-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EAFcs4msj+bqFhZGblBuW6c9mKFNJLI2nrtfSNyKnycO5d0xGrrMDomGfafIYhoy xLz3dLcrpy/mh7f8yf8Nkw== 0000950133-98-003004.txt : 19980814 0000950133-98-003004.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950133-98-003004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000310624 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 540856778 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09233 FILM NUMBER: 98685060 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the Transition Period From: To: ------------------- -------------------- Commission File No.: 0-9233 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (Exact name of registrant as specified in its charter) State or other Jurisdiction of I.R.S. Employer Incorporation or Organization: Delaware Identification No.: 54-0856778 4050 Legato Road Fairfax, Virginia 22033 (Address of principal executive office) Registrant's Telephone No., Including Area Code: (703) 267-8000 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 ----- ----- As of August 4, 1998, 42,463,615 shares of common stock were outstanding. 2 CONTENTS
Page ---- Part I Financial Information --------------------- Item 1. Financial Statements......................................................... 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk................... 18 Part II Other Information ----------------- Item 1. Legal Proceedings............................................................ 18 Item 2. Changes in Securities........................................................ 18 Item 3. Defaults Upon Senior Securities.............................................. 18 Item 4. Submission of Matters to a Vote of Security Holders.......................... 18 Item 5. Other Information............................................................ 19 Item 6. Exhibits and Reports on Form 8-K............................................. 19
3 PART I FINANCIAL INFORMATION Item 1. Financial Statements The information furnished in the accompanying Consolidated Statements of Operations, Consolidated Revenues by Market, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and Consolidated Statements of Comprehensive Income reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations and financial condition for the interim periods. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes for the year ended December 31, 1997, included in the American Management Systems, Incorporated (the "Company" or "AMS") Annual Report on Form 10-K (File No. 0-9233) filed with the Securities and Exchange Commission on March 27, 1998. 4 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS Unaudited (In millions except per share data)
For the Quarter For the Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 ---- ---- ---- ---- REVENUES ............................................... $250.7 $220.9 $473.7 $417.2 EXPENSES(1) Client Project Expenses........................ 141.1 126.8 264.5 237.1 Other Operating Expenses....................... 74.4 67.4 145.6 131.1 Corporate Expenses............................. 14.3 12.1 26.7 24.3 -------- -------- -------- -------- 229.8 206.3 436.8 392.5 INCOME FROM OPERATIONS.................................. 20.9 14.6 36.9 24.7 OTHER (INCOME) EXPENSE Interest Expense............................... 1.3 1.7 2.2 3.0 Other (Income) Expense......................... (0.7) (0.4) (0.7) (1.4) -------- -------- -------- -------- 0.6 1.3 1.5 1.6 INCOME BEFORE INCOME TAXES.............................. 20.3 13.3 35.4 23.1 INCOME TAXES............................................ 8.3 5.4 14.5 9.5 -------- -------- -------- -------- NET INCOME.............................................. $ 12.0 $ 7.9 $ 20.9 $ 13.6 ======== ======== ======== ======== WEIGHTED AVERAGE SHARES................................. 42.3 41.4 42.1 41.3 ======== ======== ======== ======== BASIC NET INCOME PER SHARE.............................. $ 0.29 $ 0.19 $ 0.50 $ 0.33 ======== ======== ======== ======== WEIGHTED AVERAGE SHARES AND EQUIVALENTS................. 43.1 42.4 42.9 42.2 ======== ======== ======== ======== DILUTED NET INCOME PER SHARE............................ $ 0.28 $ 0.18 $ 0.49 $ 0.32 ======== ======== ======== ========
- ---------------------------- (1) Certain amounts have been reclassified for comparative purposes. 2 5 American Management Systems, Incorporated CONSOLIDATED REVENUES BY MARKET(1) Unaudited (In millions)
For the Quarter For the Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Telecommunications Firms............................ $ 60.5 $75.1 $114.2 $134.0 Financial Services Institutions..................... 56.6 51.1 107.7 100.3 State and Local Governments and Education........... 63.1 42.5 113.8 76.8 Federal Government Agencies......................... 58.3 43.4 112.8 84.0 Other Corporate Clients............................. 12.2 8.8 25.2 22.1 ------ ------ ------ ------ Total Revenues...................................... $250.7 $220.9 $473.7 $417.2 ====== ====== ====== ======
- ------------------------ (1) Certain amounts have been reclassified for comparative purposes. 3 6 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS (In millions)
6/30/98 ASSETS (Unaudited) 12/31/97 ----------- --------- CURRENT ASSETS Cash and Cash Equivalents......................................... $ 73.5 $ 49.6 Accounts and Notes Receivable..................................... 222.7 240.9 Prepaid Expenses and Other Current Assets......................... 8.8 8.4 ------- ------- 305.0 298.9 FIXED ASSETS Equipment ........................................................ 64.4 67.0 Furniture and Fixtures............................................ 23.1 22.4 Leasehold Improvements............................................ 15.2 13.9 ------ ------ 102.7 103.3 Accumulated Depreciation and Amortization......................... (62.6) (58.1) ------ ------ 40.1 45.2 OTHER ASSETS Purchased and Developed Computer Software (Net of Accumulated Amortization of $64,500,000 and $63,400,000)................... 65.9 58.0 Intangibles (Net of Accumulated Amortization of $3,500,000 and $3,200,000)..................................................... 5.7 6.0 Other Assets (Net of Accumulated Amortization of $860,000 and $815,000) ...................................................... 19.4 13.3 ------ ------ 91.0 77.3 ------ ------ TOTAL ASSETS............................................................... $436.1 $421.4 ====== ======
4 7 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS (In millions)
6/30/98 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 12/31/97 ----------- --------- CURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations......................... $ 3.6 $ 7.5 Accounts Payable........................................................ 13.3 10.5 Accrued Incentive Compensation.......................................... 14.1 24.7 Other Accrued Compensation and Related Items............................ 32.6 32.2 Deferred Revenues....................................................... 29.7 39.8 Other Accrued Liabilities............................................... 4.1 3.5 Income Taxes Payable.................................................... 6.4 8.8 ------ ------ 103.8 127.0 Deferred Income Taxes................................................... 8.7 3.0 ------ ------ 112.5 130.0 NONCURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations......................... 26.7 27.9 Other Accrued Liabilities............................................... 14.8 9.5 Deferred Income Taxes................................................... 15.3 15.3 ------ ------ 56.8 52.7 ------ ------ TOTAL LIABILITIES................................................................ 169.3 182.7 STOCKHOLDERS' EQUITY Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized, None Issued or Outstanding) Common Stock ($0.01 Par Value; 100,000,000 Shares Authorized, 50,934,303 and 50,115,057 Issued and 42,342,438 and 41,544,299 Outstanding).......................................................... 0.5 0.5 Capital in Excess of Par Value.......................................... 92.0 84.1 Retained Earnings....................................................... 209.4 188.5 Currency Translation Adjustment......................................... (8.3) (8.0) Common Stock in Treasury, at Cost (8,591,865 and 8,570,758 Shares)...... (26.8) (26.4) ------ ------ 266.8 238.7 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $436.1 $421.4 ====== ======
5 8 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (In millions)
For the Six Months Ended June 30, 1998 1997 ------ ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ................................................................... $ 20.9 $ 13.6 Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities: Depreciation ............................................................ 8.8 9.1 Amortization............................................................. 8.2 8.0 Deferred Income Taxes.................................................... 5.7 4.3 Provision for Doubtful Accounts.......................................... 6.8 2.6 Changes in Assets and Liabilities: Decrease (Increase) in Trade Receivables........................... 11.3 (12.1) (Increase) Decrease in Prepaid Expenses and Other Current Assets... (0.4) 4.4 Increase in Other Assets........................................... (7.2) (7.6) Decrease in Accrued Incentive Compensation......................... (10.6) (28.0) Increase (Decrease) in Accounts Payable, Other Accrued Compensation, and Other Accrued Liabilities..................... 9.1 (15.4) (Decrease) Increase in Deferred Revenue............................ (10.0) 2.9 Decrease in Income Taxes Payable................................... (2.4) (4.3) ------ ------ Net Cash Provided (Used) by Operating Activities......................... 40.2 (22.5) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Fixed Assets....................................................... (4.1) (8.4) Purchase of Computer Software and Investment in Software Products ............. (15.7) (16.4) Decrease in Other Investments.................................................. 1.0 0.5 Proceeds from Sale of Fixed Assets and Purchased Computer Software............. 0.4 0.2 ------ ------ Net Cash Used by Investing Activities.................................... (18.4) (24.1) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings ................................................................... - 27.5 Payments on Borrowings......................................................... (5.2) (3.4) Proceeds from Common Stock Options Exercised................................... 8.0 2.7 Payments to Acquire Treasury Stock............................................. (0.4) (0.1) ------ ------ Net Cash Provided by Financing Activities................................ 2.4 26.7 ------ ------ INCREASE IN CURRENCY TRANSLATION ADJUSTMENT.......................................... (0.3) (4.7) ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. 23.9 (24.6) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................................... 49.6 62.8 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................... $ 73.5 $ 38.2 ====== ====== NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES: Treasury Stock Utilized to Satisfy Accrued Incentive Compensation Liabilities.............................................................. $ - $ 2.3
6 9 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(1) Unaudited (In millions)
For the Quarter For the Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 ------- -------- ------- ------- NET INCOME...................................... $12.0 $ 7.9 $20.9 $13.6 OTHER COMPREHENSIVE INCOME: Currency Translation Adjustment........... - (2.1) (0.3) (4.7) ------- ------- ------ ------ COMPREHENSIVE INCOME............................ $12.0 $ 5.8 $20.6 $ 8.9 ======= ======== ====== ======
- ---------------------------- (1) The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," (SFAS No. 130) effective January 1, 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. The Company's principal components of comprehensive income are net income and foreign currency translation adjustments. 7 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of revenues of major items in the Consolidated Statements of Operations and the percentage change in such items from period to period, excluding percentage changes in de minimus dollar amounts. The effect of inflation and price changes on the Company's revenues, income from operations, and expenses, is generally comparable to the general rate of inflation in the U.S. economy.
Percentage of Total Revenues Period-to-Period Change -------------- ----------------------------------- Quarter Ended Quarter Ended Six Months Ended June 30, June 30, 1998 June 30, 1998 vs. vs. 1998 1997 June 30, 1997 June 30, 1997 -------- ------- ------------- ------------- Revenues............................................... 100.0% 100.0% 13.5% 13.5% Expenses Client Project Expenses.......................... 56.3 57.4 11.3 11.6 Other Operating Expenses......................... 29.7 30.5 10.4 11.1 Corporate Expenses............................... 5.7 5.5 18.2 9.9 ------- ------- Total............................................ 91.7 93.4 11.4 11.3 Income from Operations................................. 8.3 6.6 43.2 49.4 Other (Income) Expense................................. 0.2 0.6 (53.8) (6.3) Income Before Income Taxes............................. 8.1 6.0 52.6 53.2 Income Taxes........................................... 3.3 2.4 53.7 52.6 Net Income............................................. 4.8 3.6 51.9 53.7 Weighted Average Shares................................ - - 2.2 1.9 Basic Net Income per Share............................. - - 52.6 51.5 Weighted Average Shares and Equivalents................ - - 1.7 1.7 Diluted Net Income per Share........................... - - 55.6 53.1
8 11 RESULTS OF OPERATIONS (continued) This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains certain forward-looking statements. In addition, the Company or its representatives from time to time may make, or may have made, certain forward-looking statements, orally or in writing, including, without limitation, any such statements made in this MD&A, press releases, or any such statements made, or to be made, in the MD&A contained in other filings with the Securities and Exchange Commission. The Company wishes to ensure that such forward-looking statements are accompanied by meaningful cautionary statements so as to ensure, to the fullest extent possible, the protections of the safe harbor established by the Private Securities Litigation Reform Act of 1995. Accordingly, such forward-looking statements made by, or on behalf of, the Company are qualified in their entirety by reference to, and are accompanied by, the discussion herein of important factors that could cause the Company's actual results to differ materially from those projected in such forward-looking statements. REVENUES Revenues increased 13% during the second quarter and first six months of 1998, compared to the same 1997 periods. For the second quarter and first six months of 1998, growth occurred in all target markets except the Telecommunication Firms market. Business with non-US clients decreased 29% (to $52.6 million) during the second quarter and 24% (to $101.8 million) for the first six months of 1998, compared to the same 1997 periods. The decrease was primarily due to the previously announced cancellation of two large projects with European telecommunications clients in 1997. With the exception of the Telecommunications Firms market, all other business with non-US clients increased 18% during the second quarter and 15% during the first six months of 1998. For the year 1998, the Company expects non-US business, and European business in particular, to show little or no growth over 1997, owing principally to the impact of the telecommunications clients' cancellations. In the Telecommunications Firms market, a market characterized by large projects with relatively few clients, revenues decreased 19% in the second quarter and 15% for the first six months, compared to the same 1997 periods, principally owing to the above-cited cancellations. Excluding the effects of the above-cited cancellations, revenues in this market increased 8% during the second quarter and first half of 1998. Importantly, revenue in this market increased 13% over the first quarter of 1998. Non-US revenues in this market declined 44% for the quarter and 38% for the first six months, compared to the same 1997 periods. For the year 1998, the Company expects revenues in this market to be approximately equal to or slightly lower than Telecommunications Firms revenues for 1997. The lack of growth reflects several factors: primarily the need to replace revenues from the cancellation of the two telecommunications projects, but also Company-initiated slowdown in business development in the fall of 1996, which market pipeline is now increasing, reorganization of management and market orientation and the need to upgrade its customer care and billing software. The Company is addressing all of these factors in 1998. The Company's development of its next generation of customer care and billing software, known as "Tapestry", is well underway through a significant contract with a European client. As that client is sharing part of the cost of development, collections from that contract will not contribute to revenue growth in this market in 1998, but will instead reduce capitalized software costs. There remain risks in this market. Competition for experienced staff is especially intense in the telecommunications field, and staffing remains one of the Company's critical challenges for the Telecommunications Firms market. Additionally, the Company works in countries other than Western Europe and North America and the delivery risks in these other countries may be higher. Revenues in the Telecommunications Firms market for these countries are less than 3% of the Company's total revenues for the first half of 1998. 9 12 In the Financial Services Institutions target market, 1998 revenues in the second quarter and first half, increased 11% and 7%, respectively, when compared to the same 1997 periods, principally owing to build-ups in business with clients who started large projects in 1997, and start-up work on several new contracts awarded during the first half of 1998. Business with non-US clients, primarily European, accounted for approximately 36% of the second quarter revenues in this market ($20.2 million) and 35% of the six months revenues ($37.4 million). For all of 1998, the Company expects revenue growth in this market to be in line with the Company's overall revenue growth. In the State and Local Governments and Education target market, revenues increased 48% in both the second quarter and first half of 1998. The increase for both 1998 periods was fueled by several large contracts with state taxation departments looking to make substantial improvements in their ability to collect delinquent taxes and several new engagements for financial and revenue systems. The Company enjoys strong demand in this market. The Company has over $500 million in signed contracts in the State and Local Governments and Education market to be performed over the next several years. On certain of the contracts with state taxation departments, the Company's fees are paid out of the benefits (increased collections) that the client achieves. On such benefit-funded contracts (contracts whereby the amounts due the Company are earned based on actual benefits derived by the client), the Company defers recognition of revenues until that point at which management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward, revenues are recognized on a percentage of completion basis. Beginning in the second quarter of 1998, the Company started work on several large multi-year benefits-funded contracts. However, revenues from certain of those contracts are not likely to be recognized until later periods, likely to be 1999. Revenues in the State and Local Governments and Education market are expected to increase for the remainder of 1998 at rates exceeding the increase in the Company's overall revenue rate, but at lower rates than experienced in the first half of 1998. Revenues in the Federal Government Agencies target market increased 34% during both the second quarter and first six months of 1998, compared to the same 1997 periods. This increase was attributable to the award in mid-1997 of a significant multi-year contract with the Department of Defense for its Standard Procurement System ("SPS"), which accounted for 47% of the 1998 first half growth. In addition, there was increased business with existing clients and new business with both defense and civilian agencies. The Company expects revenues in this target market, for the remainder of 1998, to increase at rates ahead of the overall growth rate of the Company, but at lower rates than experienced in the first half of 1998. These revenue increases will continue to be driven primarily by the SPS contract and by contracts with clients using the Company's federal financial systems. Revenues in the Other Corporate Clients target market, which represents business in smaller vertical markets, increased 39% during the second quarter and 14% for the first half of 1998, compared to 1997. This increase is principally due to increased business with new clients and certain reclassifications of revenues from the Financial Services Institutions market. For all of 1998, the Company expects revenue growth in this market to be in line with the Company's overall revenue growth. The Company has made a conscious decision to focus business in the health care market and the electric and gas utilities market. EXPENSES Client project expenses and other operating expenses together increased 11% during the second quarter and first half of 1998, which was slightly lower than the growth rate in revenues in both of these periods. Expenses for the quarter included a $1 million write-off of the previously disclosed receivable from a foreign government. This removes all outstanding receivable balances due from this client. For all 10 13 of 1998, the Company anticipates that these expenses will continue to grow in proportion to revenue growth. The Company expects to make significant expenditures related to research and development of the "Tapestry" software. A majority of these expenditures will be capitalized. Corporate Expenses increased 18% during the second quarter and 10% for the first six months of 1998, compared to the same 1997 periods. Corporate expenses increased faster than the revenue growth during the second quarter due to the dedication of resources applied to the Year 2000 remediation of internal systems. The reduced rate of growth in corporate expenses generally during the first half of 1998 reflects the Company's focus on controlling corporate expenses along with reductions in corporate level performance-based incentive compensation. For the year 1998, the Company expects corporate expenses to grow slightly above the Company's revenue growth. INCOME FROM OPERATIONS Income from operations increased 43% for the second quarter and 49% for the first half of 1998, compared to the same 1997 periods. The Company's profit margins have improved over the second quarter and first half of 1997, primarily because of the significant amount of management time and staff resources that had been consumed, during the first half of 1997, in attempting to resolve the issues with the previously disclosed client cancellations. In addition, the Company's development of the "Tapestry" software was expensed in the first half of 1997 and is now being capitalized. The Company is continuing to focus on controlling expenses. For 1998, the Company will continue to manage growth and expects to continue improving on the profit margins. OTHER (INCOME) EXPENSE Interest expense decreased 24% during the second quarter and 27% during the first six months of 1998, because of lower amounts of short-term borrowings, as a result of significantly improved cash flow from operations. Other (income) expense increased in the first half of 1998, compared to 1997, primarily because of a write-off of certain small investments and a minor amount of fixed assets. FOREIGN CURRENCY EXCHANGE Approximately 21% of the Company's revenues in the first half of 1998 were derived from non-US business. The Company's practice is to negotiate contracts in the same currency in which the predominant expenses are incurred, thereby mitigating the exposure to foreign currency exchange fluctuations. It is not possible to accomplish this in all cases; thus, there is some risk that profits will be affected by foreign currency exchange fluctuations. However, the Company seeks to negotiate provisions in contracts with non-US clients that allow pricing adjustments related to currency fluctuations. In late 1997, the Company employed limited hedging of intercompany balance sheet transactions through derivative instruments (foreign currency swap contracts). As of June 30, 1998, the Company had outstanding two such short-term contracts totaling approximately $2.3 million, which gave the Company access to additional sources of financing while limiting the foreign exchange risk. LIQUIDITY AND CAPITAL RESOURCES The Company provides for its operating cash requirements primarily through funds generated from operations, and secondarily from bank borrowings which provide for cash and currency management with respect to the short-term impact of certain cyclical uses such as annual payments of incentive compensation as well as financing from time to time accounts receivable. At June 30, 1998, 11 14 the Company's cash and cash equivalents totaled $73.5 million, up from $49.6 million at the end of 1997. Cash provided by operating activities for the first half of 1998 was $40.2 million primarily due to a significant decrease in trade receivables attributable to improvements in collections Company wide. The Company expects some build-up in trade receivables for the balance of 1998. The Company invested over $18.4 million in fixed assets, software purchases, and development of computer software during the first half of 1998. Total debt and revolving line-of-credit borrowings decreased by $20.0 million over year-end 1997; revolving line-of-credit borrowings were zero at June 30, 1998. During the first half, the Company made approximately $5.2 million in installment payments of principal on outstanding debt owed to banks. The Company also received proceeds of approximately $8.0 million during the period from the exercise of stock options. At June 30, 1998, the Company's debt-equity ratio, as measured by total liabilities divided by stockholders' equity, was 0.63, down from 0.77 at December 31, 1997. On August 3, 1998 the Company announced that its Board of Directors has authorized the purchase, from time to time, of up to 1 million shares of its common stock through open market and negotiated purchases. At current stock prices, completion of this repurchase of common shares would reduce, by slightly less than half, cash on hand at June 30, 1998. The Company's material unused source of liquidity at the end of the first half of 1998 consisted of approximately $120.0 million under the revolving credit and term debt facility. The Company believes that its liquidity needs can be met from the various sources described above. The Company has entered into bank guarantees due upon request for performance under one of its contracts in a country other than Western Europe and North America. At June 30, 1998, the Company had $18.6 million outstanding under such bank guarantees. YEAR 2000 ISSUES Companies in the business of providing information technology services, software products or custom-developed software, such as the Company, face "Year 2000 compliance" issues in at least three critical areas: internal information and communication technology systems, client software systems, and embedded systems (products which are made with microprocessor (computer) chips such as environmental systems, physical security systems and elevators). "Year 2000 compliance" means the ability of hardware, software and other processing capabilities to interpret and manipulate correctly all date data up to and through the year 2000, including proper computation of leap years. With respect to embedded systems, Year 2000 compliance means that the occurrence of the Year 2000 will not cause the product in which the microprocessor chip is embedded to fail to operate properly. Failure of hardware, software and related capabilities used by the Company or, under certain circumstances, furnished to clients, to be Year 2000 compliant could have a material adverse impact on the Company. Accordingly, the Company is focusing at the most senior levels on Year 2000 issues. The Audit Committee of the Board of Directors, in conjunction with one of the Company's Executive Vice Presidents, the Company's Internal Auditor and others, is monitoring the Company's analysis and status with respect to Year 2000 issues. Year 2000 program managers have been designated throughout the Company to oversee Year 2000 efforts and provide periodic reports to the Chairman of the Board and Chief Executive Officer, such Executive Vice President and the Internal Auditor of the Company. The first round of such reports was concluded in the last quarter and the next round is scheduled for the next 12 15 quarter. Incentive compensation programs have been modified to include achievement of Year 2000 compliance objectives. Funds expended and to be expended on Year 2000 compliance have been allocated out of the Company's normal operating budget. The Company has not delayed any significant projects as a result of its investment of resources on the Year 2000 compliance issues. Early in 1997, the Company completed surveys of all of its major internal application systems for Year 2000 compliance. The Company began a program of testing and remediation for some systems in 1997, with other systems scheduled for upgrade or replacement in 1998. Assessment and testing of smaller software components and systems, and interfaces with vendors where available, are continuing into 1998. The Company is coordinating centrally all of its efforts to achieve Year 2000 compliance of its internal systems worldwide by mid-1999. The Company is also seeking Year 2000 certifications from those outside vendors with whom the Company contracts for the provision of certain internal functionality. In addition to relying on certifications from outside vendors where available, the Company is also beginning a program of testing certain subcomponents of and interfaces with the systems provided by the outside vendors. The Company has also developed a limited incentive program to encourage certain experienced internal systems programmers to remain with the Company through the Year 2000. The subject of contingency planning with respect to the Company's internal systems will be fully addressed upon completion of the Company's analyses and prioritization of the Year 2000 status of its internal systems which is scheduled for completion by December 1998. Initial contingency planning for certain high priority internal systems is currently underway. Total costs of achieving Year 2000 compliance in the Company's internal systems, which costs will be expensed as they are incurred, are estimated to be approximately $2.3 million for 1998, $2.6 million for 1999, and $0.3 million for 2000. For the past two years $1.6 million has been expended by the Company on Year 2000 compliance in respect of its internal systems. With respect to its clients, the Company does not presently anticipate material costs or risks allocable specifically to Year 2000 compliance issues, but is continuing to assess the scope and status of such risks. Client engagements for specific Year 2000 remediation work have not been a strategic marketing focus. In many of the Company's current engagements, Year 2000 replacement work is implicit, as the Company's clients are replacing systems for various business reasons but in the process are gaining a new Year 2000 compliant system. The Company does not anticipate any special risks or costs attributable to Year 2000 compliance issues in performing such contracts. With respect to contractual obligations to active clients (clients for which the Company is still obligated to furnish products or services, such as maintenance), the Company similarly does not anticipate in the aggregate material costs or risks associated with Year 2000 compliance. Its contracts with active clients primarily are either for recent software that is Year 2000 compliant or for which a Year 2000 compliant upgrade is available, or do not explicitly obligate the Company to furnish an updated release that is Year 2000 compliant. Early in 1997, the Company began a program to test its active software products (including upgrades, where applicable) and assess their status relative to Year 2000 compliance. It also has been communicating with clients regarding Year 2000 compliance, and notifying them of the availability of updated Year 2000 compliant releases for certain older software known to the Company still in use by that client. To the extent the Company uses third party products in its own customer products, the Company is seeking Year 2000 certification from those outside vendors. The Company expects to continue the ongoing process of monitoring the status of Year 2000 compliance of the Company-developed software in use by various clients. 13 16 Because of the nature of the Company's business, the Company may be subject to Year 2000 lawsuits by its clients. Although the ultimate outcome of any litigation is uncertain, the Company does not believe that the ultimate amount of liability, if any, from any such actions would have a material affect on the Company. Total costs of assessing the Year 2000 compliance of client systems and of communicating with clients about the Year 2000, which costs will be expensed as they are incurred, are estimated to be approximately $1.5 million for 1998, $1.0 million for 1999, and $0.8 million for 2000. For the past two years, $3.7 million has been expended by the Company on Year 2000 compliance in respect of client systems in order to expedite development of Year 2000 compliant upgrades for noncompliant systems, to notify clients of the Year 2000 compliance of their AMS products and to staff Year 2000 compliance efforts. The majority of the embedded systems on which the Company relies in its day to day operations are owned and managed by the lessors of the buildings in which the Company's offices are located, or by agents of such lessors. The Company is in the process of sending letters to its lessors and, as applicable, their agents requesting certifications of the Year 2000 compliance of the embedded systems. The Company will prioritize systems and develop a test plan based on the responses it receives, or does not receive, to its letters. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131 entitled "Disclosures about Segments of an Enterprise and Related Information" which will become effective for the Company's 1998 calendar year financial statements and will apply to quarterly reporting beginning in the first quarter of 1999. This Statement may change the way public companies, having segments, report information about their business in annual financial statements and may require them to report selected segment information in their quarterly reports issued to stockholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. The Company is currently evaluating the standard to determine the impact on its reporting and disclosure requirements. In October 1997, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 97-2, "Software Revenue Recognition" (SoP 97-2), which provides guidance in recognizing revenue on contracts with multiple elements including software licenses and services, and superseded the previous authoritative literature (SoP 91-1). The SoP is effective for the Company for transactions entered into after December 31, 1997. In March 1998, the AICPA issued SoP 98-4 "Deferral of the Effective Date of a Provision of SoP 97-2", which defers by one year the implementation date for a provision of SoP 97-2. The Company does not currently believe that the application of SoP 97-2 will have a material impact on its historical practice with respect to the timing of revenue recognition in its consolidated financial statements, subject to the provision deferred in SoP 98-4. The Company has not determined the effect of implementing SoP 97-2 if that provision is not deferred when the one-year deferral expires. For the first half of 1998, SoP 97-2 did not materially affect the results of operations of the Company. 14 17 In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SoP 98-1). The SoP is effective for the Company's 1999 fiscal year and requires capitalization of costs related to developing or obtaining internal-use software. Adoption of the SoP is not expected to materially affect results of operations, as the Company is currently accounting for internal-use software generally in accordance with the provisions of this SoP. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 entitled "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company will be required to adopt this new accounting standard by January 1, 2000. The Company does not anticipate early adoption of this new standard. Due to the recent release and complexity of this new standard, the Company has not completed an assessment of the impact it will have on its financial position or results of operations. The Company currently has no material transactions which would be impacted by this new standard. 15 18 ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS In the next couple of years, the Company expects growth in revenues to be somewhat lower than the Company's historical long-term rates. The more controlled and lower growth in revenues should enable the Company to improve its profit margins. These margins were reduced during the last several years owing to cancellations of two major projects and, related thereto, attrition rates higher than historical rates for the Company, heavy investment in building up staff capacity and infrastructure, and the stress of absorbing many new professional staff. The Company faces continuing risks in the area of project delivery and staffing. AMS has established a reputation in the marketplace of being a firm which delivers on time and in accordance with specifications regardless of the complexity of the application and the technology. The Company's customers often have a great deal at stake in being able to meet market and regulatory demands, and demand very ambitious delivery schedules. In order to meet its contractual commitments, AMS must continue to recruit, train, and assimilate successfully large numbers of entry-level and experienced employees annually, as well as to provide sufficient senior managerial experience on engagements, especially on large, complex projects. Moreover, this staff must be re-deployed on projects throughout North America, Europe, and other locations. The Company must also manage and seek to reduce rates of attrition, which the Company expects will continue to be somewhat higher than its historical norms in view of increased competition for its talent, although not as high as in 1997 when affected by the cancellation of two major projects within one month. There is also the risk of successfully managing large projects and the risk of a material impact on results because of the unanticipated delay, suspension, renegotiation or cancellation of a large project. As was the case in the past two years, any such development in a project could result in a drop in revenues or profits, the need to relocate staff, a potential dispute with a client regarding money owed, and a diminution of AMS's reputation. These risks are magnified in the largest projects and markets simply because of their size. The Company's business is characterized by large contracts producing high percentages of the Company's revenues. For example, 35% of the Company's total revenues in 1997 were derived from business with fifteen clients. The cancellation of phase two of a large telecommunications project in the third quarter of 1997 after the Company's successful completion of phase one of the project, and the Company's subsequent reduction of net income for 1997 and redeployment of personnel as a result of such unexpected cancellation, together with a cancellation of a contract in the Financial Services Institutions market following management and institutional changes at the client, are recent examples of the risks inherent in the Company's business and the Company's efforts to manage such risks. The Company could also face delays by clients, or client suspensions or cancellation of projects, because of client systems' failures to be Year 2000 compliant. Events such as unanticipated declines in revenues or profits could in turn result in immediate fluctuations in the trading price and volume of the Company's stock. Finally, there is the risk of revenues not being realized when expected, such as in certain contracts in the State and Local Governments and Education market. On certain large contracts, the Company's fees are paid out of the benefits (increased collections) that the client achieves. The Company typically defers recognition of such revenues until management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward revenues are recognized on a percentage of completion basis. 16 19 Certain other risks, including, but not limited to, the Company's international scope of operations, are discussed elsewhere in this Form 10-Q. The Company is also expanding in several countries other than Western Europe and North America. Contracts being performed in such countries can have somewhat higher delivery risks. Because the Company operates in a rapidly changing and highly competitive market, additional risks not discussed in this Form 10-Q may emerge from time to time. The Company cannot predict such risks or assess the impact, if any, such risks may have on its business. Consequently, the Company's various forward-looking statements, made, or to be made, should not be relied upon as a prediction of actual results. 17 20 Item 3. Quantitative and Qualitative Disclosures about Market Risk NOT APPLICABLE. PART II OTHER INFORMATION Item 1. Legal Proceedings NONE. Item 2. Changes in Securities (a) On August 11, 1998 the Company paid a dividend of one Preferred Share purchase right on each share of Common Stock to holders of record on August 10, 1998 of such Common Stock. See Item 5 below. Item 3. Defaults Upon Senior Securities NONE. Item 4. Submission of Matters to a Vote of Security Holders (a) The regular annual meeting of stockholders of the Company was held in Fairfax, Virginia on May 8, 1998 for the purposes of electing the board of directors. (b) Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder, and there was no solicitation in opposition to management's solicitations. All of management's nominees for director were elected. The stockholders approved the election of the following persons as directors of the Company: Name For Withheld ---- --- -------- Daniel J. Altobello 35,386,155 7,417 Paul A. Brands 35,386,094 7,478 James J. Forese 35,351,653 41,919 Philip M. Giuntini 35,241,871 151,701 Patrick W. Gross 35,388,825 4,747 Dorothy Leonard 35,387,449 6,123 W. Walker Lewis 35,384,419 9,153 Frederic V. Malek 35,238,357 155,215 Frank A. Nicolai 35,388,672 4,900 Alan G. Spoon 35,391,370 2,202 18 21 Item 5. Other Information On July 31, 1998, the Board of Directors of the Company declared a dividend of one Preferred Share purchase right on each outstanding share of its Common Stock, payable to holders of Common Stock of record on August 10, 1998. Each right will entitle shareholders to buy one one-thousandth of a share of newly created Series A Junior Participating Preferred Stock of the Company at an exercise price of $185. Such rights presently are evidenced by the certificates for Common Stock; certificates issued after the record date for such rights of August 10, 1998 shall bear a legend referring to such rights. The rights will be exercisable if a person or group acquires 15% or more of the Common Stock of the Company or announces a tender offer for 15% or more of the Common Stock. If a person or group acquires 15% or more of the outstanding Common Stock of the Company, each right will entitle its holder to purchase, at the exercise price, a number of shares of Common Stock having a market value at that time of twice the right's exercise price. Rights held by the 15% holder will become void and will not be exercisable to purchase shares at the bargain purchase price. The Board of Directors will be entitled to redeem the rights at one cent per right at any time before any such person acquires 15% or more of the outstanding Common Stock. For a fuller description of the rights, please see the Company's Form 8-A, registering the rights, filed on August 4, 1998. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Second Restated Certificate of Incorporation, as amended through August 1, 1998 (including Certificate of Designations for Series A Junior Participating Preferred Stock, incorporated by reference from Form 8-A, filed on August 4, 1998) 4. Instruments defining the rights of security holders: (a) Form of common stock certificate (b) Rights Agreement dated as of July 31, 1998, between the Company and ChaseMellon Shareholder Services L.L.C. as Rights Agent (incorporated by reference to the Company's Form 8-A, filed on August 4, 1998, including form of Rights Certificate). 10. Material contracts (a) Form of Indemnification Agreements for directors and officers 27. Financial Data Schedule (b) Reports on Form 8-K NONE. 19 22 SIGNATURES 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. AMERICAN MANAGEMENT SYSTEMS, INCORPORATED Date: August 13, 1998 /s/ Paul A. Brands --------------- ---------------------------------------------------- Paul A. Brands, Chairman and Chief Executive Officer Date: August 13, 1998 /s/ Nancy M. Yurek --------------- ---------------------------------------------------- Nancy M. Yurek, Controller 20 EX-3.1 2 SECOND RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 SECOND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN MANAGEMENT SYSTEMS, INCORPORATED PURSUANT TO SECTION 245 OF THE DELAWARE GENERAL CORPORATION LAW AMERICAN MANAGEMENT SYSTEMS, INCORPORATED, a corporation organized and existing under the laws of the State of Delaware hereby certifies as follows: 1. The original Certificate of Incorporation of American Management Systems, Incorporated was filed with the Secretary of State on February 2, 1970. 2. A Restated Certificate of Incorporation of American Management Systems, Incorporated was filed with the Secretary of State on July 27, 1979. 3. This Second Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Restated Certificate of Incorporation of this Corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Second Restated Certificate of Incorporation. 4. This Second Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware. 2 5. This Second Restated Certificate of Incorporation shall become effective upon its filing with the Secretary of the State of Delaware. 6. The text of the Restated Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: FIRST: The name of the Corporation is AMERICAN MANAGEMENT SYSTEMS, INCORPORATED. SECOND: Its registered office in the State of Delaware is to be located at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business of the Corporation and the objects or purposes proposed to be transacted, promoted or carried on by it in any part of the world, are to carry on any business and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, including, but without limitation: To engage in and provide all types of business and professional consulting services in developing computer-based information and analysis for planning and management. To devise, formulate, contract for or conduct market, financial or business research, studies, surveys and tests; to create and utilize business systems, methods, controls, layouts and plans; to assemble and supply personnel and staff, all as required or deemed advisable for a solution of marketing, financial, business or management problems of any corporation, association, partnership, syndicate, entity, person or governmental, municipal or public authority, domestic or foreign, located in or organized under the laws of any authority in any part of the world, or to an improvement in function or to an increase in efficiency or profit of any of the foregoing, whether in relation to management, administration, maintenance, manufacture, production, display, inventory, marketing, sales, distribution or otherwise; and, generally, to furnish, render, perform -2- 3 and provide all kinds and types of professional assistance to business, financial and industrial organizations and governmental authorities not specifically prohibited by statute or law. To establish, maintain and furnish services related to the collection, processing, maintenance and retrieval of information, data, records and communications of all kinds, including the development, installation and operation of programs, procedures and equipment necessary to effect or carry out any of the foregoing. To prepare, develop and establish computer programming libraries and manuals of operation and maintenance; to establish training programs in computer and other technical fields; and to instruct and train operating and maintenance crews for computers, electronic and electro-mechanical systems and equipment. To research, develop, invent, design, engineer, manufacture, produce, process, extract, construct, erect, assemble, experiment with, alter, improve, remodel, equip, install, repair, maintain, manage, operate, purchase, lease, or otherwise acquire, hold, use, import, export, trade and deal in, distribute, mortgage, pledge, convey, sell or otherwise dispose of any computers, electronic systems, equipment, components, electrical and electro-mechanical apparatus, data processing equipment, cables, motors, meters, supplies, parts, appliances, tools, goods, wares, merchandise, commodities, articles of commerce, and any and all other contrivances or things whatsoever, producing, utilizing, related to or connected with any of the foregoing. To enter into any contracts, and to erect, buy, lease or otherwise acquire, own, maintain, operate, sell, exchange and otherwise dispose of any property, real or personal, tangible or intangible, relating to the foregoing. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the purposes or the attainment of any of the objects or the furtherance of any of the powers herein set forth and to do every other act and thing incidental thereto or connected therewith, provided the same be not forbidden by the laws of the State of Delaware. FOURTH: Section 1. Authorized Shares. The total authorized capital stock of the Corporation shall be 104,000,000 shares, consisting of 4,000,000 shares of Preferred Stock, par value $.10 per share (herein called the "Preferred Stock"), and 100,000,000 shares of Common Stock, par value $0.01 per share (herein called the "Common Stock"). The designations, preferences, relative, participating, optional or other special rights, -3- 4 qualifications, limitations, restrictions, voting powers and privileges of each class of the Corporation's capital stock shall be as follows: Section 2. Preferred Stock. (a) Issuance in Series. The Preferred Stock may be issued in such one or more series as shall from time to time be created and authorized to be issued by the Board of Directors as hereinafter provided. (b) Authority of the Board of Directors. The Board of Directors is hereby expressly authorized, by resolution or resolutions from time to time adopted providing for the issuance of Preferred Stock, to the extent not fixed by the provisions hereinafter set forth or otherwise provided by law, to determine that any series of the Preferred Stock shall be without voting powers and to fix and state the voting powers, full or limited, if any, the designations, powers, preferences and relative, participating, optional and other special rights, if any, of the shares of each series of Preferred Stock, and the qualifications, limitations and restrictions thereof, including (but without limiting the generality of the foregoing) any of the following with respect to which the Board of Directors shall determine to make affirmative provisions: (i) the number of shares to constitute such series and the distinctive name and serial designation thereof; (ii) the annual dividend rate or rates and the date on which the first dividend on shares of such series shall be payable and all subsequent dividend payment dates; -4- 5 (iii) whether dividends are to be cumulative or non-cumulative, the participating or other special rights, if any, with respect to the payment of dividends and the date from which dividends on all shares of such series issued prior to the record date for the first dividend shall be cumulative; (iv) whether any series shall be subject to redemption and, if so, the manner of redemption and redemption price or prices for such series, which may consist of a redemption price or scale of redemption prices applicable only to redemption for a sinking fund (which terms as used in this clause shall include any fund or provisions for the periodic purchase or retirement of shares), and a different redemption price or scale of redemption prices applicable to any other redemption; (v) the amount or amounts of preferential or other payment to which any series is entitled over any other series or class or over the Common Stock on voluntary or involuntary liquidation, dissolution or winding up; (vi) whether or not the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether such purchase, retirement or sinking fund shall be cumulative or non-cumulative, the extent to and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or for other corporate purposes and the terms and provisions relative to the operation thereof and the extent to which the charges therefor are to have priority over the payment of dividends on any other series or class of the Common Stock; -5- 6 (vii) the terms, if any, upon which shares of such series shall be convertible into, or exchangeable for, or shall have rights to purchase or other privileges to acquire shares of stock of any other class or classes or of any other series of the same or any other class or classes, including the price or prices or the rate or rates of conversion, exchange, purchase or acquisition and the terms of adjustment, if any; (viii) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or making of other distributions on, and upon the purchase, redemption, or other acquisition of the Common Stock or any other series or class or classes of stock of the Corporation ranking on a parity with or junior to the shares of such series either as to dividends or upon liquidation; and (ix) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock (including additional shares of such series or of any other series or of any other class) ranking on a parity with or prior to the shares of such series either as to dividends or upon liquidation. (c) Before the Corporation shall issue any shares of Preferred Stock of any series authorized as hereinbefore provided, a certificate setting forth a copy of the resolution or resolutions with respect to such series adopted by the Board of Directors of the Corporation pursuant to the foregoing authority vested in said Board shall be made, filed and recorded in accordance with the then applicable requirements, if any, of the laws of the State of Delaware, or, if no certificate is then so required such certificate shall be signed and acknowledged on behalf of the Corporation by the chairman or vice-chairman of the Board of Directors or the Corporation's president or a -6- 7 vice-president and its corporate seal shall be affixed thereto and attested by its secretary or an assistant secretary and such certificate shall be filed and kept on file at the registered office of the Corporation in the State of Delaware and in such other place or places as the Board of Directors shall designate. (d) Shares of any series of Preferred Stock which shall be issued and thereafter acquired by the Corporation through purchase, redemption, conversion or otherwise, shall return to the status of authorized but unissued Preferred Stock of the same series unless otherwise provided in the resolution or resolutions of the Board of Directors. Unless otherwise provided in the resolution or resolutions of the Board of Directors providing for the issue thereof, the number of authorized shares of stock of any such series may be increased or decreased (but not below the number of shares thereof then outstanding) by resolution or resolutions of the Board of Directors and the filing of a certificate complying with the requirements referred to in subparagraph (d) above. In case the number of shares of any such series of Preferred Stock shall be decreased, the shares representing such decrease shall, unless otherwise provided in the resolution or resolutions of the Board of Directors providing for the issuance thereof, resume the status of authorized but unissued Preferred Stock, undesignated as to series. Section 3. Voting Rights. (a) Preferred Stock. In addition to the voting rights required by law and this Restated Certificate of Incorporation, as the same may be amended from time to time, the holder of shares of any series of Preferred Stock shall be entitled to such voting rights, if any, as are provided by -7- 8 the resolution or resolutions of the Board of Directors creating the series of Preferred Stock of which such shares are a part. (b) Common Stock. Except as required by law and this Restated Certificate of Incorporation, as the same may be amended from time to time, and except as provided by the resolution or resolutions of the Board of Directors creating or amending any series of Preferred Stock, the holders of Common Stock of the Corporation shall have the right to vote for the election of directors (other than for any director then permitted to be elected by the separate vote of classes or series of capital stock of the Corporation to the exclusion of the holders of the Common Stock) and on all other matters submitted to a vote of shareholders generally and each holder thereof shall be entitled to one vote for each share of such Common Stock held by such holder. Section 4. Common Stock. (a) Dividends. The holder of each share of Common Stock shall be entitled to receive dividends, when and as declared by the Board of Directors of the Corporation, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of Common Stock. No dividends other than dividends payable only in shares of Common Stock shall be paid on the Common Stock if cash dividends in full to which all outstanding shares of the Preferred Stock shall then be entitled for the then current dividend period and where such dividends are cumulative for all past dividend periods shall not have been paid or been declared and set apart for payment, as provided in Section 2 of this Article FOURTH. -8- 9 (b) Rights of Common Stock on Dissolution, Liquidation, etc. In the event of any dissolution, liquidation or winding-up of the affairs of the Corporation, the holders of the Common Stock shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation, and the amounts to which the holders of the Preferred Stock shall be entitled, to share equally in the remaining net assets of the Corporation. (c) Reservation of Common Stock. The Corporation shall at all times reserve and hold available out of its authorized but unissued Common Stock solely for the purpose of effecting the conversion or exchange of the shares of the Preferred Stock the full number of shares of Common Stock then deliverable upon conversion or exchange of all shares of Preferred Stock at the time outstanding. Section 5. Issue of and Consideration for Capital Stock. The authorized but unissued shares of Common Stock may be issued for such consideration, not less than the par value thereof, as may be fixed from time to time by the Board of Directors; the authorized but unissued shares of Preferred Stock may be issued for such consideration, not less than the par value thereof, as may be fixed from time to time by the Board of Directors. Section 6. Negation of Equitable Interests in Shares or Rights. The Corporation shall be entitled to treat the record holder of any shares of the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including, but without limiting the generality thereof, a purchaser, assignee or transferee of such shares or rights deriving from such shares, unless and until such -9- 10 purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Any such purchaser, assignee, transferee or other person shall not be entitled to receive notice of the meeting of stockholders; to vote at such meetings; to examine a complete list of the stockholders entitled to vote at meetings; or to own, enjoy, and exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7. Preemptive Rights. No holder of any of the shares of the Preferred Stock or of the Common Stock of the Corporation shall be entitled as of right as such holder to purchase or to subscribe for any unissued stock of any class, or any additional shares of any class to be issued by reason of any increase in the authorized capital stock of the Corporation of any class, or bonds, certificates or indebtedness, debentures or other securities convertible into stock of the Corporation or carrying any right to purchase stock in any class, but any such unissued stock, or such additional authorized issue of any stock or of other securities convertible into stock or carrying any right to purchase stock, may be issued and disposed of pursuant to resolutions of the Board of Directors, to such persons, firms, corporations, or associations and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its discretion. FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the by-laws of the Corporation subject to the concurrent right of the shareholders to amend the by-laws. -10- 11 SIXTH: The books of the Corporation may be kept (subject to any applicable provision of law) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the Corporation. Elections of directors need not be by written ballot unless the by-laws of the Corporation shall so provide. SEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. EIGHTH: This Corporation and its officers shall have the power to do any lawful act which is necessary or proper to accomplish the purposes of its incorporation and shall have all the powers conferred upon the Corporation under the laws of the State of Delaware, whether or not specified in this Restated Certificate of Incorporation. NINTH: To the fullest extent permitted by the Delaware General Corporation Law as the same now exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article Nine by the stockholders of the Corporation only shall be applied prospectively, to the extent that such repeal or modification would, if applied retrospectively, adversely affect any limitation on the personal liability of a director of the Corporation existing immediately prior to such repeal or modification. -11- 12 IN WITNESS WHEREOF, said American Management Systems, Incorporated has caused this Certificate to be signed by Philip M. Giuntini, its President, and attested by Frank A. Nicolai, its Secretary, this 20th day of June, 1995. AMERICAN MANAGEMENT SYSTEMS, INCORPORATED By:/s/PHILIP M. GIUNTINI ------------------ Philip M. Giuntini President ATTEST: By:/s/FRANK A. NICOLAI ---------------- Frank A. Nicolai Secretary -12- EX-4.A 3 FORM OF COMMON STOCK CERTIFICATE 1 AMS NUMBER SHARES COMMON STOCK COMMON STOCK AMERICAN MANAGEMENT SYSTEMS, INCORPORATED INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 027352 10 3 SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES THAT IS THE OWNER OF FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF ONE CENT ($.01) EACH OF AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (herein called the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. [CORPORATE SEAL] Dated: [SIG] [SIG] SECRETARY CHAIRMAN OF THE BOARD OF DIRECTORS COUNTERSIGNED AND REGISTERED: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE 2 The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties ------------ ------------ JT TEN - as joint tenants with right (Cust) (Minor) of survivorship and not as under Uniform Gifts to Minors tenants in common Act ------------------------- (State)
Additional abbreviations may be used though not in the above list. For value received, hereby sell, assign and transfer unto --------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ---------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please print or typewrite name and address including postal zip code of assignee - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Shares - -------------------------------------------------------------------------- of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint --------------------------------------------- - -------------------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated, ---------------- ----------------------------- Signature(s) Guaranteed: NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration of enlargement, or any change whatever. - ------------------------------------------------ THE SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-13. This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between American Management Systems, Incorporated (the "Corporation") and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, dated as of July 31, 1998 and as amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE. EX-10.A 4 FORM OF INDEMNIFICATION AGREEMENTS 1 [FORM OF INDEMNIFICATION AGREEMENT] AGREEMENT This Agreement, made and entered into as of the 31st day of July, 1998 ("Agreement"), by and between AMERICAN MANAGEMENT SYSTEMS, INCORPORATED, a Delaware corporation ("Corporation"), and _____________________ ("Indemnitee"): WHEREAS, highly competent persons have become more reluctant to serve publicly held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation; and WHEREAS, the Board of Directors of the Corporation (the "Board") has determined that, in order to attract and retain qualified individuals, the Corporation will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Corporation and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Corporation believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Corporation or business enterprise itself; and WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons; and WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Corporation's stockholders and that the Corporation should act to assure such persons that there will be increased certainty of such protection in the future; and WHEREAS, it is reasonable, prudent and necessary for the Corporation contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Corporation free from undue concern that they will not be so indemnified; and WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws of the Corporation and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor shall it diminish or abrogate any rights of Indemnitee thereunder; and 1 2 WHEREAS, each of Section 145 of the General Corporation Law of the State of Delaware and Article VIII of the By-laws is nonexclusive, and therefore contemplates that contracts may be entered into with respect to indemnification of directors, officers and employees; and WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Corporation on the condition that he be so indemnified; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Corporation and Indemnitee do hereby covenant and agree as follows: Section 1. Services by Indemnitee. Indemnitee agrees to serve [as a [director] [officer] [employee] of the Corporation] [,at the request of the Corporation, as a [director] [officer] [employee] [agent] of [another corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise]. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation, if any, or any obligation imposed by operation of law), in which event the Corporation shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Corporation (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment with the Corporation (or any of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Corporation (or any of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Corporation, by the Corporation's Certificate of Incorporation, the Corporation's By-laws, and the General Corporation Law of the State of Delaware. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as an [officer] [director] [employee] of the Corporation. Section 2. Indemnification - General. The Corporation shall indemnify, and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in this Agreement and (b) (subject to the provisions of this Agreement) to the fullest extent permitted by applicable law in effect on the date hereof and as such law may be amended from time to time. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. Section 3. Proceedings Other Than Proceedings by or in the Right of the Corporation. Subject to the provisions of this Agreement, Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to or a participant in any 2 3 Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Corporation. Pursuant to this Section 3 but subject to the provisions of this Agreement, Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 4. Proceedings by or in the Right of the Corporation. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 but subject to the provisions of this Agreement if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or a participant in any Proceeding brought by or in the right of the Corporation to procure a judgment in its favor. Pursuant to this Section but subject to the provisions of this Agreement, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Corporation unless and to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine that such indemnification may be made. Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Corporation shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 6. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. 3 4 Section 7. Advancement of Expenses. Notwithstanding any provision of this Agreement to the contrary, the Corporation shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding in which Indemnitee is involved with by reason of Indemnitee's Corporate Status within ten days after the receipt by the Corporation of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 7 shall be unsecured and interest free. Section 8. Procedure for Determination of Entitlement to Indemnification. (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum of the Board, or (B) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Corporation (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom. 4 5 (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Disinterested Directors or, if there are no such Disinterested Directors, by the Board of Directors, and the Corporation shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Corporation advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Corporation, as the case may be, may, within 10 days after such written notice of selection shall have been given, deliver to the Corporation or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 17 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Court of Chancery of the State of Delaware or other court of competent jurisdiction has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Corporation or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Corporation or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. Upon the due commencement of any judicial proceeding pursuant to Section 10(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). (d) The Corporation shall not be required to obtain the consent of the Indemnitee to the settlement of any Proceeding which the Corporation has undertaken to defend if the Corporation assumes full and sole responsibility for such settlement and the settlement grants the Indemnitee a complete and unqualified release in respect of the potential liability. The Corporation shall not be liable for any amount paid by the Indemnitee in settlement of any Proceeding that is not defended by the Corporation, unless the Corporation has consented to such settlement, which consent shall not be unreasonably withheld. 5 6 Section 9. Presumptions and Effect of Certain Proceedings. (a) In making a determination with respect to entitlement to indemnification under this Agreement, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the Corporation shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Corporation (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. (b) If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 9(b) shall not apply if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement or as otherwise required by law) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. (d) Reliance as Safe Harbor. For purposes of any determination of Good Faith, Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's 6 7 action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. The provisions of this Section 9(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement. (e) Actions of Others. The knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Section 10. Remedies of Indemnitee. (a) In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 8(b) of this Agreement within 60 days after receipt by the Corporation of the request for indemnification, (iv) payment of indemnification required under Section 5,6, the last sentence of Section 8(b) or the last sentence of Section 17(h) of this Agreement is not made within ten (10) days after receipt by the Corporation of a written request therefor, or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Court of Chancery of the State of Delaware of his entitlement to such indemnification or advancement of Expenses. (b) In the event that a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. (c) If a determination shall have been made pursuant to Section 8(b) of this Agreement that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (d) In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of to enforce his rights under, or to recover damages for 7 8 breach of, this Agreement, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all expenses (of the types described in the definition of Expenses in Section 17 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, but only if (and only to the extent) he prevails therein. If it shall be determined in said judicial that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication shall be appropriately prorated. (e) The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Corporation is bound by all the provisions of this Agreement. Section 11. Non-Exclusivity; Survival of Rights; Insurance; Subrogation. (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Corporation's Certificate of Incorporation, the Corporation's By-laws, any other agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the General Corporation Law of the State of Delaware, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Corporation's By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy. (b) To the extent that the Corporation maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Corporation, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. (c) In the event of any payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of 8 9 recovery of Indemnitee, and Indemnitee shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. (d) The Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. (e) The Corporation's obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Corporation as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Section 12. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) 10 years after the date that Indemnitee shall have ceased to serve as a [director], [officer], [employee], [or agent] of the Corporation [or of any Enterprise which Indemnitee served at the request of the Corporation]; or (b) the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10 of this Agreement relating thereto. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. Section 13. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Section 14. Exception to Right of Indemnification or Advancement of Expenses. Notwithstanding any other provision of this Agreement, but subject to Section 10(d) hereof, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, or 9 10 any claim therein, unless the bringing of such Proceeding or making of such claim shall have been approved by the Board of Directors. Section 15. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. Section 16. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Section 17. Definitions. For purposes of this Agreement: (a) "Change in Control" means a change in control of the Corporation occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Corporation is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Act) other than the Corporation or a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 15 percent or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Corporation is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 17, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. (b) "Corporate Status" describes the status of a person who is or was a director, officer, employee or agent of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such 10 11 person is or was serving at the request of the Corporation in accordance with this Agreement. (c) "Disinterested Director" means a director of the Corporation who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Effective Date" means July 31, 1998. (e) "Enterprise" shall mean (i) the Corporation and/or any entity in which the Corporation has an equity interest, and/or (ii) any other corporation, partnership, joint venture, trust, employee welfare or benefit plan of the Corporation and/or of any entity in which the Corporation has an equity interest or other enterprise of which Indemnitee is or was serving at the express written request of the Corporation as a director, officer, employee, or agent. (f) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. (g) "Good Faith" shall mean Indemnitee having acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal Proceeding, having had no reasonable cause to believe Indemnitee's conduct was unlawful. (h) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and, at the time of their engagement pursuant to Section 8 hereof, neither presently is, nor in the past five years has been, retained to represent: (i) the Corporation or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Corporation agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (i) "Proceeding" includes any threatened, pending or completed action, suit, alternate dispute resolution mechanism, investigation, inquiry, administrative 11 12 hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Corporation or otherwise, including any counterclaims therein, and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director or officer of the Corporation, by reason of any action taken by him or of any inaction on his part while acting as director or officer of the Corporation, or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement; except one initiated by a Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under this Agreement. (j) References to "other enterprise" shall include employee welfare or benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee welfare or benefit plan; references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee welfare or benefit plan, as participants or beneficiaries; and a person who acted in good faith and in the manner he reasonably believed to be in the interests of the participants and beneficiaries of an employee welfare or benefit plan shall be deemed to have acted in manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. Section 18. Enforcement. (a) The Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a [director] [and] [officer] [employee] of the Corporation, and the Corporation acknowledges that Indemnitee is relying upon this Agreement in serving as a [director] [and] [officer] [employee] of the Corporation. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. Section 19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify the Corporation in writing upon being served with any summons, citation, subpoena, 12 13 complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Corporation shall not relieve the Corporation of any obligation which it may have to the Indemnitee under this Agreement or otherwise, except to the extent the Corporation is materially prejudiced by such failure. Section 21. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed; or (iii) sent by facsimile with receipt confirmed: (a) If to Indemnitee, to: (b) If to the Corporation, to: American Management Systems, Incorporated 4050 Legato Road Fairfax, Virginia 22033 fax: (703) 267-5111 Attention: Chief Financial Officer With a copy (which shall not constitute notice) to: Shaw Pittman Potts & Trowbridge 2300 N Street, N.W. Washington, D.C. 20037 fax: (202) 663-8007 Attention: Barbara M. Rossotti, Esq. or to such other address as may have been furnished to Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case may be. Section 22. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Corporation, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Corporation and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Corporation (and its directors, officers, 13 14 employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). Section 23. Governing Law; Submission to Jurisdiction: Appointment of Agent for Service of Process. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Corporation and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not a resident of the State of Delaware, irrevocably The Corporation Trust Company, Corporate Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 as its agent in the State of Delaware as such party's agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or otherwise inconvenient forum. 14 15 Section 24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. AMERICAN MANAGEMENT SYSTEMS, INCORPORATED By: ---------------------------- Name: Title: ------------------------------- Indemnitee: 15 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JUN-30-1998 73,500 0 222,700 8,145 0 305,000 102,700 62,600 436,100 112,500 0 0 0 500 266,800 436,100 473,700 473,700 264,500 436,800 1,500 6,800 2,200 35,400 14,500 20,900 0 0 0 20,900 .50 .49 Primary Earnings Per Share represents Basic Earnings Per Share as required per SFAS No. 128.
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