its Retiree Medical Program at any time prior to Employee attaining age 65, AMS shall pay Employee an after-tax lump sum amount equal to the average monthly difference between the cost of comparable coverage (as

calculated as of the time immediately preceding the material reduction in coverage) and the Employee premium, computed on the basis of the preceding six (6) months, and then multiplied by the number of months, including partial months, remaining until Employee reaches age 65. This lump sum amount shall be discounted to net present value;

iii)

provide Employee with the option of recording an outgoing message for his AMS voicemail system, subject to AMS’s approval, that contains information as to where he can be reached. AMS will maintain the outgoing message in the voicemail system for three (3) months after the Separation Date; and

iv)

provide Employee with executive outplacement services through Right Management Consultants’ Professional Management Service program for a period of up to nine (9) months after he first consults with Right Management Consultants.

(b)

Within fifteen (15) business days following the receipt by AMS of this Agreement signed by Employee, AMS shall pay to Employee the amount of One Million One Hundred Forty Thousand Dollars ($1,140,000.00) referenced in Section 2(a)(i) and the full amount referenced in Section 2(a)(ii)(A). Said payments will be made by check delivered to Employee’s home address. These payments shall be subject to all legally required withholdings and deductions. The 2(a)(ii)(A) payment is referenced net of taxes and withholdings.

(c)

Employee understands that AMS will not provide him with any of the payments or other benefits set forth above if he revokes his signature as provided for in Section 16 below.

The parties agree that AMS’s commitments in Section 2 are in full, final and complete settlement of all claims Employee may have against AMS, its affiliates, past and present officers,

directors, employees, agents, successors and assigns, and exceed those to which Employee otherwise would be entitled absent his promises in this Agreement.

Employee’s outstanding stock options, which have not yet vested, shall fully vest on Separation Date. Employee shall retain the right to exercise any of his outstanding non-qualified stock options through July 31, 2004 or the expiration date of the option, whichever is earlier. However, any incentive stock options (ISOs) must be exercised within thirty (30) days of Separation Date. Employee also retains the right to 3,334 vested deferred stock units granted as part of a restricted stock award, for which AMS will either issue stock certificates to Employee or transfer into a brokerage account as per Employee’s written instructions. The remaining 6,666 unvested restricted stock units will be vested as of Separation Date and AMS will either grant stock certificates to Employee or transfer into a brokerage account as per Employee’s written instructions.

This Agreement does not affect Employee’s rights to receive his vested account balances (if any) under the American Management Systems, Inc. 401(k) Plan, the American Management Systems, Inc. WealthBuilder Plan, the American Management Systems, Incorporated Executive Deferred Compensation Plan, and the American Management Systems, Incorporated StockBuilder Plan.

AMS will pay Employee any accrued but unused annual leave at current rate of pay as of his Separation Date, in accordance with AMS policies. Such payment will be made by check made payable to Employee no later than the next regularly scheduled payday after the Separation Date and delivered to Employee’s home address.

AMS will reimburse Employee for legitimate business expenses incurred on or before the Separation Date in accordance with AMS’s expense reimbursement practices, so long as such expenses are submitted on or before October 24, 2003.

(a)

In the event that 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 of 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 twenty (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 subsection (a) 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.

In the event that a third party pursues a legal claim against AMS relating in any way to any task or project on which Employee worked while employed by AMS, he agrees to provide reasonable and lawful cooperation to AMS in its defense against such claim. AMS shall pay any reasonable expenses incurred by Employee in connection with such cooperation. Employee voluntarily agrees to make himself available to AMS for interviews and to provide AMS with truthful and accurate information including, but not limited to, documents, testimony, or written or oral statements. Employee agrees to notify AMS, directly or through counsel, within five (5) days of receipt of any subpoena or other legal process regarding his employment with AMS so that AMS may take any action that it deems appropriate to protect its proprietary and other interests.

whether now known or unknown; provided, however, that nothing in this Agreement shall either waive any rights or claims of Employee that arise after the date Employee signs this Agreement or which, as a matter of law, cannot be released or waived. Moreover, nothing in this Agreement shall impair or preclude Employee’s right to claim reasonable expenses, legal fees or indemnification pursuant to Sections 10 and 11, or to take action 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 Age Discrimination in Employment Act, as amended, or the Americans with Disabilities Act; claims under the Worker Adjustment and Retraining Notification Act; claims for attorneys’ fees or costs; workers’ compensation claims; any and all claims regarding any employment contract, whether written, oral, implied or otherwise; claims relating to AMS’s right to terminate its employees; claims for salary, payments in lieu of extended leave, incentive payments or any other remuneration; claims relating to or arising from any amendment or termination of the American Management Services, Incorporated Executive Deferred Compensation Plan, the American Management Systems, Incorporated Umbrella Trust Agreement By and Between American Management Systems, Incorporated and Key Trust Company of Ohio, N.A. for Executive Deferred Compensation Plan, or any other employee benefit plan or arrangement or perquisite sponsored or offered by AMS; or any other claims under federal, state, or local statute, regulation or ordinance, common law, or any other law whatsoever, to the full extent permitted by law. Employee expressly agrees and understands that this is a General Release. Notwithstanding the foregoing release and ongoing covenants contained in this Agreement, Employee is not relinquishing any rights he may possess as an AMS stockholder, and no exercise of such rights shall be construed as a violation of this Agreement.

Employee shall direct all employment verification inquiries to Ms. Patricia Bradshaw, Vice President Human Resources Operations, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, VA 22033 who shall provide requestor only Employee’s dates of employment and last job title and shall confirm his most recent salary.

Employee acknowledges that all confidential information regarding the business of AMS compiled by, created by, obtained by, or furnished to, Employee during his employment with AMS is the exclusive property of AMS. On or before Separation Date, Employee will return to AMS all originals and copies of any material involving such confidential information. Employee further agrees that such confidential information is a valuable and unique asset of AMS and agrees that he will not at any time after execution of this Agreement, directly or indirectly, divulge or use such information, whether or not such information is in written or other tangible form unless required by law. Employee shall also return to AMS on or before Separation Date any items in his possession, custody or control that are the property of AMS including, but not limited to, his employee manual, passwords, office equipment, identification card and office keys. Notwithstanding the foregoing, AMS and Employee agree that Employee may retain for personal use the following AMS property: a laptop computer (Asset No. 41279). Such laptop computer will be provided to Employee within fifteen (15) days of his execution of this Agreement provided he has complied with the terms of this Section 14. In order to ensure that AMS is not in breach of its software licenses, Employee shall return the laptop computer to the AMS’s IT Department in order that AMS may delete all Company or third party software and data files from the computer. Employee shall not make any copies of the same prior to this deletion exercise. AMS provides no warranty as to the condition of the computer which has been in Employee’s possession and subject to Employee’s control. Employee shall return any other computer property of AMS in accordance with the provisions of this Section 14.

Subject to Employee’s obligation to provide truthful and accurate information in legal proceedings, Employee agrees that he will not voluntarily make any disparaging statements (written or oral) about AMS or any of its directors, officers or employees.

Employee acknowledges that he has been given at least twenty-one (21) days from receipt of this Agreement to consider this Agreement and that he has seven (7) days from the date he executes this Agreement in which to revoke it, and that this Agreement will not be

effective or enforceable nor the payments and other benefits set forth in Section 2(a) provided until after the seven (7) day revocation period ends. Employee’s signature below, on a date before the expiration of the twenty-one (21) day review period, demonstrates that he has waived any of the remaining time within the twenty-one (21) days. Revocation can be made by delivery of a written notice of revocation to Mr. Garry Griffiths, Chief Human Resources Officer, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, VA, 22033, by midnight on or before the seventh (7th) calendar day after Employee signs the Agreement.

Employee acknowledges that he has been advised to consult with an attorney of his choice with regard to this Agreement. AMS agrees to contribute up to Three Thousand Dollars ($3,000.00) in legal expenses incurred by Employee for legal consultation provided AMS receives a written invoice for such expenses from Employee’s attorney representing that such services have, in fact, been provided. Monies paid to Employee for legal expenses will be considered taxable income to Employee. Employee hereby acknowledges that he understands the significance of this Agreement, and represents that the terms of this Agreement are fully understood and voluntarily accepted by him.

This Agreement shall be binding on AMS and Employee and upon their respective heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of the Releasees and each of them and to their respective heirs, administrators, representatives, executors, successors and assigns.

Employee acknowledges that in the course of his employment with AMS, he has been exposed to a significant amount of highly confidential information about AMS and its clients, business practices and strategies and that even inadvertent disclosure of this information would cause AMS great harm. Accordingly Employee agrees that:

for twelve (12) months from the Separation Date (the “Restricted Period”) he will not, on his own behalf or on behalf of any other person or entity, directly or indirectly solicit for the provision of, or provide competitive products or services

to, any AMS customers for which he provided products and services on behalf of AMS during the two (2) years prior to the Separation Date, or any prospective customers that AMS was actively soliciting to become clients during the two (2) years prior to his Separation Date and in which Employee had any material involvement in the solicitation or proposal process. “Competitive Products or Services” shall be defined as products or services, which are in whole or in part similar to AMS’s proprietary products or to services then available from AMS on the Separation Date; and

during the Restricted Period Employee will not directly or indirectly, on his own behalf or in aid of another person or entity, hire or engage or solicit for hire or engagement any individual who was an employee of AMS in the three (3) months prior to the solicitation or hire; and

Employee agrees that the above restrictions are reasonable – including the short length of time, and the limitation as to AMS customers and prospective customers – and do not unreasonably restrict his ability to earn a living after the Separation Date. Employee further agrees that these restrictions protect AMS’s legitimate business interests. Employee also agrees that in addition to any other remedies, including an action for damages, AMS also may seek injunctive relief against Employee for violation of this Section.

This Agreement sets forth the entire agreement between Employee and AMS, and fully supersedes any and all prior agreements or understandings, oral or written, between the parties regarding its subject matter; provided, however, that nothing in this Agreement is intended to or shall be construed to modify, impair or terminate any obligation (a) of Employee pursuant to the AMS 1977 letter regarding confidentiality obligations signed by Employee on July 20, 1977, that by its terms continues after Employee’s separation from AMS’s employment (copy attached as Exhibit A), or (b) of Employer pursuant to any agreements establishing the terms of benefit or long term compensation plans with the exception of any stock option agreements. This Agreement renders null and void the Employment Agreement signed by Employee on September

This Agreement may be modified only by a written agreement signed by both parties. Employee acknowledges that he has not relied upon any statement or representation, written or oral, by any AMS Releasee that is not set forth or referenced in this Agreement.

This Agreement shall be governed in all respects by the laws of the Commonwealth of Virginia, without regard to its conflict of laws principles.

This Agreement may be signed in counterparts and each such counterpart shall be deemed to be an original but together all such counterparts shall be deemed a single agreement.

The language in this Agreement shall be construed as a whole and will be given its fair meaning. This Agreement will not be interpreted for or against any party. In the event that any one or more of the provisions contained herein shall for any reason be held to be unenforceable in any respect under the law of any state or of the United States, such unenforceability shall not affect any other provision of this Agreement, but, with respect only to that jurisdiction holding the provision to be unenforceable, this Agreement shall be construed as if such unenforceable provision had never been in the Agreement.

Any dispute or controversy arising under or in connection with this Agreement shall be settled by arbitration, in accordance with the Employment Arbitration Rules and 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 thirty (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 the Commonwealth of 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 Sections 11, 14, 15, and 19.

PLEASE READ CAREFULLY.
THIS AGREEMENT AND GENERAL RELEASE INCLUDES A RELEASE OF
ALL KNOWN AND UNKNOWN CLAIMS.
EMPLOYEE’S VOLUNTARY SIGNATURE BELOW ACKNOWLEDGES THAT
HE HAS READ THIS AGREEMENT, UNDERSTANDS ITS TERMS, AND HAS
ENTERED INTO IT KNOWINGLY.



Bank of America, N.A., as Administrative Agent
101 N. Tryon Street, 15th Floor
NC1-001-15-03
Charlotte, North Carolina 28255
Attention:		Mary F. Edwards
		Agency Management

American Management Systems, Incorporated
AMS Management Systems Australia Pty, Limited
AMS Management Systems Canada Inc.
AMSY Management Systems Netherlands B.V.
c/o American Management Systems, Inc.
4000 Legato Road, 4th Floor
Fairfax, Virginia 22033

Attention:		Hui Markva

We refer to the Credit Agreement, dated as of November 13, 2002 (as amended, restated, modified, supplemented or renewed from time to time, the “Credit Agreement”) among American Management Systems, Incorporated, AMS Management Systems Australia Pty. Limited, AMS Management Systems Canada Inc. and AMSY Management Systems Netherlands B.V. (collectively, the “Borrowers”), the Lenders parties thereto, Bank of America, N.A., as administrative agent (in such capacity, the “Agent”), L/C Issuer and Swing Line Lender, Bank of America, N.A. (Canada Branch), as Canadian Agent and Canadian Fronting Lender, BA Asia Limited, as Australian Agent, and Bank of America, National Association, Sydney Branch, as Australian Fronting Lender.

This Increased Commitment Notice and Added Lender Agreement (this “Agreement”) is made and delivered pursuant to (a) Section 2.17 of the Credit Agreement, and (b) the Increased Commitment Request dated September 4, 2003 from the Borrowers to the Agent.

The Borrowers, by their execution hereof, give notice to the Agent of their election to increase the Aggregate Commitments by $40,000,000 in accordance with the terms hereof, effective as of September 26, 2003 (the “Effective Date”).

As of the Effective Date, KeyBank National Association (“KeyBank”) will become a party to the Credit Agreement as a Lender, with a Commitment of $40,000,000. KeyBank hereby confirms and agrees that with effect on and after the Effective Date, it shall be and

become a party to the Credit Agreement as a Lender, and shall have all of the rights and be obligated to perform all of the obligations of a Lender thereunder with a Commitment in the amount set forth above. KeyBank (a) acknowledges that it has received a copy of the Credit Agreement and the schedules and exhibits thereto, copies of the most recent financial statements of the Borrowers, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Agreement; and (b) agrees that it will, independently and without reliance upon the Agent, the Borrowers, or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement and the other Loan Agreements.

KeyBank National Association
127 Public Square
OH-01-27-0611
Cleveland, OH 44114

Attn:

Paula Brewer
Deal Administrator

Telephone:	(216) 689-4259
Facsimile:	(216) 689-4666
E-mail:	paula_brewer@keybank.com

Wire Instructions:
KeyBank National Association
Cleveland, OH 44114
ABA #041-001-039
Account #3057
Account Name: Specialty Loan Services

Reference:

American Management Systems/
KCIB Services – Paula Brewer

KeyBank National Association
127 Public Square, 4th Floor
Cleveland, OH 44114

Attn:

Jeff Kalinowski
Vice President

Telephone:	(216) 689-8319
Facsimile:	(216) 689-8329
E-mail:	jeffrey_kalinowski@keybank.com

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, NOTWITHSTANDING ITS EXECUTION OUTSIDE SUCH STATE.


ACKNOWLEDGED as of September 26, 2003:

BANK OF AMERICA, N.A., as Administrative
Agent

By:		/s/ Mary F. Edwards

Title:		Assistant Vice President

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

By:		/s/ Alan P. Goldblatt

Title:		Alan P. Goldblatt, Treasurer

AMS MANAGEMENT SYSTEMS AUSTRALIA PTY. LIMITED

By:		/s/ James C. Reagan

Title:		James C. Reagan, Director

AMS MANAGEMENT SYSTEMS CANADA INC

By:		/s/ James C. Reagan

Title:		James C. Reagan, Director

AMSY MANAGEMENT SYSTEMS NETHERLANDS B.V.

By:		/s/ James C. Reagan

Title:		James C. Reagan, Managing Director

This EMPLOYMENT AGREEMENT (the “Agreement”) is made effective October 1, 2003 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”), and James C. Reagan, residing at 2060 Beacon Height Drive, Reston, VA 20191 (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, AMS 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 October 1, 2003 upon the terms and conditions set forth herein.

The initial term of this Agreement shall end on September 30, 2004, 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 10 and 11 hereof shall survive the termination of this Agreement.

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 Employee’s place of primary employment shall be within a 25-mile radius of the location of the offices described above as AMS shall reasonably direct, or at any other location that may be mutually agreed upon in the future. The Employee understands that his performance of services for AMS may include frequent business travel.

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, or otherwise adversely affect AMS’s interest, reputation, business or welfare. 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.

The Employee agrees that he will not take personal advantage of any 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.

The Employee’s initial annualized base salary shall be $275,000. 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; 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 a general program of salary adjustment by AMS applicable to all similarly-situated employees.

(i)

The Employee shall be eligible for an annual cash bonus having a value from 0% to 120% of his annual base salary for the relevant year, with a target percentage of 60% (“Target Bonus”). Such a bonus is dependent on AMS’s, the Business Group’s, and the Employee’s performance and subject to AMS’s reasonable discretion. Such annual bonuses shall be paid at the usual times for the payment of annual bonuses by AMS.

(ii)

The Employee shall be eligible to participate in all long term incentive plans in which other executive vice presidents are eligible to participate.

As of October 1, 2003, the Employee shall be granted a nonqualified stock option for 20,000 shares of common stock of AMS at a stock price equal to the closing market price on October 1, 2003. The options will be granted under the American Management Systems, Incorporated 2003 Stock Incentive Plan. The options will vest over three years in increments of 33 and 1/3 percent on each anniversary of the grant date.

As of May 13, 2002, the Employee shall was granted a nonqualified stock option for 25,000 shares of common stock of AMS at a strike price equal to the closing market price of AMS stock on May 13, 2002. The options were granted under American Management Systems, Incorporated 1996 Amended Stock Option Plan F (“Plan F”). The options will vest over four years in increments of twenty-five percent (25%) on the anniversary of the grant date. In the event of involuntary termination without Cause, as defined herein, Employee will receive full vesting of any of these unexercised stock options.

The Employee shall be entitled to paid compensatory leave and vacation, sick leave, and holiday pay in accordance with AMS’s policies in effect from time to time, and eligible to participate pursuant to the terms of the relevant plans in such life, health, and disability insurance, pension, deferred compensation and other benefits as AMS extends, as a matter of policy, to its executive vice presidents.

Except as specifically provided below or elsewhere in this Agreement, the Employee’s employment may be terminated by either party at any time with or without Cause. In any event, the Employee’s employment shall terminate immediately upon his death, in which case his estate or his beneficiaries, as the case may be, shall be entitled to payment of any portion of his unpaid base salary to the date of death and reimbursement for all outstanding and reimbursable business expenses.

Except as specifically provided below or elsewhere in this Agreement, in the event that the Employee’s employment is terminated, this Agreement shall terminate and the Employee shall be entitled only to such rights and payment of such benefits as might be provided by the terms of any employee benefit plan or program of AMS, or any other agreement between AMS and the Employee.

Except as specifically provided below or elsewhere in this Agreement, constructive termination of the Employee’s employment by AMS shall be treated the same as actual termination without Cause for purposes of this Agreement. Constructive termination shall mean a termination of the Employee’s employment at his own initiative following the occurrence, without the Employee’s prior written consent, of one or more of the following events:

(i)

an involuntary and 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;

(ii)

a significant reduction in the Employee’s then current base salary, a significant reduction in his opportunities for earnings under his incentive compensation plans, or a significant reduction in his employee benefits as a whole (in each case except as part of a general reduction that applies to other similarly-situated employees); or

(iii)

the relocation of the Employee’s office from its location at the time of the change to a location more than 25 miles away.

The mere failure of AMS to extend (or notice of its intention not to extend) the Agreement shall not result in actual or constructive termination; provided, however, that if AMS fails to extend the Agreement its obligation to provide the benefits set forth in Section 6 (c), on the terms and conditions set forth in that section, and without regard to any other section hereof, shall survive the termination of the Agreement. Under no circumstances shall a termination or constructive termination be deemed to occur for purposes of Section 6(c) hereof, if AMS’s obligation to perform this Agreement is assigned or transferred to a successor employer pursuant to Section 17 hereof or if the Employee otherwise becomes employed without a significant period of unemployment under substantially similar terms and conditions by a successor to some or all of the business of AMS.

The Employee’s voluntary termination of employment shall be effective upon 30 days’ prior written notice to AMS, unless the parties mutually agree to advance or delay the effective date.

AMS’s termination of the Employee’s employment without Cause (or taking of any action or actions resulting in Constructive Termination of employment) shall be effective upon 30 days prior written notice to the Employee, unless the parties mutually agree to advance or delay the effective date.

If the Employee’s employment is terminated without Cause and not on account of Disability, the Employee shall be entitled to receive from AMS the following benefits in addition to any other benefits to which he might be entitled:

(i)

a severance benefit in an amount equal to 100% of the Employee’s annual base salary in effect immediately preceding such termination, but only if (1) the Employee executes a release similar 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 10 and 11 hereof; and

(ii)

full vesting of any unexercised stock options with a grant date on or after October 1, 2003; and

(iii)

if Employee elects health and dental insurance continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) of any AMS health plans that have been elected by the Employee or his qualified beneficiaries at the time of employment termination pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”), AMS will directly pay for such coverage, less the Employee’s portion of the premium(s) he would pay if still an active Employee. AMS will pay the above amounts (1) for a maximum of twelve months, and (2) only as long as the Employee and/or qualified beneficiaries are eligible for continuation coverage under COBRA (for example, continuation coverage will terminate if Employee and/or qualified beneficiaries becomes covered under another employer’s group health plan). Employee is responsible for electing benefit continuation (COBRA election form) and sending a timely monthly check to AMS to cover the Employee’s portion of the premium(s).

AMS shall pay 75% of the severance benefit in paragraph (i) within 30 days after all of the applicable conditions are satisfied. AMS shall pay the other 25% of the severance benefit with interest (as set forth in paragraph 15) twelve (12) months after all of the applicable conditions are satisfied, provided that the Employee complies with the covenants in Sections 10 and 11 hereof throughout that period. If the Employee does not comply with the requirements of Sections 10 and 11 hereof at any time during that period, the other 25% of the severance benefit shall not be paid to the Employee. All severance payments made to the Employee pursuant to section 6(c) (i) shall be paid subject to all legally required payroll taxes and deductions; additionally, AMS may withhold for any sums owed by the Employee to AMS.

For purposes of this Agreement, “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 any 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 has a material detrimental effect on AMS’s financial condition, position or business; or (6) the breach by the Employee of any material term of this Agreement. For purposes of this Agreement, “Disability” shall mean disability as defined in AMS’s existing long term disability policy at the time of the disabling event.

If the Employee’s employment is terminated within twelve (12) months following a Change in Control of AMS, and a severance benefit is payable pursuant to Section 6(c)(i) hereof, (i) the amount of the severance benefit shall be increased to 200% of the sum of the Employee’s then current base salary and target annual bonus, (ii) the 25% hold-back of the severance benefit shall not apply, and (iii) the Employee shall be entitled to the Gross-up Payment, if any, described in subsection (c) below.

A “Change in Control” shall mean the first of the following events to occur:

(i)

Any person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Act”)), other than AMS or a trustee or other fiduciary holding securities under an employee benefit plan of AMS or a corporation owned directly or indirectly by the stockholders of AMS in substantially the same proportions as their ownership of stock of AMS, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Act), directly or indirectly, of securities representing 50% or more of the combined voting power of AMS’s then-outstanding securities entitled generally to vote for the election of directors;

(ii)

AMS’s stockholders approve an agreement to merge or consolidate with another corporation unless AMS’s stockholders immediately before the merger or consolidation are to own more than two-thirds (66-2/3%) of the combined voting power of the resulting entity’s voting securities entitled generally to vote for the election of directors;

(iii)

AMS’s stockholders approve an agreement (including, without limitation, an agreement of liquidation) to sell or otherwise dispose of all or substantially all of the business or assets of AMS; or

(iv)

During any period of two (2) consecutive years, individuals who, at the beginning of the period, constituted the Board cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by AMS’s stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period (either by a specific vote or by

approval of the proxy statement of AMS in which such person is named as a nominee for director, without objection to such nomination).

However, no Change in Control shall be deemed to have occurred by reason of (1) any event involving a transaction in which the Employee or a group of persons or entities with whom or with which the Employee acts in concert, acquires, directly or indirectly, 50% or more of the combined voting power of AMS’s then-outstanding voting securities or the business or assets of AMS, or (2) 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 law.

The benefit provided under this Section 7 or Section 6 hereof, if applicable, shall be provided without regard to any limitations imposed by Section 280G or 4999 of the Code.

(i)

In the event that the Employee becomes entitled to the benefits (including the acceleration of certain benefits) provided under this Section 7 or Section 6 hereof, if applicable (the “Benefits”), if any of the 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), AMS shall pay to the Employee an additional amount (the “Gross-up Payment”) such that the net amount retained by the Employee, 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 subparagraph (i), but before deduction for any federal, state or local income tax on the Benefits, shall be equal to the “Total Benefits,” as defined below.

(ii)

For purposes of determining whether any of the Benefits will be subject to the Excise Tax and the amount of such Excise Tax:

(1)

Any other payments or benefits received or to be received by the Employee in connection with a Change in Control of AMS or the Employee’s termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with AMS, any person whose actions result in a Change in Control of AMS, or any person affiliated with AMS or such person) (which, together with the 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 AMS’s independent auditors such other payments or benefits (in whole or in part) will 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 Tax, and such tax counsel shall provide such opinion in writing to the Employee such that he and his tax advisors can rely on it,

(2)

The amount of the Total Benefits which shall be treated as subject to the Excise Tax shall be equal to the lesser of (I) the total amount of the Total Benefits and (II) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying paragraph (1), above), and

(3)

The value of any non-cash benefits or any deferred payment or benefit shall be determined by AMS’s independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code.

(iii)

For purposes of determining the amount of the Gross-up Payment, the Employee 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 at 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, the Employee shall repay to AMS 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 the Employee 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), AMS 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.

If the Employee’s employment is terminated during the term of this Agreement without Cause, 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.

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.

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 including, but not limited to, computer, employee manual, passwords, office equipment, identification card and office keys. 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 Confidentiality and Intellectual Property Rights Agreement, the AMS Ethical Business Conduct policy statement, and the restrictive covenants contained in this Section 10 and Section 11 hereof. This Section 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.

Effective on the Separation Date and for a period of 12 months thereafter (the “Restricted Period”) the Employee will not on his own behalf or on behalf of another person or entity directly or indirectly solicit for the provision of, or provide competitive products or services to, any AMS customer for which he provided products or services on behalf of AMS during the two (2) years prior to Separation Date, or any prospective customers that AMS was actively soliciting to become a customer during two (2) years prior to his Separation Date and in which employee had any direct and material involvement in soliciting or proposal process. “Competitive Products or Services” means products or services, which are in whole or in part similar to AMS’s proprietary products or to services then available from AMS on the Separation Date.

During the Restricted Period, the Employee shall not directly or indirectly, on his own behalf or in aid of another person or entity, hire or engage or solicit for hire or engagement any individual who was an employee of AMS in the three (3) months prior to the solicitation or hire.

The Employee agrees that the above restrictions are reasonable – including the short length of time and the limitation as to AMS customers and prospective customers – and do not unreasonably restrict his ability to earn a living after the Separation Date. The Employee further agrees that these restrictions protect AMS’s legitimate business interests. The Employee also agrees that in addition to any other remedies, including an action for damages, AMS also may seek injunctive relief against Employee for violation of this Section.

The Employee represents and warrants to AMS that he has disclosed to AMS any and all obligations 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.

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 Employment Arbitration Rules and 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 10 and 11 hereof.

Except as provided in Section 13 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 relating to the dispute or controversy, 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 on the dispute or controversy. This obligation shall apply irrespective of whether the dispute or controversy is resolved by arbitration, litigation, or a settlement thereof.

AMS shall pay to the Employee interest at the prime lending rate as announced from time to time by Citibank, N.A. or its successors or another substantially similar rate on all or any

part of any amount to be paid to the Employee hereunder that is not paid when due or that is deferred under an express obligation to pay interest.

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 of 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 reimburse the Employee all reasonable costs and expenses (including legal fees) incurred by him in connection with a Proceeding within 30 days after receipt by AMS of a written request for such payment. The Employee is responsible for repayment of any amounts previously paid through AMS reimbursement process, if it is ultimately determined that the Employee is not entitled to be indemnified against such costs and expenses.

The failure of AMS (including its Board, independent legal counsel or stockholders) to have rendered a formal decision that the Employee is entitled to indemnification because the Employee has met the applicable standards of conduct, shall not create a presumption that the Employee has not met the applicable standards of conduct.

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. No rights or obligations of the Employee 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.

All notices required or permitted hereunder shall be in writing and shall be deemed effective: (a) upon personal delivery; (b) upon deposit with the United States Postal Service, by registered or certified mail, postage prepaid; or (c) in the case of delivery by nationally recognized overnight delivery service, when received, addressed as follows:

American Management Systems, Incorporated
4050 Legato Road
Fairfax, VA 22033
Attention: Garry Griffiths, Chief Human Resources Officer

or to such other address or addresses as either party shall designate to the other in writing from time to time by like notice. At AMS’s sole discretion it may substitute, for any advance notification otherwise required in this Agreement, continued payment of regular salary and benefits during the otherwise required advance notification period.

This agreement may be amended or modified only by a written instrument executed by both AMS and the Employee.

The captions appearing herein are for convenience of reference only and in no way define, limit or affect the scope or substance of any section hereof.

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.

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. This Agreement renders null and void the Employment Agreement signed by Employee on April 23, 2002.

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.

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.

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.

AMS may deduct from all benefits provided hereunder any taxes or other withholdings reasonably determined to be required to be withheld by any government or government agency. To the extent that AMS does not deduct the full amount of taxes owed, the Employee is solely responsible for any additional taxes.

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.

IN WITNESS WHEREOF, AMS and the Employee have executed this Agreement effective as of October 1, 2003.


		PAGE

ARTICLE I—PURPOSE; EFFECTIVE DATE			1
1.01	Purpose		1
1.02	Effective Date		1
ARTICLE II—DEFINITIONS			1
2.01	Account		1
2.02	Beneficiary		1
2.03	Board		1
2.05	Change in Control		1
2.06	Committee		2
2.07	Company		2
2.09	Compensation		3
2.10	Deferral Commitment		3
2.11	Deferral Period		3
2.13	Disability		3
2.14	Disability Benefit		3
2.15	Discretionary Contribution		3
2.16	Earnings		3
2.17	Employer		3
2.18	Exchange Act		4
2.19	Executive		4
2.20	Financial Hardship		4
2.21	401(k) Plan		4
2.22	Incentive Compensation		4
2.23	Incentive Compensation Deferral Commitment		4
2.24	Investment Crediting Rate		4
2.25	Participant		5
2.26	Participation Agreement		5
2.27	Plan		5
2.28	Prior Plan		5
2.29	Prior Plan Benefit		5
2.30	Retirement		5
2.31	Retirement Benefit		6
2.32	Salary Deferral Commitment		6
2.33	SEP Make Up Contribution		6
2.36	Stock Incentive Plan		6
2.37	Valuation Date		6
ARTICLE III—PARTICIPATION AND DEFERRAL COMMITMENTS			6
3.01	Eligibility and Participation		6
3.02	Deferral Commitments		7
3.03	Limitations on Deferral Commitments		7


		PAGE

3.04	Commitment Limited by Termination		7
3.05	Modification of Deferral Commitment		7
3.06	Withholding for Taxes		8
ARTICLE IV—DEFERRED COMPENSATION ACCOUNTS			8
4.01	Account		8
4.02	Timing of Credits		8
4.03	SEP Make Up Contribution		8
4.04	Discretionary Contributions		8
4.05	Determination of Account		8
4.06	Vesting of Account		9
4.07	Statement of Account		9
ARTICLE V—PLAN BENEFITS			10
5.01	Distributions Prior to Termination of Employment		10
5.02	Termination of Employment		10
5.03	Retirement Benefit		11
5.04	Disability Benefit		11
5.05	Accelerated Distributions		11
5.06	Valuation and Settlement		12
5.07	Payment to Guardian		12
5.08	Company Distribution		12
ARTICLE VI—BENEFICIARY DESIGNATION			12
6.01	Beneficiary Designation		12
6.02	Changing Beneficiary		13
6.03	No Beneficiary Designation		13
ARTICLE VII—ADMINISTRATION			13
7.01	Committee; Duties		13
7.02	Agents		13
7.03	Binding Effect of Decisions		14
7.04	Indemnity of Committee		14
ARTICLE VIII—CLAIMS PROCEDURE			14
8.01	Claim		14
ARTICLE IX—AMENDMENT AND TERMINATION OF PLAN			14
9.01	Amendment		14
9.02	Employer’s Right to Terminate		14
9.03	Transfer of Liability		15

The purpose of this American Management Systems, Incorporated Deferred Compensation Plan is to provide a select group of management employees with a competitive deferred compensation plan offering a market rate of return on a pre-tax basis. It is intended that this Plan will aid in attracting and retaining executives of exceptional ability by providing them with these benefits.

For the purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise:

“Account” means the bookkeeping device used by the Employer to measure and determine the amount to be paid to a Participant under the Plan.

“Beneficiary” means the person, persons or entity entitled under Article VI to receive any Plan benefits payable after a Participant’s death.

“Bonus Deferral Commitment” means a Deferral Commitment described in Section 3.02(c) relating to a bonus payable to a Participant during the Deferral Period.

“Change in Control” means the happening of any of the following events, unless otherwise specified in an individual employment agreement:

(a) Any person or group (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than the Company or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities representing fifty percent (50%) or more of the combined voting power of the Company’s then-outstanding securities entitled generally to vote for the election of directors;

(b) During any period of two 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 Company’s stockholders of each new director was approved by a vote of at least two-thirds (66-2/3%) of the directors then still in office who were directors at the beginning of the period; and provided further, however, that any such individual whose initial assumption of office occurs as a result of or in connection with either an actual or threatened solicitation with respect to the election of directors (as such terms are used in Rule 14a-12(c) of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an entity other than the Board shall not be so considered as a member of the Board;

(c) The consummation of a merger or consolidation with another corporation (other than a majority-controlled subsidiary of the Company) unless the Company’s stockholders immediately before the merger or consolidation are to own more than two-thirds (66-2/3%) of the combined voting power of the resulting entity’s voting securities entitled generally to vote for the election of directors; or

(d) The disposition or sale of all or substantially all of the business or assets of the Company and its subsidiaries, taken as a whole.

Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred with respect to a Participant by reason of (A) any event involving a transaction in which the Participant or a group of persons or entities with whom or with which the Participant acts in concert, acquires, directly or indirectly, fifty percent (50%) or more of the combined voting power of the Company’s then-outstanding voting securities or the business or assets of the Company, or (B) any event involving or arising out of a proceeding under Title 11 of the United States Code or comparable provisions of any future United States bankruptcy law, an assignment for the benefit of creditors or an insolvency proceeding under state or local law.

“Committee” means the Administrative Committee appointed to administer the Plan pursuant to Article VII hereof.

“Company” means American Management Systems, Incorporated, a Delaware corporation.

“Compensation” means salary, bonuses, Incentive Compensation, and Stock Compensation, payable to the Participant during the calendar year, before reduction for amounts deferred under this Plan or any other salary reduction program.

“Deferral Commitment” means a commitment made by a Participant to defer Compensation pursuant to Section 3.02.

“Deferral Period” means each calendar year. The initial Deferral Period shall be from January 1, 2004 through December 31, 2004.

“Disability” means a physical or mental condition that, in the opinion of the Committee, shall prevent the Participant from satisfactorily performing his usual duties for the Employer or Company for a two (2) year period or longer. The Committee shall determine the existence of the Disability and may rely on advice from a medical examiner, medical reports, and/or other evidence satisfactory to the Committee.

“Disability Benefit” means the amount payable to a Participant pursuant to Section 5.04 of the Plan.

“Discretionary Contribution” means an Employer contribution credited under Section 4.04 to the Account of a Participant.

“Earnings” means the rate of investment return credited to an account on each Determination Date in a calendar year. Unless otherwise determined by the Company in accordance with Article IX, the Earnings rate for amounts deferred in cash shall be the Investment Crediting Rate. “Earnings” for amounts deferred in stock shall mean dividends paid on Company stock.

“Employer” means the Company and any U.S. subsidiary or affiliate of the Company designated by the Board.

“Executive” means an individual who is eligible under Section 3.01 to participate in the Plan.

“Financial Hardship” means severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Internal Revenue Code) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute a Financial Hardship will depend upon the facts of each case, but in any case, payment may not be made to the extent that such hardship is or may be relieved:

(b) By liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or

“401(k) Plan” means the American Management Systems, Inc. 401(k) Plan, as amended from time to time.

“Incentive Compensation” means amounts payable in cash or stock to a Participant by the Employer, including, but not limited to, annual bonuses, awards under the Stock Incentive Plan, and any other incentive or bonus as determined by the Committee.

“Incentive Compensation Deferral Commitment” means a Deferral Commitment described in Section 3.02(b) relating to the Incentive Compensation payable by the Employer to a Participant.

ury Note, as reported on Bloomberg, plus one percent (1%). This rate is applied on each Determination Date and the final payment date using the actual date count on the basis of a 365-day year (ACT/365). If such rate is not available or is no longer reported on Bloomberg, then the most directly comparable 5-year U.S. Treasury Note rate, as published in the Wall Street Journal or a substantially similar publication, as determined by the Committee, plus one percent (1%), shall be applied.

“Participant” means any Executive who has elected to defer Compensation under this Plan.

“Participation Agreement” means the agreement submitted by a Participant to the Committee prior to the beginning of a Deferral Period, with respect to a Deferral Commitment made for such Deferral Period.

“Plan” means this American Management Systems, Incorporated Deferred Compensation Plan for Executives, as amended from time to time.

“Prior Plan” means the American Management Systems, Incorporated Executive Deferred Compensation Plan.

“Prior Plan Benefit” means an amount equal to an Executive’s account balance, if any, in the Prior Plan that is transferred to the Plan upon termination of the Prior Plan.

(a) A termination of employment after age fifty-five (55) with five (5) or more years of continuous service;

(b) A change in pay status to part-time/partial benefit after age fifty-five (55) with five (5) continuous years of service if a Participant:

(i) makes an election to retire for purpose of this Plan on or before September 30 for benefits commencing on February 28 of the following year; and

(ii) entered part-time/partial benefit status by July 1, prior to electing to retire and must remain in partial benefit status until distributions begin; and

(iii) forfeits all rights to defer under this Plan at anytime in future years; or

(c) A termination of employment, which, in the opinion of the Committee, based on the Participant’s facts and circumstances, is a termination for retirement and not to pursue employment or self-employment.

“Retirement Benefit” means an amount payable to a Participant pursuant to Section 5.03 of the Plan.

“Salary Deferral Commitment” means a Deferral Commitment described in Section 3.02(a) relating to the base salary payable by the Employer to a Participant.

“SEP Make Up Contribution” means a contribution credited to the Account of a Participant pursuant to Section 4.03.

“Stock Incentive Plan” means the American Management Systems, Incorporated 2003 Stock Incentive Plan.

“Valuation Date” shall be the date on which a lump sum distribution (whether in cash or in stock) is made to a Participant or the date on which installment payments (whether in cash or in stock) to a Participant commence, as applicable.

(a) Eligibility. Eligibility to participate in the Plan shall be limited to (1) U.S. employees of the Employer who are Vice Presidents, or above, or (2) U.S. employees of the Employer who were participants in the Prior Plan. The Committee, in its discretion, may deem otherwise eligible employees to be ineligible to participate.

(b) Participation. An Executive may elect to participate in the Plan with respect to any Deferral Period by submitting a Participation Agreement to the Committee by the thirtieth (30th) day of September immediately preceding the beginning of the Deferral Period or by any other date determined by the Committee.

A Participant may elect Deferral Commitments in the Participation Agreement as follows:

(a) Salary Deferral Commitment. A Salary Deferral Commitment shall be related to the salary payable by the Employer to a Participant during the Deferral Period. The amount to be deferred shall be stated as a percentage or a dollar amount.

(b) Incentive Deferral Commitment. An Incentive Deferral Commitment shall be related to the Incentive Compensation payable by the Employer to a Participant during the Deferral Period. For amounts deferred in cash, the amount to be deferred shall be stated either as a percentage or a dollar amount. For amounts deferred in stock, the amount to be deferred shall be stated either as a percentage or a whole number of shares.

(c) Bonus Deferral Commitment. Subject to the discretion of the Committee, a Participant may defer bonuses payable by the Employer during the Deferral Period. The amount to be deferred shall be stated either as a percentage or as a dollar amount.

No deferral shall be permitted that is in violation of law, e.g., wage garnishments, tax levies, or child support orders. Deferral Commitments are valid for one Deferral Period only.

The following limitations shall apply to the Deferral Commitments of a Participant:

(a) Minimum. The minimum Salary Deferral Commitment amount shall be one thousand dollars ($1,000) per month (or five hundred dollars ($500) per pay period in the case of bi-weekly salary payments). The minimum Salary Deferral Commitment for a Participant who enters participation after the beginning of a Deferral Period shall be pro-rated based on the number of months remaining in the Deferral Period.

(b) Maximum. The maximum deferral amount in a Salary Deferral Commitment shall be fifty percent (50%) of base salary. Notwithstanding the foregoing, no Deferral Commitment shall reduce a Participant’s compensation paid below the amount necessary to satisfy any applicable tax withholding required under federal, state, or local law.

(c) Changes in Minimum or Maximum. The Committee may establish new minimum or maximum deferral amounts or change the existing minimum or maximum deferral amounts from time to time by giving written notice to all Participants. No such change may affect a Deferral Commitment made prior to the Committee’s action.

If a Participant terminates employment with the Employer prior to the end of the Deferral Period, the Deferral Period shall end as of the date of termination of employment.

Except as provided in Section 5.01(b) below, Deferral Commitments shall be irrevocable.

To the extent required by law, the Employer shall withhold any taxes required to be withheld by the federal or any state or local government with respect to Deferral Commitment amounts or with respect to deferred Compensation or Earnings. The Company reserves the right to limit or reduce the amount of cash or stock to be deferred or distributed as needed to satisfy the required tax withholding obligation.

The amounts deferred by a Participant under the Plan, any Employer contributions, a Participant’s Prior Plan Benefit, if any, and Earnings on deferrals shall be credited to the Participant’s Account. A Participant’s Account shall be debited to reflect distributions to the Participant and forfeitures of unvested Employer contributions, if any. The Employer’s liability to pay benefits under the Plan shall be measured by, and shall in no event exceed the Participant’s vested Account balance. Separate subaccounts may be maintained to reflect different forms of deferrals, distributions, levels of vesting, and forms of payment. The Account shall be a bookkeeping device utilized for the sole purpose of determining the benefits payable under the Plan and shall not constitute a separate fund of assets.

A Participant’s deferred Compensation shall be credited to the Participant’s Account one (1) business day after it otherwise would have been paid had a Deferral Commitment not been made. A Participant’s Prior Plan Benefit, if any, shall be credited to his account on or before January 30, 2004 and shall be credited with Earnings under this Plan for the month of January 2004.

If as a result of participation in the Plan, an eligible Participant’s SEP contribution is reduced, the Employer shall credit an amount equal to the foregone SEP contribution into the eligible Participant’s account on the date the SEP contribution is made.

The Employer may make Discretionary Contributions to a Participant’s Account in the Plan. Discretionary Contributions shall be credited at such times and in such amounts as the Board in its sole discretion shall determine.

to whole or fractional shares, plus the number of shares determined by any stock split, recapitalization or other capital change affecting the Company stock since the prior Determination Date, adjusted as follows:

(a) New Deferrals. The Account shall be increased by any Compensation deferred pursuant to a Deferral Commitment and credited pursuant to Section 4.02 since such the immediately preceding Determination Date.

(b) Employer Contributions. The Account shall be increased by any Discretionary Contributions and SEP Make Up Contributions credited since the immediately preceding Determination Date.

(c) Distributions. The Account shall be reduced by the amount of any distributions from the Account to the Participant since the immediately preceding Determination Date.

(d) Earnings. The Account shall be increased by the Earnings on the average daily balance in the Account since the immediately preceding Determination Date, except that that the number of shares (including fractional shares) in the portion of the Account attributable to deferrals of stock shall be increased by Earnings (i.e. dividends) paid at such times as shareholders of the Company are credited with dividends.

Each Participant shall be vested in the amounts credited to the Participant’s Account and Earnings thereon as follows:

(a) Amounts Deferred. A Participant shall be one hundred percent (100%) vested at all times in the amount of Compensation elected to be deferred under this Plan and Earnings thereon.

(b) Discretionary Contributions. A Participant’s Discretionary Contributions and Earnings thereon shall become vested as determined by the Company at the time the Discretionary Contribution is made. Any Discretionary Contributions, and Earnings thereon, that are not vested at the time a Participant terminates employment with the Employer or retires shall be forfeited.

(c) SEP Makeup Contributions. A Participant shall be one hundred percent (100%) vested at all times in any SEP Make Up Contribution and Earnings thereon.

The Committee shall give to each Participant a statement showing the balance in the Participant’s Account on an annual basis and at such other times and in such manner as may be determined by the Committee.

A Participant’s Account may be distributed to the Participant prior to termination of employment as follows:

(a) In-Service Withdrawals. A Participant may elect in a Participation Agreement to withdraw all or any portion of the amount deferred by that Participation Agreement as of a date specified in the election. Such date shall not be sooner than three (3) years after the date the Deferral Period commences. The amount withdrawn shall not exceed the amount of Compensation deferred plus Earnings on the deferral. Such election shall be made at the time the Deferral Commitment is made and can only be amended if such amendment is made at least one year and one day before the calendar year in which the distribution was scheduled. If the Participant retires, is disabled, or terminates employment prior to the date of a scheduled in-service withdrawal, such election will be invalid, and the amount of the scheduled in-service withdrawal will distributed in the same form of distribution as elected for the Participant’s retirement, disability, or termination of employment, as applicable.

(b) Hardship Withdrawals. Upon a finding that a Participant has suffered a Financial Hardship, the Committee may, in its sole discretion, (a) waive or modify the deferral commitment and/or (b) make distributions from the Participant’s Account. The amount of such a withdrawal shall be limited to the amount reasonably necessary to meet the Participant’s needs resulting from the Financial Hardship and shall be made first from the Participant’s Prior Plan Benefit until exhausted. If payment is made from a Participant’s Account due to Financial Hardship, or if distributions are made under the 401(k) Plan on account of hardship as defined in the 401(k) Plan, the Participant’s deferrals under this Plan shall cease for twelve (12) months after the date of such payment. Any resumption of the Participant’s deferrals under the Plan after this period shall be made only at the election of the Participant in accordance with Article III herein.

(c) Form of Payment and Time. Any distribution pursuant to Section 5.01(a) or 5.01(b) shall be payable in a lump sum distribution in accordance with Section 5.06. The distribution shall be paid in the case of a partial withdrawal, as provided in the Participation Agreement, and in case of a Financial Hardship, within thirty (30) days after the determination of a Financial Hardship.

Upon a Participant’s termination of employment with the Employer for any reason, other than Retirement or Disability, the Employer shall pay the Participant or, in the case of the Participant’s death before Retirement, the Participant’s Beneficiary, a lump sum benefit equal to the balance in the Participant’s Account, less any Discretionary Contributions and Earnings thereon that are forfeited pursuant to Section 4.06(b). Such payment will be distributed within sixty (60) days after the termination of employment, unless the Participant is a person described in Rule 16b of the Exchange Act, in which case the Committee shall have the discretion to delay the distribution of the portion of the Participant’s Account that is attributable to deferrals of stock until

such date that the Committee determines is practicable but that is no more than (1) year after the termination of employment.

Retirement benefits shall be paid in the form elected by the Participant at the time of the Deferral Commitment.

(i) A lump sum distribution of the Participant’s Account balance, less any Discretionary Contributions and Earnings thereon that are forfeited pursuant to Section 4.06(b); or

(ii) Distribution of the Participant’s Account balance, less any Discretionary Contributions and Earnings thereon that are forfeited pursuant to Section 4.06(b), in annual installments with a maximum of ten (10).

(b) Benefits shall commence the last day of February in the calendar year next following the date of retirement.

(c) Small Account(s). Notwithstanding Section 5.03(a), if the value of a Participant’s Account is less than fifty thousand dollars ($50,000) on the Valuation Date, the distribution shall be made in a lump sum.

(d) Change in Form and Commencement of Payment. A Participant may elect to file a modified election as to form and timing of payment relating to deferrals. To be effective, such modified election must be filed prior to a termination of employment and one year and one day prior to the calendar year in which distributions would have occurred if the modification had not been made.

(e) In the case of the Participant’s death after Retirement, the Employer shall pay to Participant’s Beneficiary the remaining portion, if any, of the Participant’s Account in the form elected by the Participant at the time of the Deferral Commitment.

At the time of the Deferral Commitment, the Participant must elect, upon disability, to receive their benefit either in a lump sum or in the same number of annual installments as elected under Section 5.03 above.

(a) Change in Control Distribution. Notwithstanding any other provision of the Plan, upon a Change in Control, a Participant’s Account balance shall be paid to the Participant in a lump sum within sixty (60) days of the Change in Control, unless the Company’s obligations under this Plan are assumed by the acquiring or successor company. Upon a Change in Control, this Section 5.05(a) and the definition of Change in Control in Section 2.05 shall remain in force and effect, and shall not be subject to cancellation or modification for a period of five years.

(b) Penalty Withdrawal. Notwithstanding any other provision of the Plan, a Participant shall be entitled to receive, upon written request to the Committee, a lump sum distribution (whether cash or stock) equal to ninety percent (90%) of the entire vested Account balance as of the Determination Date immediately preceding the date on which the Committee receives the written request. The remaining balance (whether cash or stock) shall be forfeited by the Participant. The amount payable under this section shall be paid in a lump sum within sixty-five (65) days following the receipt of the notice by the Committee from the Participant. Any Participant who elects to receive a benefit under this section shall not be eligible to participate in or defer into this Plan in the future.

The amount of a lump sum payment and the initial amount of installments shall be based on the value of the Participant’s Account on the Valuation Date. Distributions shall be made in cash, except for the portion of the Account attributable to deferrals of stock, which shall be distributed in shares of Company stock (plus cash equal to any fractional shares).

The Committee may direct payment to the duly appointed guardian, conservator, or other similar legal representative of a Participant or Beneficiary to whom payment is due. In the absence of such a legal representative, the Committee may, in it sole and absolute discretion, make payment to a person having the care and custody of a minor, incompetent or person incapable of handling the disposition of property upon proof satisfactory to the Committee of incompetency, minority, or incapacity. Such distribution shall completely discharge the Committee from all liability with respect to such benefit.

The Committee may distribute a Participant’s Account balance to the Participant at any time if the Committee deems it to be in the best interests of the Company to do so. If, because of a change in law or because of a final determination by the Internal Revenue Service, all or any portion of the amounts deferred by a Participant under the Plan become includable in the Participant’s income under the Internal Revenue Code of 1986 (as amended) while deferred and prior to the scheduled distribution date or any accelerated distribution date determined under Sections 5.01, 5.02, 5.03, 5.04, or 5.05, the Committee shall immediately distribute the amount deferred or the portion thereof that is currently taxable in a lump sum to the Participant.

Each Participant shall have the right, at any time, to designate one (1) or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of Participant’s death prior to complete distribution of the Participant’s

Account. Each Beneficiary designation shall be in a written form prescribed by the Committee and shall be effective only when filed with the Committee during the Participant’s lifetime.

Any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by the filing of a new designation with the Committee. The filing of a new designation shall cancel all designations previously filed.

If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant’s benefits, the Participant’s Beneficiary shall be the person in the first of the following classes in which there is a survivor:

(b) The Participant’s children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take by right of representation the share the parent would have taken if living;

The Plan shall be administered by the Committee. The Committee shall be appointed by the Compensation Committee of the Board of Directors. The Committee shall have the complete discretion and authority to make, amend, interpret, apply, and enforce all appropriate rules and regulations for the administration of the Plan and to exercise such powers as the Committee may deem necessary for the administration of the Plan. The Committee shall have the complete discretion and authority to interpret and construe the terms of the Plan, to apply the terms of the Plan to situations not expressly addressed in the Plan, to make findings of fact, and to resolve any and all questions as may arise under the terms of the Plan or in the administration of the Plan. The Committee shall exercise its discretion in a manner that is consistent with the terms of the Plan and with applicable law. A majority vote of the Committee members shall control any decision. Members of the Committee may be Participants under this Plan.

tion under this Plan, the Committee may obtain and rely upon the advice of experts, including professional advisors to the Company. No member of the Committee or officer of the Company who is a Participant hereunder may participate in any decision specifically relating to his or her individual rights or benefits under the Plan.

The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan.

Neither the Company nor any member of the Board or of the Committee, nor any other person participating in any determination of any question under this Plan, or in the interpretation, administration or application thereof, shall have any liability to any party for any action taken or not taken in good faith under this Plan or for the failure of the Plan or any Participant’s rights under the Plan to achieve intended tax consequences, to qualify for exemption or relief under Section 16 of the Exchange Act and the rules thereunder, or to comply with any other law, compliance with which is not required on the part of the Company. The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan on account of such person’s service on the Committee, except in the case of gross negligence or willful misconduct.

The Committee shall establish rules and procedures to be followed by Participants and Beneficiaries for (a) filing claims for benefits, (b) furnishing and verifying proofs necessary to establish the right to benefits in accordance with the Plan, and (c) appealing denials of claims for benefits. Such rules and procedures shall require that claims and proofs be made in writing and directed to the Committee. The Committee shall notify Participants of the claims procedures in accordance with applicable law.

The Board may at any time amend the Plan (including the Investment Crediting Rate under the Plan) by written instrument, notice of which is given to all Participants and to Beneficiaries receiving installment payments, except that no amendment shall modify Section 5.05(a) hereof, and no amendment shall reduce the amount in any Account that accrued prior to the date such notice of the amendment is given.

The Board may at any time partially or completely terminate the Plan if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments thereunder would not be in the best interests of Employer.

(a) Partial Termination. The Board may partially terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments. If such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Deferral Commitments entered into prior to the effective date of such partial termination.

(b) Complete Termination. The Board may completely terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments, and by terminating all ongoing Deferral Commitments. If such a complete termination occurs, the Plan shall cease to operate. Unless such account balance is transferred under the terms of a new deferred compensation plan sponsored by the Company and the Employer, the Employer shall pay out and distribute each Account balance to the Participant within sixty (60) days after the Board terminates the Plan. Earnings shall continue to be credited on the unpaid Account balance as specified in Section 4.05(d) through the date of payment. Notwithstanding the foregoing, the Employer, in its sole discretion, may determine that it is in the financial best interests of the Employer to distribute any or all Accounts in installments over a payment period to be determined by the Employer.

The Board reserves the right to transfer to another entity all of the obligations of the Company and/or the Employer with respect to a Participant under this Plan if such entity agrees pursuant to a binding written agreement to assume all of the obligations of the Company under this Plan with respect to such Participant. In the event of a corporate transaction, merger, acquisition, or other similar event, the payment of benefits in the form of stock shall be determined in the same manner as provided in the Stock Incentive Plan.

This plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly-compensated employees” within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA.

The obligation to make benefit payments to any Participant under the Plan shall be a joint and several liability of the Company and the Employer that employed the Participant.

Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of Employer or any other party for payment of benefits under this Plan. Any life insurance policies, annuity contracts or other property purchased by Employer in

connection with this Plan shall remain its general, unpledged and unrestricted assets. The Employer’s obligation under the Plan shall be an unfunded and unsecured promise to pay money or stock in the future.

At its discretion, the Company may establish one or more trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of benefits owed under the Plan. Although such a trust shall be irrevocable, its assets shall be held for payment of all the Company’s general creditors in the event of insolvency or bankruptcy. To the extent any benefits provided under the Plan are paid from any such trust, Employer shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of Employer.

Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

This Plan shall not constitute a contract of employment between Employer and the Participant. Nothing in this Plan shall give a Participant the right to be retained in the service of Employer or to interfere with the right of Employer to discipline or discharge a Participant at any time.

A Participant will cooperate with the Company and the Employer by furnishing any and all information requested by the Company and the Employer in order to facilitate the payment of benefits hereunder, and by taking such other actions as may be requested by the Company or the Employer. If it is necessary for a Participant to bring a legal action against the Company to obtain payment of amounts owed the Participant under the terms of the Plan, the Company will pay the Participant’s reasonable legal fees, costs, and expenses if the Participant prevails in litigation.

The provisions of this Plan shall be construed and interpreted according to the laws of the Commonwealth of Virginia, except as preempted by federal law.

In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.

Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed as given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Committee shall be directed to the Chief Human Resources Officer at the Company’s address. Mailed notice to a Participant or Beneficiary shall be directed to the individual’s last known address in Employer’s records.

The provisions of this Plan shall bind and inure to the benefit of Employer and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Employer, and successors of any such corporation or other business entity.

Notwithstanding anything to the contrary herein, if the Committee determines in good faith, based on consultation with counsel, that the federal income tax treatment or legal status of the Plan has or may be adversely affected by a change in the Internal Revenue Code, Title I of the Employee Retirement Income Security Act of 1974, or other applicable law or by an administrative or judicial construction thereof, the Committee may direct that the Accounts of affected Participants or of all Participants be distributed as soon as practicable after such determination is made, to the extent deemed necessary or advisable by the Committee to cure or mitigate the consequences, or possible consequences of, such change in law or interpretation thereof.

PAGE 17 - DEFERRED COMPENSATION PLAN FOR EXECUTIVES EX-10.6 8 w91537exv10w6.htm EXHIBIT 10.6 exv10w6


		PAGE

ARTICLE I—PURPOSE; EFFECTIVE DATE			1
1.01	Purpose		1
1.02	Effective Date		1
ARTICLE II—DEFINITIONS			1
2.01	Account		1
2.02	Beneficiary		1
2.03	Board		1
2.04	Change in Control		1
2.05	Committee		2
2.06	Company		2
2.07	Compensation		2
2.08	Deferral Commitment		3
2.09	Deferral Period		3
2.10	Determination Date		3
2.11	Director		3
2.12	Director's Fees		3
2.13	Director's Fees Deferral Commitment		3
2.14	Disability		3
2.15	Disability Benefit		3
2.16	Earnings		4
2.17	Exchange Act		4
2.18	Financial Hardship		4
2.19	Investment Crediting Rate		4
2.20	Participant		4
2.21	Participation Agreement		5
2.22	Plan		5
2.23	Retirement		5
2.24	Retirement Benefit		5
2.25	Stock Incentive Plan		5
2.26	Valuation Date		5
ARTICLE III—PARTICIPATION AND DEFERRAL COMMITMENTS			6
3.01	Eligibility and Participation		6
3.04	Modification of Deferral Commitment		7
ARTICLE IV—DEFERRED COMPENSATION ACCOUNT			7
4.01	Account		7
4.02	Timing of Credits; Withholding		7
4.03	Determination of Account		7
4.04	Vesting of Account		8
4.05	Statement of Account		8


		PAGE

ARTICLE V—PLAN BENEFITS			8
5.01	Distributions Prior to Termination of Service		8
5.02	Termination of Service		9
5.03	Retirement Benefit		9
5.04	Disability Benefit		9
5.05	Accelerated Distributions		10
5.06	Valuation and Settlement		10
5.07	Payment to Guardian		10
5.08	Company Distribution		10
ARTICLE VI—BENEFICIARY DESIGNATION			11
6.01	Beneficiary Designation		11
6.02	Changing Beneficiary		11
6.03	No Beneficiary Designation		11
ARTICLE VII—ADMINISTRATION			11
7.01	Committee; Duties		11
7.02	Agents		12
7.03	Binding Effect of Decisions		12
7.04	Indemnity of Committee		12
ARTICLE VIII—CLAIMS PROCEDURE			12
8.01	Claims Procedures		12
ARTICLE IX—AMENDMENT AND TERMINATION OF PLAN			13
9.01	Amendment		13
9.02	Company’s Right to Terminate		13
ARTICLE X—MISCELLANEOUS			13
10.01	Unfunded Plan		13
10.02	Company Obligations; Corporate Transactions		13
10.03	Unsecured General Creditor		14
10.04	Trust Fund		14
10.05	Nonassignability		14
10.06	Not a Contract		14
10.07	Protective Provisions		14
10.08	Governing Law		14
10.09	Validity		15
10.10	Notice		15
10.11	Successors		15
10.12	Change of Law		15

The purpose of this American Management Systems, Incorporated Non-Employee Directors Deferred Compensation Plan is to provide non-employee directors with a competitive deferred compensation plan offering a market rate of return on a pre-tax basis. It is intended that this Plan will aid in attracting and retaining non-employee directors of exceptional ability by providing them with these benefits.

For the purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise:

“Account” means the bookkeeping device used by the Company to measure and determine the amount to be paid to a Participant under the Plan.

“Beneficiary” means the person, persons or entity entitled under Article VI to receive any Plan benefits payable after a Participant’s death.

Act), directly or indirectly, of securities representing fifty percent (50%) or more of the combined voting power of the Company’s then-outstanding securities entitled generally to vote for the election of directors;

(d) The disposition or sale of all or substantially all of the business or assets of the Company and its subsidiaries, taken as a whole.

“Committee” means the Administrative Committee appointed to administer the Plan pursuant to Article VII hereof.

“Company” means American Management Systems, Incorporated, a Delaware corporation, or successor thereto.

“Compensation” means Director’s Fees payable to the Director by the Company during the calendar year in cash or in Company stock, before reduction for amounts deferred under this Plan.

“Deferral Commitment” means a commitment made by a Participant to defer Compensation pursuant to Article III.

“Director” means a member of the Board of Directors of the Company who is eligible to receive compensation in the form of Director’s Fees, and who is not an officer or employee of the Company or any of its subsidiaries.

“Director’s Fees” means the fees payable to a Director by the Company for services as a Director and for services on any Committee of the Board, including the retainer, meeting fees, Committee meeting fees, and any fees paid pursuant to an award made to a Director by the Company under the Stock Incentive Plan, whether paid in cashor in Company stock.

“Director’s Fees Deferral Commitment” means a Deferral Commitment described in Section 3.02 relating to the Director’s Fees payable by the Company to a Director.

“Disability” means a physical or mental condition that, in the opinion of the Committee, shall prevent the Participant from satisfactorily performing his usual duties for the Company for a two (2) year period or longer. The Committee shall determine the existence of the Disability and may rely on advice from a medical examiner, medical reports, and/or other evidence satisfactory to the Committee.

“Disability Benefit” means the amount payable to a Participant pursuant to Section 4.04 of the Plan.

“Earnings” means the rate of investment return credited to an account on each Determination Date in a calendar year. Unless otherwise determined by the Company in accordance with Article IX, the Earnings rate for amounts deferred in cash, including amounts deferred prior to January 1, 2004, shall be the Investment Crediting Rate. “Earnings” for amounts deferred in shares of Company stock shall mean dividends paid on Company stock.

(b) By liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or

“Investment Crediting Rate” means a rate fixed for each Plan year, which shall be calculated from the average end-of-day rate over the last ten business days of the year immediately preceding the Plan year in which Earnings are being credited, for the generic 5-year U.S. Treasury Note, as reported on Bloomberg, plus one percent (1%). This rate is applied on each Determination Date and the final payment date using the actual date count on the basis of a 365-day year (ACT/365). If such rate is not available or is no longer reported on Bloomberg, then the most directly comparable 5-year U.S. Treasury Note rate, as published in the Wall Street Journal or a substantially similar publication, as determined by the Committee, plus one percent (1%), shall be applied.

“Participant” means any eligible Director who has elected to defer Compensation under this Plan.

“Plan” means this American Management Systems, Incorporated Non-Employee Director Deferred Compensation Plan as amended from time to time.

“Retirement” means a termination of service on the Board after the Participant attains age fifty-five (55).

“Retirement Benefit” means an amount payable to a Participant pursuant to Section 4.03 of the Plan.

“Stock Incentive Plan” means the American Management Systems, Incorporated 2003 Stock Incentive Plan.

“Valuation Date” shall be the date on which a lump sum distribution (whether in cash or in Company stock) is paid to a Participant or the date on which installment payments (whether in cash or in Company stock) to a Participant commence, as applicable.

(a) Eligibility. Eligibility to participate in the Deferred Compensation Plan for Non-Employee Directors is limited to Directors of the Company. The Committee, in its discretion, may deem otherwise eligible Directors to be ineligible to participate.

(b) Participation. A Director may elect to participate in the Deferred Compensation Plan for Non-Employee Directors with respect to any Deferral Period by submitting a Participation Agreement to the Committee by the thirtieth (30th) day of September of the year immediately preceding the beginning of the Deferral Period or by any other date determined by the Committee.

Director’s Fee Deferral Commitment. A Director’s Fee Deferral Commitment shall be related to the Director’s Fees payable by the Company to a Director during the Deferral Period. If Director’s Fees are payable in cash, the amount to be deferred shall be stated as a percentage or dollar amount. If the Director’s Fees are payable in the common stock of the Company, the amount to be deferred shall be stated as a whole number of shares of common stock.

No deferral shall be permitted that is in violation of law. Deferral Commitments are valid for one Deferral Period only.

(a) Minimum. The minimum Director’s Fee Deferral Commitment amount shall be fifty percent (50%) of Director’s Fees payable to a Director during the Deferral Period. The minimum Director’s Fee Deferral Commitment for a Director who enters participation after the beginning of a Deferral Period shall be pro-rated based on the number of months remaining in the Deferral Period.

(b) Maximum. There is no maximum deferral for a Director’s Fee Deferral Commitment.

Except as provided in Section 5.01(b) below, Deferral Commitments shall be irrevocable.

The amounts deferred by a Participant under the Plan and Earnings on deferrals shall be credited to the Participant’s Account. A Participant’s Account shall be debited to reflect distributions to the Participant. Separate subaccounts may be maintained to reflect different forms of deferrals, distributions, and levels of vesting, and forms of payment. The Account shall be a bookkeeping device utilized for the sole purpose of determining the benefits payable under the Plan and shall not constitute a separate fund of assets.

A Participant’s deferred Compensation shall be credited to the Participant’s Account one (1) business day after it otherwise would have been paid had a Deferral Commitment not been made. To the extent required by law, the Company shall withhold any taxes required to be withheld by the federal or any state or local government. The Company reserves the right to limit or reduce the amount of cash or stock to be deferred or distributed as needed to satisfy any required tax withholding obligation.

Each Participant’s Account as of each Determination Date shall consist of the balance of the Account as of the immediately preceding Determination Date. The Account shall be expressed in dollars, except that the portion of an Account attributable to a deferral of Company stock shall be expressed in numbers of shares (including fractional shares) plus Earnings, which are converted to whole or fractional shares, plus the number of shares determined by any stock split, recapitalization or other capital change affecting the Company stock since the prior Determination Date, adjusted as follows:

(a) New Deferrals. The Account shall be increased by any Compensation deferred pursuant to a Deferral Commitment and credited pursuant to Section 4.02 since the immediately preceding Determination Date.

(b) Distributions. The Account shall be reduced by any benefits distributed from the Account to the Participant since the immediately preceding Determination Date.

(c) Earnings. The Account shall be increased by the Earnings on the average daily balance in the Account since the immediately preceding Determination Date, except that that the number of shares (including fractional shares) in the portion of the Account attributable to a deferrals of Company stock shall be increased by Earnings (i.e. dividends) paid at such times as shareholders of the Company are credited with dividends.

A Participant shall be one hundred percent (100%) vested at all times in the amount of Compensation elected to be deferred under this Plan and Earnings thereon.

A Participant’s Account may be distributed to the Participant prior to termination of service on the Board as follows:

(a) In-Service Withdrawals. A Participant may elect in a Participation Agreement to withdraw all or any portion of the amount deferred by that Participation Agreement as of a date specified in the election. Such date shall not be sooner than three (3) years after the date the Deferral Period commences. The amount withdrawn shall not exceed the amount of Compensation deferred plus Earnings on the deferral. Such election shall be made at the time the Deferral Commitment is made and can only be amended if such amendment is made at least one year and one day before the calendar year in which the distribution was scheduled. If the Participant retires, is disabled, or terminates service prior to the date of a scheduled in-service withdrawal, such election will be invalid, and the amount of the scheduled in-service withdrawal will distributed in the same form of distribution as elected for the Participant’s retirement, disability, or termination of service, as applicable.

(b) Hardship Withdrawals. Upon a finding that a Participant has suffered a Financial Hardship, the Committee may, in its sole discretion, (a) waive or modify the deferral commitment and/or (b) make distributions from the Participant’s Account. The amount of such a withdrawal shall be limited to the amount reasonably necessary to meet the Participant’s needs resulting from the Financial Hardship. If payment is made from a Participant’s Account due to Financial Hardship under this Plan, the Participant’s deferrals under this Plan shall cease shall cease for twelve (12) months after the date of such payment. Any resumption of the Participant’s deferrals under the Plan after this period shall be made only at the election of the Participant in accordance with Article III herein.

Upon a Participant’s termination of service on the Board for any reason other than Retirement or Disability, the Company shall pay the Participant, or, in the case of the Participant’s death before Retirement, the Participant’s Beneficiary, a lump-sum benefit equal to the balance in the Participant’s Account. Such payment will be paid within sixty (60) days after the termination of service, unless the Participant is a person described in Rule 16b of the Exchange Act, in which case the Committee shall have the discretion to delay the distribution of the portion of the Participant’s Account that is attributable to a deferrals of stock until such date that the Committee determines is practicable but that is no more than (1) year after the termination of service.

Retirement benefits shall be paid in the form elected by the Participant at the time of the Deferral Commitment.

(b) Benefits shall commence the last day of February in the calendar year following the date of retirement.

(c) Small Account(s). Notwithstanding Section 5.03(a), if the value of a Participant’s Account is under fifty thousand dollars ($50,000) on the Valuation Date, distribution shall be made in a lump sum.

(d) Change in Form and Commencement of Payment. A Participant may elect to file a modified election as to form and timing of payment. To be effective such modified election must be filed prior to a termination of service and one year and one day prior to the calendar year in which distributions would have occurred if the modification had not been made.

(e) In the case of the Participant’s death after Retirement, the Company shall pay to Participant’s Beneficiary the remaining portion, if any, of the Participant’s Account in the form elected by the Participant at the time of the Deferral Commitment.

(a) Change in Control Distribution. Notwithstanding any other provision of the Plan, upon a Change in Control, a Participant’s Account balance shall be paid to the Participant in a lump sum within sixty (60) days of the Change in Control, unless the Company’s obligations under this Plan are assumed by the acquiring or successor company. Upon a Change in Control, this Section 5.05(a) and the definition of Change in Control in Section 2.04 shall remain in force and effect, and shall not be subject to cancellation or modification for a period of five years.

(b) Non-Scheduled In-Service Withdrawal. Notwithstanding any other provision of the Plan, a Participant shall be entitled to receive, upon written request to the Committee, a lump sum distribution (whether in cash or in Company stock) equal to ninety percent (90%) of the entire vested Account balance as of the Determination Date immediately preceding the date on which the Committee receives the written request. The remaining balance (whether in cash or in Company stock) shall be forfeited by the Participant. The amount payable under this section shall be paid in a lump sum within sixty-five (65) days following the receipt of the notice by the Committee from the Participant. Any Participant who elects to receive a benefit under this section shall not be eligible to participate in or defer into this Plan in the future.

The amount of a lump sum payment and the initial amount of installments shall be based on the value of the Participant’s Account on the on the Valuation Date. Distributions shall be made in cash, except for the portion of the Account attributable to deferrals of Company stock, which shall be distributed in shares of Company stock (plus cash equal to any fractional shares).

The Committee may elect to distribute a Participant’s Account balance to the Participant at any time if the Committee deems it to be in the best interests of the Company to do so. If, because of a change in law or because of a final determination by the Internal Revenue Service, all or any portion of the amounts deferred by a Participant under the Plan become includable in the Participant’s income under the Internal Revenue Code of 1986 (as amended) while deferred and prior to the scheduled distribution date or any accelerated distribution date determined under Sections 5.01, 5.02, 5.03, 5.04, or 5.05, the Committee shall immediately distribute the amount deferred or the portion thereof that is currently taxable in a lump sum to the Participant.

Each Participant shall have the right, at any time, to designate one or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of Participant’s death prior to complete distribution of the Participant’s Account. Each Beneficiary designation shall be in a written form prescribed by the Committee and shall be effective only when filed with the Committee during the Participant’s lifetime.

The Committee may, from time to time, engage agents and delegate to them such administrative duties as it sees fit. The Committee may delegate to the officers or employees of the Company the authority to execute and deliver those instruments and documents, to do all acts and things, and to take all other steps deemed necessary, advisable or convenient for the effective administration of this Plan in accordance with its terms and purpose, except that the Committee may not delegate any authority the delegation of which would cause this Plan to fail to satisfy the requirements of applicable law. In making any determination or in taking or not taking any action under this Plan, the Committee may obtain and rely upon the advice of experts, including professional advisors to the Company. No member of the Committee or officer of the Company who is a Participant hereunder may participate in any decision specifically relating to his or her individual rights or benefits under the Plan.

The Board may at any time amend the Plan (including the Investment Crediting Rate under the Plan) by written instrument, notice of which is given to all Participants and to Beneficiaries receiving installment payments, except that no amendment shall reduce the amount in any Account that accrued prior to the date such notice of the amendment is given, nor shall any amendment alter Section 5.05(a).

(b) Complete Termination. The Board may completely terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments, and by terminating all ongoing Deferral Commitments. If such a complete termination occurs, the Plan shall cease to operate. Unless such account balance is transferred under the terms of a new deferred compensation plan sponsored by the Company, the Company shall pay out and distribute each Account balance to the Participant within sixty (60) days after the Board terminates the Plan. Earnings shall continue to be credited on the unpaid Account balance as specified in Section 4.03(c) through the date of payment. Notwithstanding the foregoing, the Company, in its sole discretion, may determine that it is in the financial best interests of the Company to distribute any or all Accounts in installments over a payment period to be determined by the Company.

This plan is an unfunded plan maintained primarily to provide deferred compensation benefits for Directors of the Company and, therefore, is exempt from ERISA.

The obligation to make benefit payments to any Participant under the Plan shall be the liability of the Company. In the event of a corporate transaction, merger, acquisition, or other similar event, the payment of benefits in the form of stock shall be determined in the same manner as provided in the Stock Incentive Plan.

Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of the Company or any other party for payment of benefits under this Plan. Any life insurance policies, annuity contracts or other property purchased by the Company in connection with this Plan shall remain its general, unpledged and unrestricted assets. The Company’s obligation under the Plan shall be an unfunded and unsecured promise to pay money or stock in the future.

At its discretion, the Company may establish one or more trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of benefits owed under the Plan. Although such a trust shall be irrevocable, its assets shall be held for payment of all the Company’s general creditors in the event of insolvency or bankruptcy. To the extent any benefits provided under the Plan are paid from any such trust, the Company shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of the Company.

This Plan shall not constitute an undertaking by the Company that the Participant shall continue to be a Director of the Company for any period of time.

A Participant will cooperate with the Company by furnishing any and all information requested in order to facilitate the payment of benefits hereunder, and by taking such other actions as may be requested. If it is necessary for a Participant to bring a legal action against the Company to obtain payment of amounts owed the Participant under the terms of the Plan, the Company will pay the Participant’s reasonable legal fees, costs, and expenses if the Participant prevails in litigation.

The provisions of this Plan shall be construed and interpreted according to the laws of the Commonwealth of Virginia, except as preempted by federal law.

The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity.

PAGE 15- DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS EX-31.1 9 w91537exv31w1.htm EXHIBIT 31.1 exv31w1

I have reviewed this quarterly report on Form 10-Q of American Management Systems, Incorporated;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

I have reviewed this quarterly report on Form 10-Q of American Management Systems, Incorporated;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

The undersigned, Alfred T. Mockett, Chairman and Chief Executive Officer of American Management Systems, Incorporated (the “Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (the “Report”). The undersigned hereby certifies that:

The undersigned, James C. Reagan., Executive Vice President and Chief Financial Officer of American Management Systems, Incorporated (the “Company”), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (the “Report”). The undersigned hereby certifies that:


	X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2003

		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 Number: 0-9233


	Gross Carrying		Accumulated
	Amount		Amortization

Vredenburg Customer Relationships – see Note 7	$	14,900	$	(189	)
Proponix Customer Contracts and Related Intangibles		2,447		(411	)

Total	$	17,347	$	(600	)


Year Ending December 31

2004	$	1,908
2005	$	1,908
2006	$	1,370
2007	$	1,190
2008	$	1,150


		For the Three Months				For the Nine Months
		Ended September 30,				Ended September 30,
Pro Forma:		2003		2002		2003			2002

Revenues		$	253,845	$	261,817	$	742,856		$	786,456

Net Income (Loss)		$	9,155	$	9,110	$	(29,014	)	$	21,492

Earnings (Loss) Per Share
	Basic	$	0.22	$	0.22	$	(0.69	)	$	0.51
	Diluted	$	0.21	$	0.21	$	(0.69	)	$	0.51


	For the Nine Months Ended September 30,

(In millions)	2003			2002			Change

Cash (used in) provided by operating activities	$	(4.0	)	$	41.1		$	(45.1	)
Cash used in investing activities	$	(78.5	)	$	(21.4	)	$	(57.1	)
Cash (used in) provided by financing activities	$	(4.0	)	$	3.9		$	(7.9	)


Delaware (State or other jurisdiction of incorporation)		54-0856778 (I.R.S. Employer Identification Number)


	4050 Legato Road Fairfax, Virginia (Address of principal executive offices)	22033 (Zip code)


(703) 267-8000 (Registrant’s telephone number, including area code)


Balance at December 31, 2002	$	24,331
Goodwill for Synergy purchase price adjustments		7,824
Acquisition of Vredenburg		28,445

Balance at September 30, 2003	$	60,600


	AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

11/11/03		/s/ Alfred T. Mockett

Date		Alfred T. Mockett
		Chairman and Chief Executive Officer

11/11/03		/s/ James C. Reagan

Date		James C. Reagan
		Executive Vice President and Chief Financial
		Officer


(a) In consideration for Employee’s promises in this Agreement, and in full settlement and release of any actual or potential claims, AMS agrees to do the following:

	i) pay to Employee the sum of Four Hundred Thousand Dollars ($400,000.00) which constitutes an amount equal to one year of Employee’s current base salary;


(b) Within thirty (30) days following the receipt by AMS of this Agreement signed by Employee, seventy-five percent (75%) of the payments referenced in Sections 2(a)(i) and (ii) will be made by direct


Dated:	09/09/03		/s/ John S. Brittain, Jr.

			John S. Brittain, Jr.

Dated:	09/09/03		AMERICAN MANAGEMENT SYSTEMS, INCORPORATED



		By:	/s/ Garry Griffiths
			Garry Griffiths Executive Vice President & Chief Human Resources Officer


Date:	10/23/2003		/s/ Larry R. Seidel

			LARRY R. SEIDEL

Date:	10/28/2003		AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

		By:	/s/ Garry Griffiths

			GARRY GRIFFITHS
			Executive Vice President &
			Chief Human Relations Officer


		KEYBANK NATIONAL ASSOCIATION, as a Lender

		By:		/s/ Jeff Kalinowski

		Title:		Vice President


JAMES C. REAGAN			AMERICAN MANAGEMENT
			SYSTEMS, INCORPORATED

/s/ James C. Reagan		By:	/s/ Garry Griffiths
			Garry Griffiths

Date:	10/28/03	Date:	10/28/03




Date:	11/11/03	/s/ James C. Reagan.

		Name:	James C. Reagan
		Title:	Executive Vice President and
			Chief Financial Officer