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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.
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CONTENTS
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Page
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Part I Financial Information
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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
</TABLE>
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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.
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American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions except per share data)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
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(1) Certain amounts have been reclassified for comparative purposes.
2
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American Management Systems, Incorporated
CONSOLIDATED REVENUES BY MARKET(1)
Unaudited
(In millions)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
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(1) Certain amounts have been reclassified for comparative purposes.
3
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American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
6/30/98
ASSETS (Unaudited) 12/31/97
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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
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91.0 77.3
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TOTAL ASSETS............................................................... $436.1 $421.4
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</TABLE>
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American Management Systems, Incorporated
CONSOLIDATED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
6/30/98
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 12/31/97
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<S> <C> <C>
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
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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
====== ======
</TABLE>
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American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
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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
</TABLE>
6
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American Management Systems, Incorporated
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(1)
Unaudited
(In millions)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
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
======= ======== ====== ======
</TABLE>
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(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
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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.
<TABLE>
<CAPTION>
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
-------- ------- ------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
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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.
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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
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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,
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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
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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.
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
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<PAGE> 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,
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<PAGE> 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;
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<PAGE> 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;
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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
<PAGE> 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:
<TABLE>
<S> <C>
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)
</TABLE>
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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 73,500
<SECURITIES> 0
<RECEIVABLES> 222,700
<ALLOWANCES> 8,145
<INVENTORY> 0
<CURRENT-ASSETS> 305,000
<PP&E> 102,700
<DEPRECIATION> 62,600
<TOTAL-ASSETS> 436,100
<CURRENT-LIABILITIES> 112,500
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 266,800
<TOTAL-LIABILITY-AND-EQUITY> 436,100
<SALES> 473,700
<TOTAL-REVENUES> 473,700
<CGS> 264,500
<TOTAL-COSTS> 436,800
<OTHER-EXPENSES> 1,500
<LOSS-PROVISION> 6,800
<INTEREST-EXPENSE> 2,200
<INCOME-PRETAX> 35,400
<INCOME-TAX> 14,500
<INCOME-CONTINUING> 20,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,900
<EPS-PRIMARY> .50<F1>
<EPS-DILUTED> .49
<FN>
<F1> Primary Earnings Per Share represents Basic Earnings Per Share as required
per SFAS No. 128.
</FN>
</TABLE>
