1996-12-31_Def14a_0000928385-96-000288

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0000928385-96-000288.txt : 19960411
0000928385-96-000288.hdr.sgml : 19960411
ACCESSION NUMBER: 0000928385-96-000288
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19961231
FILED AS OF DATE: 19960410
SROS: NASD

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: AMERICAN MANAGEMENT SYSTEMS INC
CENTRAL INDEX KEY: 0000310624
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370]
IRS NUMBER: 540856778
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231

FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-09233
FILM NUMBER: 96545680

BUSINESS ADDRESS:
STREET 1: 4050 LEGATO RD
CITY: FAIRFAX
STATE: VA
ZIP: 22033
BUSINESS PHONE: 7032678000


DEF 14A
1
DEF PROXY STATEMENT

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant [x]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
– ——————————————————————————–
(Name of Registrant as Specified in Its Charter)

N/A
– ——————————————————————————–
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:

[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: (3) Filing Party:
(2) Form, Schedule or Registration Statement No.: (4) Date Filed:

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

4050 Legato Road
Fairfax, Virginia 22033

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of AMERICAN
MANAGEMENT SYSTEMS, INCORPORATED will be held at 4050 Legato Road, Fairfax,
Virginia 22033 on Friday, May 10, 1996, at 10:00 a.m. local time, for the
following purposes:

To elect ten (10) directors to hold office until the next Annual Meeting of
Shareholders of American Management Systems, Incorporated and until their
successors are elected and qualified;

To approve Stock Option Plan F;

To approve a performance-based incentive compensation plan for executive
officers; and

To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.

Only shareholders of record at the close of business on March 22, 1996,
will be entitled to notice of, and to vote at, the meeting or any adjournment
thereof.

Shareholders are cordially invited to attend the meeting in person. IF
YOU WILL NOT BE ABLE TO ATTEND THE MEETING IN PERSON, PLEASE INDICATE YOUR
CHOICE ON THE MATTERS TO BE VOTED UPON, DATE AND SIGN THE ENCLOSED PROXY, AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.

By Order of the Board of Directors,

Frank A. Nicolai
Secretary

April 11, 1996

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

4050 Legato Road
Fairfax, Virginia 22033

PROXY STATEMENT

Annual Meeting of Shareholders
May 10, 1996

Table of Contents

Page
—-
General……………………………………………………….. 1

Voting Procedure……………………………………………….. 1

Election of Directors…………………………………………… 2

Information Concerning Nominees for Director………………………. 2

Information Concerning Executive Officers…………………………. 7

Principal Stockholders………………………………………….. 7

Compliance with Section 16(a) of the Securities Exchange Act of 1934…. 10

Executive Compensation………………………………………….. 10

Compensation Committee Report of Executive Compensation…………….. 12

Shareholder Return Performance Graph……………………………… 16

Committees of the Board of Directors……………………………… 17

Compensation Committee Interlocks and Insider Participation…………. 18

Certain Transactions……………………………………………. 18

Proposal to Approve Stock Option Plan F…………………………… 18

Proposal to Approve the Performance-Based Incentive Compensation Plan for
Executive Officers…………………………………………….. 23

Other Matters………………………………………………….. 29

Annual Report………………………………………………….. 29

American Management Systems, Incorporated Stock Option Plan F….Exhibit A

American Management Systems, Incorporated 1996 Incentive Compensation
Plan for Executive Officers……………………………….Exhibit B

American Management Systems, Incorporated 1995 Financial Report.Appendix 1

GENERAL

The enclosed Proxy is being solicited by the Board of Directors of AMERICAN
MANAGEMENT SYSTEMS, INCORPORATED (the “Company” or “AMS”) in connection with the
annual meeting of shareholders of the Company to be held May 10, 1996 (the
“Annual Meeting”), or any adjournment or adjournments thereof. The entire
expense of solicitation of proxies will be borne by the Company. Solicitation
will be primarily by mail. However, directors, executive officers, and employees
of the Company may also solicit by telephone or personal contact. The Company
will reimburse brokers and other persons holding shares in their names, or in
the names of nominees, for their expenses of sending proxy materials to
beneficial owners and obtaining their proxies. It is anticipated that the Proxy
Statement and Proxy first will be mailed to shareholders on or about April 11,
1996.

Any shareholder giving a Proxy has the power to revoke it at any time
before it is voted by giving notice of revocation to the Secretary of the
Company. If you attend the Annual Meeting, you may, if you wish, revoke your
Proxy by voting in person. Proxies solicited herein will be voted, and if the
person solicited specifies in the Proxy a choice with respect to matters to be
acted upon, the shares will be voted in accordance with such specification. If
no choice is indicated, the Proxy will be voted for the election of the nominees
listed on pages 2 to 6 under the caption “Information Concerning Nominees for
Director”; for the approval of the AMS Stock Option Plan F (“Stock Option Plan
F” or “Plan F”); and for the approval of the AMS 1996 Incentive Compensation
Plan for Executive Officers (the “IC Plan”).

On December 4, 1995, the Company announced a 3-for-2 split of its Common
Stock, $0.01 par value per share (the “Common Stock”), effective January 5,
1996, for shareholders of record on December 15, 1995. Except as otherwise
noted, all numbers of shares and options to purchase shares of Common Stock
appearing in this Proxy Statement reflect this stock split.

VOTING PROCEDURE

As of March 22, 1996, there were outstanding 40,471,879 shares of Common
Stock. Each share of Common Stock is entitled to one vote at the Annual Meeting.
Only shareholders of record at the close of business on March 22, 1996 will be
entitled to vote at the Annual Meeting.

Votes cast in person or by Proxy at the Annual Meeting, abstentions and
Broker Non-votes (as defined below) will be tabulated by the election inspectors
appointed for such Meeting and will be counted for purposes of determining
whether a quorum is present. Each matter submitted to a vote at the Annual
Meeting will be approved by the affirmative vote of the holders of a majority of
the shares present (in person or represented by Proxy) and entitled to vote on
such matter, with the exception of the proposal to approve the IC Plan, which
will be approved by the affirmative vote of the holders of a majority of the
votes cast with respect to such Plan (as required by Internal Revenue Service
(“IRS”) regulations). The election inspectors will treat abstentions on a
particular matter as shares that are present and entitled to vote for purposes
of determining the approval of such matter. Abstentions, therefore, will have
the same effect as a vote against a particular matter. Notwithstanding the
foregoing, with respect to the proposal to approve the IC Plan, the election
inspectors will not treat abstentions as votes cast for purposes of determining
the approval of such Plan (as required by IRS regulations). If a broker submits
a Proxy indicating that it does not have discretionary authority as to certain
shares to vote on a particular matter (a “Broker Non-vote”), those shares will
not be treated as present and entitled to vote for purposes of determining the
approval of such matter and will not be treated as votes cast for purposes of
determining the approval of the IC Plan.

1

ELECTION OF DIRECTORS

Ten directors are to be elected at the Annual Meeting, each to hold office
until the next annual meeting of shareholders of the Company and until his or
her successor is elected and qualified. The directors will be elected by the
affirmative vote of the holders of a majority of the shares present in person or
represented by Proxy and entitled to vote on the election of directors. Unless
otherwise directed, it is the intention of the persons named in the Proxy to
vote such Proxy for the election of the nominees listed on pages 2 to 6. All of
the nominees are now directors of the Company. In the event that any nominee
should be unable to accept the office of director, which is not anticipated, it
is intended that the persons named in the Proxy will vote for the election of
such other person in the place of such nominee for the office of director as the
Board of Directors may recommend. Descriptive information as to each nominee
is set forth below under the caption “Information Concerning Nominees for
Director.”

INFORMATION CONCERNING NOMINEES FOR DIRECTOR

Year
First
Elected
Name Age Position Director Background
—- — ——– ——— ———-

Charles O. Rossotti…….. 55 Chairman of 1970 Mr. Rossotti is one of the founders
the Board of of the Company and was elected
Directors Chairman of the Board of Directors
and Director in February 1989. He has
served as a member of the Board of
Directors since 1970, and as Chief
Executive Officer from 1982 to
September 1993. He served as
President from 1970 to October
1992. He is also a director of
Intersolv, Inc., a publicly held
corporation.

Patrick W. Gross……….. 51 Vice Chairman 1974 Mr. Gross is one of the Company’s
of the Board of founders and has served AMS
Directors continuously as an executive officer
and Director since 1970. He was elected Vice
Chairman of the Board of Directors
in February 1989 and was Chairman of the
Executive Committee from 1983 until 1989.
He is a director of Capital One Financial
Corporation, which is a publicly held entity.
He is also Chairman of the Board of Directors
of Baker & Taylor Holdings, Inc. and a director of
Anthem Financial Corporation, which are both
non-publicly held entities.

2

Year
First
Elected
Name Age Position Director Background
—- — ——– ——— ———-

Paul A. Brands…………. 54 Vice Chairman 1992 Mr. Brands has served as Vice
of the Board Chairman of the Board of Directors
of Directors, and a member of the Board of Directors
Chief Executive since October 1992. He was designated
Officer, and Chief Executive Officer in September 1993.
Director He supervised the Federal Consulting
and Systems Group from 1977 to 1992;
Data Base Management, Inc. from 1990 to
1992; and the Company’s interest in Bell
Atlantic Systems Integration Corporation
from 1989 to 1992. Mr. Brands joined the
Company in 1977.

Philip M. Giuntini……… 49 President 1992 Mr. Giuntini has served as President
and Director and a member of the Board of Directors
since October 1992. He supervised the
business units responsible for the
energy market from 1989 to 1992, the
business units responsible for the
telecommunications market from 1985 to
1992, and the business units responsible
for other systems integration and
services markets from 1982 to 1992.
Mr. Giuntini joined the Company in 1970.

Frank A. Nicolai……….. 54 Executive 1974 Mr. Nicolai is one of the Company’s
Vice founders and has served continuously
President, as an executive officer since 1970.
Secretary, He was elected Treasurer in 1980
Treasurer, and Secretary in 1987.
and Director

3

Year
First
Elected
Name Age Position Director Background
—- — ——– ——– ———-

Daniel J. Altobello…….. 55 Director 1993 Mr. Altobello has been Chairman
and Director of ONEX Food Services,
Inc. since September 1995 and
President of Caterair International
Corporation since December 1989. He
served as Chairman of the Board and
Chief Executive Officer of Caterair
International Corporation from
December 1989 through September
1995. From April 1988 through
December 1989, Mr. Altobello was
Executive Vice President of
Marriott Corporation and President
of Marriott Airport Operations. He
currently serves as a director of Blue
Cross and Blue Shield of Maryland,
Inc. and a member of the Advisory
Board of Thayer Capital Partners, a
merchant bank. Neither of these
entities is publicly held.

James J. Forese………… 60 Director 1989 Mr. Forese is currently Executive
Vice-President, Chief Operating
Officer, and Director of ALCO
Standard Corporation. From
1993 to 1995 he served as General
Manager of IBM Customer Financing
and Chairman of IBM Credit Corporation.
He served as IBM Vice President,
Finance from 1990 to 1993 and IBM
Vice President and Group Executive,
IBM World Trade Americas Group,
from 1988 to 1990. He currently serves
as a director of NUI Corporation,
which is a publicly-held corporation.
He joined ALCO in 1996.

4

Year
First
Elected
Name Age Position Director Background
—- — ——– ——– ———-

Dorothy Leonard-Barton….. 54 Director 1991 Dr. Leonard-Barton has been a
Professor at the Harvard University
Graduate School of Business Administration
since 1993. Prior to this, she served
as an Associate Professor from 1989
to 1993, and an Assistant Professor
from 1983 to 1989, at the Harvard
University Graduate School of Business
Administration. Dr. Leonard-Barton
also serves as an independent industrial
consultant to various companies including,
among others, AT&T Bell Laboratories,
Digital Equipment Corporation, and
IBM Corporation.

W. Walker Lewis………… 51 Director 1995/(1)/ Mr. Lewis has been a Senior Advisor
with Dillon, Read & Co., Inc. since
January 1995. He was Managing
Director, Strategic Services, and a
member of the Management Committee of
Kidder, Peabody & Co., Inc. from
April 1994 to December 1994.
From April 1992 through December
1993 he served as President of Avon
North America, and from March 1992 to
December 1992 he served as Executive
Vice President of Avon Corporate. He
currently serves as a director of Owens
Corning Fiberglass and Unilab
Corporation, which are publicly-held
corporations, and Health Benefits
America and Marakon Associates, which
are non-publicly held entities.

/(1)/ Mr. Lewis was elected to the Board of Directors in December 1995 to
fill a vacancy on the Board that resulted from the death of Steven R.
Fenster in June 1995. Mr. Lewis previously served as a director of AMS
from February 1981 through May 1992.

5

Year
First
Elected
Name Age Position Director Background
—- — ——– ——– ———-

Frederic V. Malek………. 59 Director 1985 Mr. Malek has been Chairman of
Thayer Capital Partners, a
merchant bank, since March 1993.
He also is Co-Chairman, CB
Commercial Real Estate Group (a
real estate brokerage and management
firm), having served in such capacity
since April 1989. He was Campaign Manager
for the re-election campaign of President
Bush and Vice President Quayle from
December 1991 to November 1992. He
was Vice Chairman of Northwest
Airlines from 1990 until December
1991, and was President of Northwest
Airlines from 1989 to 1990. From 1988 to
1989 he was Senior Advisor to The Carlyle Group
(investment bank), and from 1981 to
1988 he was President of Marriott Hotels
and Resorts. Mr. Malek also serves as a
director of Automatic Data Processing, Inc.;
National Education Corporation various
Paine-Webber mutual funds; FPL Group;
ICF Kaiser, Inc.; Northwest Airlines;
Intrav, Inc.; and Manor Care, Inc.,
all of which are publicly-held
entities; Avis, Inc.; and CB
Commercial Real Estate Group, which
are non-publicly held entities.

6

INFORMATION CONCERNING EXECUTIVE OFFICERS

Information concerning Charles O. Rossotti, Chairman; Patrick W. Gross,
Vice Chairman; Paul A. Brands, Vice Chairman and Chief Executive Officer; Philip
M. Giuntini, President; and Frank A. Nicolai, Executive Vice President,
Secretary, and Treasurer, is set forth above under the caption “Information
Concerning Nominees for Director.”

Name Age Position Background
—- — ——– ———-

Fred L. Forman…………. 52 Executive Dr. Forman is a key
Vice President participant in overall
corporate management and
currently heads the Company’s
Achieving Breakthrough
Performance business
reengineering initiative. He
was in charge of the
Corporate Technology Group
from 1986 until 1994. He
joined the Company in 1971.

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 22, 1996, the number and
percentage of outstanding shares of Common Stock beneficially owned by (i) all
persons known by the Company to own 5% or more of such shares, (ii) each
director, (iii) each executive officer, and (iv) all executive officers and
directors as a group. Unless otherwise noted below, each person or entity named
in the table has sole voting and sole investment power with respect to each of
the shares beneficially owned by such person or entity.

Amount of Percent of
Beneficial Class of
Name and Address of Beneficial Owner Ownership(1) Outstanding Shares(2)
– ———————————— ——— ——————

Daniel J. Altobello(3)(5) ………. 13,217 Common-0.0%
6550 Rock Spring Drive
Bethesda, MD 20817

Paul A. Brands(3)(4) …………… 488,041 Common-1.2%
4050 Legato Road
Fairfax, VA 22033

James J. Forese(3) …………….. 60,622 Common-0.1%
825 Duportail Road
Wayne, PA 19087

Fred L. Forman(4) ……………… 257,045 Common-0.6%
4050 Legato Road
Fairfax, VA 22033

Philip M. Giuntini(3)(4)(6) …….. 460,246 Common-1.1%
4050 Legato Road
Fairfax, VA 22033

Patrick W. Gross(3)(4)(7) ………. 678,606 Common-1.7%
4050 Legato Road
Fairfax, VA 22033

7

Amount of Percent of
Beneficial Class of
Name and Address of Beneficial Owner Ownership(1) Outstanding Shares(2)
– ———————————— ——— ——————

Dorothy Leonard-Barton(3)…………. 9,280 Common-0.0%
The Harvard University
Graduate School of Business
Administration
522 Soldiers Field Road
Boston, MA 02163

W. Walker Lewis(3)……………….. 748 Common-0.0%
535 Madison Avenue
New York, NY 10022

Frederic V. Malek(3)……………… 29,216 Common-0.1%
901 15th Street, N.W.
Suite 300
Washington, D.C. 20005

Frank A. Nicolai(3)(4)(8)…………. 527,654 Common-1.3%
4050 Legato Road
Fairfax, VA 22033

Charles O. Rossotti(3)(4)(9)………. 1,431,678 Common-3.5%
4050 Legato Road
Fairfax, VA 22033

FMR Corp.(10)……………………. 2,906,700 Common-7.2%
82 Devonshire Street
Boston, MA 02109

William Blair & Company, L.L.C.(11)… 2,016,588 Common-5.0%
222 West Adams Street
Chicago, IL 60606

All executive officers and directors.. 3,956,353 Common-9.8%
as a group (eleven persons)

/(1)/ Amount of beneficial ownership includes stock options granted to
directors and executive officers which have vested and are or will become
exercisable within 60 days of March 22, 1996. Accordingly, Mr. Altobello
has 9,842 options vested and exercisable; Mr. Brands has 33,917 options
vested and exercisable; Mr. Forese has 3,747 options vested and
exercisable; Dr. Forman has 25,060 options vested and exercisable; Mr.
Giuntini has 30,874 options vested and exercisable; Dr. Leonard-Barton
has 2,250 options vested and exercisable; Mr. Lewis has 748 options
vested and exercisable; Mr. Malek has 7,123 options vested and
exercisable; and Messrs. Nicolai, Gross, and Rossotti have no options
vested and exercisable. In addition, Mr. Giuntini’s beneficial ownership
includes 31,340 vested and exercisable options granted to Donna E.
Deeley, his spouse and a Vice President of the Company. All executive
officers and directors as a group (eleven persons) have beneficial
ownership of 144,901 options vested and exercisable within 60 days of
March 22, 1996.

8

/(2)/ All amounts and percentages of Common Stock were calculated to include
stock options vested and exercisable for those individual directors and
executive officers who had such stock options. The number of shares of
Common Stock was calculated as of March 22, 1996.

/(3)/ Indicates a director of the Company.

/(4)/ Indicates an executive officer of the Company.

/(5)/ Includes 1,125 shares beneficially owned by Mr. Altobello’s daughter-in-
law, who has the sole power to vote and dispose of such shares. Mr.
Altobello disclaims beneficial ownership with respect to the shares owned
by his daughter-in-law.

/(6)/ Amount of beneficial ownership includes 84,263 shares and 31,340
options owned by Mr. Giuntini’s spouse, a Vice President of the Company,
who has the sole power to vote and dispose of such shares.

/(7)/ Includes 172,125 shares beneficially owned by Mr. Gross’ wife, both
individually and as a custodian for her children, with respect to which
shares Mr. Gross disclaims beneficial ownership. Mrs. Gross has the sole
power to vote and dispose of those shares beneficially owned by her.

/(8)/ Includes 64,124 shares beneficially owned by Ms. Nicolai with respect to
which she has sole voting and dispositive power. Mr. Nicolai disclaims
beneficial ownership with respect to the shares owned by Ms. Nicolai.

/(9)/ Includes 182,250 shares each owned by two trusts, totaling 364,500
shares, for the benefit of Mr. Rossotti’s daughter and son, respectively,
of which Mr. and Mrs. Rossotti are co-trustees. Mr. and Mrs. Rossotti
share joint power to vote and dispose of those shares. Also includes
964,803 shares jointly owned by Mr. and Mrs. Rossotti, who share joint
power to vote and dispose of such shares.

/(10)/ Based solely on the February 14, 1996 filing on Schedule 13G of FMR Corp.
(“FMR”), it is the Company’s understanding that (i) FMR is a parent
holding company, (ii) the amount of beneficial ownership includes
1,603,900 shares beneficially owned by Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR and a registered investment
adviser, for the benefit of its clients, (iii) the amount of beneficial
ownership includes 333,900 shares beneficially owned by Fidelity
Management Trust Company, a wholly-owned subsidiary of FMR and a bank,
for the benefit of its clients, and (iv) FMR has sole dispositive power
over all of the reported shares and sole voting power over 333,900 of the
reported shares.

/(11)/ Based solely on the March 6, 1996 filing on Schedule 13G of William
Blair & Company, L.L.C. (“Blair”), it is the Company’s understanding that
(i) Blair is a registered investment adviser, and (ii) Blair has sole
dispositive power over all of the reported shares and sole voting power
over 361,647 of the reported shares.

9

COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that the Company’s directors, executive officers, and persons who own more than
10% of a registered class of the equity securities of the Company (“reporting
persons”) file with the Securities and Exchange Commission initial reports of
ownership, and reports of changes in ownership, of shares of stock, and options
to purchase such shares, of the Company. Reporting persons are required by
Securities and Exchange Commission rules to furnish the Company with copies of
all Section 16(A) reports they file.

Based solely upon a review of Section 16(a) reports furnished to the
Company for the fiscal year ended December 31, 1995 (the “1995 fiscal year”),
and representations by reporting persons that no other reports were required for
the 1995 fiscal year, all Section 16(a) reporting requirements were met.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended December 31, 1995 to the Company’s
executive officers.

Annual Compensation Long-Term Compensation Awards
——————- —————————–
Payouts
——-
Shares
Underlying
Options (No. LTIP All Other
Name and Principal Position Year Salary Bonus/(1)/ of Shares)/(2)/ Payout/(3)/ Compensation/(4)/
– ————————— —- —— —– ————– ———- —————-

Charles O. Rossotti 1995 $250,000 $250,000 0 $ 0 $ 7,904
Chairman of the Board of 1994 251,917 250,000 0 0 8,382
Directors and Director 1993 303,500 0 0 0 9,739

Patrick W. Gross 1995 270,833 192,500 4,050 577,500 7,904
Vice Chairman of the Board 1994 248,767 175,000 1,350 0 7,924
of Directors and Director 1993 242,600 0 16,538 0 11,739

Paul A. Brands 1995 282,917 287,000 8,100 598,500 7,904
Vice Chairman of the Board 1994 260,417 262,500 0 0 8,211
of Directors, Chief Executive 1993 242,167 0 12,825 0 9,739
Officer, and Director

Philip M. Giuntini 1995 282,917 287,000 8,100 598,500 7,904
President and Director 1994 260,417 262,500 0 0 7,924
1993 242,167 0 28,556 0 9,739

Frank A. Nicolai 1995 249,167 177,100 4,050 354,200 7,904
Executive Vice President, 1994 226,667 161,000 0 0 8,292
Secretary, Treasurer, 1993 207,200 0 1,350 0 9,739
and Director

Fred L. Forman 1995 270,333 192,500 4,050 385,000 7,904
Executive Vice President 1994 246,667 175,000 0 0 7,924
1993 226,000 69,000 20,336 0 9,739

10

/(1)/ All amounts were awarded based on the achievement of annual performance
goals under single or multi-year incentive compensation plans.

/(2)/ Each of these awards of Common Stock are associated with performance
under individual incentive compensation plans and were made by the
appropriate Board committee pursuant to a shareholder-approved stock
option plan.

/(3)/ All amounts represent the final cash payment awarded for successful
completion of multi-year performance indicators of individual incentive
compensation plans.

/(4)/ These amounts represent the Company’s contribution to special individual
retirement accounts pursuant to the AMS Simplified Employee Pension
Plan. In the case of Mr. Gross for fiscal 1993, the amount includes a
20-year anniversary award of $2,000. These numbers also include other
miscellaneous compensation in immaterial amounts for several officers
(less than $1,000 per person).

Option Grants in Fiscal 1995

Shown below is information concerning stock option grants to the
Company’s executive officers who were granted options on Common Stock during the
Company’s 1995 fiscal year.

Individual Grants
———————————————————-
Potential Realizable Value
at Assumed Annual Rates
Number of % of Total of Stock Price Appreciation
Shares Options for Option Term
Underlying Granted to Exercise or Compounded Annually
Options Employees Base Price Expiration —————————-
Name Granted(1) in Fiscal 1995 ($/Share) Date 5% 10%
—– ——— ————— ——— ———- ——- ——–

Charles O. Rossotti…….. 0 0.0% N/A N/A $ 0 $ 0

Patrick W. Gross……….. 4,050 0.6% $13.625 2/28/00 15,236 33,665

Paul A. Brands…………. 8,100 1.1% 13.625 2/28/00 30,472 67,331

Philip M. Giuntini……… 8,100 1.1% 13.625 2/28/00 30,472 67,331

Frank A. Nicolai……….. 4,050 0.6% 13.625 2/28/00 15,236 33,665

Fred L. Forman…………. 4,050 0.6% 13.625 2/28/00 15,236 33,665

/(1)/ Each option grant is associated with a performance-based individual
incentive compensation plan for 1994-1995 and was made by the
appropriate Board committee pursuant to a shareholder-approved stock
option plan. The option award will become exercisable one day prior to
the stated expiration date. In accordance with each incentive
compensation plan, the exercise date of an option award may be
accelerated to June 30 or August 31 of the year following the end of the
performance period covered by the plan if the Compensation Committee
determines that the executive successfully completed the plan.

/(2)/ Each option grant was awarded with an exercise price equal to the
market value of the Common Stock on the date of grant.

11

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values

Shown below is information with respect to exercises by the Company’s
executive officers during the Company’s 1995 fiscal year of options to purchase
shares of Common Stock pursuant to the 1992 Amended and Restated Stock Option
Plan E, as amended (the “1992 Stock Option Plan E” or “1992 Plan E”), and
earlier stock option plans. Also shown is information with respect to certain
unexercised options to purchase shares of Common Stock held by the Company’s
executive officers as of the end of the Company’s 1995 fiscal year.

Number
of Number of Shares Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options at
Acquired End of Fiscal Year End of Fiscal 1995/(2)/
Name on Value ——————— ———————
—- Exercise Realized/(1)/ Exercisable Unexercisable Exercisable Unexercisable
————— ———- ———– ————- ———– ————-

Charles O. Rossotti…….. 0 $ 0 0 0 $ 0 $ 0

Patrick W. Gross……….. 4,725 44,450 0 64,462 0 788,725

Paul A. Brands…………. 0 0 46,674 10,802 605,877 83,168

Philip M. Giuntini……… 6,259 54,713 56,628 10,801 701,050 83,153

Frank A. Nicolai……….. 8,437 89,375 0 5,400 0 41,569

Fred L. Forman…………. 0 0 36,703 5,401 451,698 41,585

/(1)/ Based on the market value of the Common Stock on date of exercise (as
measured by the NASDAQ closing bid price), minus the option’s exercise
price.

/(2)/ Based on the market value of the Common Stock on the last trading day of
1995 (as measured by the NASDAQ closing bid price of $20.00), minus the
exercise price.

Long-Term Incentive Plan Awards in Last Fiscal Year

No awards were made to the Company’s executive officers during the
Company’s 1995 fiscal year under long-term incentive plans.

Notwithstanding anything to the contrary set forth in any of the
Company’s previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph shall not be incorporated by reference into any
such filings.

COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION

Composition and Responsibilities of Compensation Committee

The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board of Directors with respect to
the Company’s compensation policies generally. It is composed entirely of
outside directors who have never served as officers of the Company or its
affiliates (the “Outside Directors”). The Compensation Committee approves the
compensation plans for the Company’s executive officers, including the Chief
Executive Officer (the “CEO”), and on an annual basis determines the
compensation to be paid to the executive officers. The Compensation Committee is
responsible for the granting and administration of stock options and incentive
compensation granted to the executive officers.

12

The Compensation Committee has furnished the following report for fiscal
1995:

Compensation Objectives and Philosophy

The objectives of the Company’s executive compensation program are to
provide a level of compensation that will attract and retain executives capable
of achieving long-term success for the Company’s shareholders and to structure
their compensation packages such that a significant portion generally is tied to
the achievement of multi-year targets for pre-tax income.

Executive Officer Compensation

The Company’s executive compensation program consists of three main
components: (i) annual base salary, (ii) potential for an annual cash bonus and
awards of stock options based on Company pre-tax income, the profit contribution
of a particular business unit, individual performance, or some combination of
these factors, and (iii) the opportunity to earn long-term cash and stock-based
incentives which are intended to encourage the achievement of superior results
over time and to align executive officer and shareholder interests. In addition
to research and recommendations furnished by the Company’s senior management,
the Compensation Committee has relied, inter alia, on information furnished
through executive compensation surveys by a recognized compensation consulting
firm, and information known to various members of the Board of Directors. The
Compensation Committee compares salaries and other elements of executive
compensation with the compensation paid to executives in technology and
consulting firms which are actual competitors of the Company. Few of these
companies are in the Hambrecht & Quist Technology Stock Index, the peer index
chosen by the Company for comparison in the “Shareholder Return Performance
Graph” below, because their shares are not publicly traded. They include, for
example, the consulting divisions of certain Big 6 accounting firms, other
prominent consulting firms which are wholly owned subsidiaries of publicly
traded companies, and other software firms that are privately held.

The executive officers, including the CEO, are eligible for the same
benefits, including group health and life insurance and participation in the
Company’s Simplified Employee Pension/IRA Plan, as are available generally to
the Company’s professional staff, except that the executive officers do not
participate in the Company’s Profit-Sharing Plan or Employee Stock Purchase
Plan. The Company does not provide material perquisites to any of its executive
officers.

Annual Base Salary. The Compensation Committee determines the annual base
salary of each of the Company’s executive officers, including the CEO. Changes
in base salary are generally made effective on March 1. The same principles are
applied in setting the salaries of all executive officers to ensure that
salaries are competitively established. Salaries are determined by considering
the officer’s potential duties and responsibilities within the Company and his
or her business unit, and the officer’s potential impact on the operations and
profitability of the Company. Unlike with respect to the Company’s incentive
compensation arrangements, the Compensation Committee does not consider
achievement of specific corporate performance factors in establishing base
salaries for its executive officers. In general, it is the policy of the Company
to set base salaries lower than would be typical for comparable positions in
similar firms, and to include more compensation in incentive plans, particularly
incentive compensation plans tied to multi-year performance periods.

Incentive Compensation Plans. Each executive officer of the Company
generally participates in incentive compensation plans of one to three years in
duration. These plans are similar to multi-year incentive plans in which other
members of the Company’s professional staff participate. Under such plans, the
officer is eligible for annual cash incentive awards, and cash awards which may
be made at the end of the plan if the Compensation Committee determines that the
officer has met the specified goals of the executive’s programs. Some plans also
contemplate awards of stock options under the Company’s shareholder-approved
stock option plans. Each executive officer has a plan which details the
executive officer’s goals, the primary or sole element of which is financial
performance, including targets for the Company’s pre-tax income, or targets for
profit contribution by one or more business units, or a combination thereof.
Certain executive officers also have plans which include individual, non-
financial goals.

The annual cash awards under the incentive compensation plans and the
cash portion of the award for completion of an incentive compensation plan
generally are based on multiples of a percentage of the executive officer’s
salary for the relevant fiscal period. The number of stock options which may be
awarded is determined at the

13

time the performance goals are established. Such number of stock options is not
determined by reference to any specific criteria other than the Company’s
historical practice of awarding stock options in connection with incentive
compensation plans for certain executive officers. Such number has been
relatively consistent for multi-year plans for executive officers for more than
ten years. The exercise price of all options granted in connection with the
incentive compensation plans for the executive officers is the fair market value
of the shares on the date of grant of the option. Achievement of the specified
financial or non-financial goals for plan years earlier than the final plan year
in a multi-year plan entitles the executive to specified interim cash payments
and stock option grants, all of which are considered advances against the multi-
year incentive compensation amounts. Such interim cash payments are
significantly less than a ratable percentage of the projected incentive
compensation payable on successful completion of a multi-year plan. For example,
successful completion of the first year of a two-year plan typically would
entitle the executive to payment of 25% of target cash incentive compensation.
Stock options in connection with multi-year plans also are granted according to
a schedule specified in the plan, typically including a small percentage of
options granted at the time the plans are approved by the Compensation
Committee.

Fiscal 1995 was the second year of two-year incentive compensation plans
for Paul A. Brands, Philip M. Giuntini, Frank A. Nicolai, and Fred L. Forman.
Charles O. Rossotti and Patrick W. Gross completed one-year incentive
compensation plans. All of these plans included the same pre-tax income target
as a financial goal. In the cases of Messrs. Nicolai and Forman, the incentive
targets also included individual goals based on their respective areas of
responsibility, such as achieving operational goals within budget, improving the
Company’s professional recruitment and training, and new client development. In
the case of Mr. Gross, 1995 was also the second year of a two-year incentive
plan with individual financial goals based on strategic client development. All
plans required that a minimum percentage of the stated goal must be achieved
before any portion of the related incentive compensation share was payable. The
plans also took into account projected pre-tax income for the year following the
performance year just ended in determining whether awards are payable and the
amounts thereof. Each plan also included higher award multiples for performance
which exceeded the targets by a stated percentage.

In February 1996, the Compensation Committee determined that Messrs.
Brands, Giuntini, Rossotti, and Gross substantially met their financial goals
relative to fiscal 1995, and that Messrs. Nicolai and Forman had substantially
met their non-financial performance goals, and determined that each had earned
his respective target payments. The Compensation Committee also determined that
Mr. Gross had exceeded his target level for his individual non-financial goals
and had therefore earned an additional incentive share. These amounts are shown
in the Summary Compensation Table under “Annual Compensation — Bonus” and
“Long-Term Compensation Awards — LTIP Payout.” The Compensation Committee in
February 1996 also approved the grant of stock options to Messrs. Brands,
Giuntini, Gross, Nicolai, and Forman contemplated by their incentive
compensation plans and based on achievement of the specified performance goals
in their incentive compensation plans. Mr. Rossotti’s 1995 compensation plan did
not provide for stock options. Also in February 1996, the Compensation Committee
approved the 1996 Incentive Compensation Plan for Executive Officers (i.e., the
IC Plan) and fixed the pre-tax income target for financial performance
contemplated by such Plan. The Company has issued IC agreements (“IC
Agreements”) under the IC Plan to Messrs. Rossotti, Gross, Brands, Giuntini,
Nicolai, and Forman.

Policy on Deductibility of Compensation

Under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the “Internal Revenue Code”), the allowable deduction for compensation paid or
accrued with respect to persons who as of the end of the year are employed as
the chief executive officer and each of the four most highly compensated
executive officers of a publicly held corporation is limited to no more than
$1,000,000 per year for fiscal years beginning on or after January 1, 1994. This
limitation does not apply to compensation consisting of stock options issuable
under 1992 Plan E or Plan F, nor to compensation payable under certain
performance-based compensation plans approved by shareholders. The Compensation
Committee has taken certain actions to minimize the adverse effects of Section
162(m) on the after-tax income of the Company. In particular, as recommended by
the Compensation Committee, the Incentive Compensation Plan for Executive
Officers was presented to and approved by the shareholders at the 1994 annual
meeting of shareholders of the Company, and all new grants to executive officers
of incentive compensation based on financial performance are, subject to
shareholder approval, being covered by the 1996 Incentive Compensation Plan for
Executive Officers. The Compensation Committee also determined to defer payment
of $70,000 of Mr. Gross’s 1995 incentive compensation award until 1997 to avoid
loss of tax deductions. The IC Plan significantly limits the Compensation
Committee’s discretion regarding the amount of incentive compensation paid to an

14

employee covered by such Plan. Accordingly, not all incentive compensation
payable to executive officers is paid pursuant to the IC Plan. The Compensation
Committee projects that it is unlikely that deductions will be lost as a result
of this practice. The Compensation Committee will continue to monitor whether
compensation which is limited by Section 162(m) is likely to exceed the
deduction limitations under Section 162(m), and the Compensation Committee is
expected to take appropriate actions to reduce the likelihood of a loss of
deductions.

Chief Executive Officer Compensation

The Chief Executive Officer’s annual base salary is established by the
Compensation Committee using the same criteria as discussed above for the
executive officers. Paul Brands, who has served as Chief Executive Officer of
the Company since September 1993, received an annual base salary of $287,000 for
1995, which represented an increase of approximately 9% over his base salary for
1994. The Compensation Committee did not base this increase on any specific
corporate performance factors. Mr. Brands’ annual incentive compensation
payments are determined by the Compensation Committee based entirely on targets
for the Company’s pre-tax income. Mr. Brands met those targets for fiscal years
1994 and 1995, as determined by the Compensation Committee in February 1996,
entitling him to payment of $598,500 in bonus for successful completion of his
multi-year plan. Based on Mr. Brands’ successful completion of his 1994-1995
multi-year plan, the Compensation Committee also determined to grant Mr. Brands
16,200 stock options in February 1996, as contemplated by the incentive
compensation program.

Frederic V. Malek (Chairman)
Daniel J. Altobello
James J. Forese
Dorothy Leonard-Barton
W. Walker Lewis

15

SHAREHOLDER RETURN PERFORMANCE GRAPH

The following graph provides a comparison of the cumulative total return
on the Common Stock with returns on the Standard & Poor’s 500 Composite Index
and the Computer Software Sector Index of the Hambrecht & Quist Technology Stock
Index.

===================================================================================================
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95

– —————————————————————————————————

AMSY Common Stock 100 109 184 164 239 372
– —————————————————————————————————
S&P 500 Composite Index 100 130 140 155 157 215
– —————————————————————————————————
Hambrecht & Quist Technology/Software 100 193 215 230 278 397
===================================================================================================

16

COMMITTEES OF THE BOARD OF DIRECTORS

The Company has a standing Executive Committee, Stock Option/Award
Committee, Compensation Committee, and Audit Committee. The Company does not
have a standing Nominating Committee.

The Executive Committee is presently composed of five directors, all of
whom are executive officers of the Company: Charles O. Rossotti, Patrick W.
Gross, Paul A. Brands, Philip M. Giuntini, and Frank A. Nicolai. The Executive
Committee generally has the power to authorize all corporate actions that the
Board of Directors has the power to authorize, except as may be limited by law.
The Executive Committee did not meet during 1995.

The Stock Option/Award Committee is presently composed of five directors,
all of whom are executive officers of the Company: Charles O. Rossotti, Patrick
W. Gross, Paul A. Brands, Philip M. Giuntini, and Frank A. Nicolai. The Stock
Option/Award Committee administers the Company’s employee stock option plans,
except as noted below. These directors are eligible to receive options under the
plans, but options, if any, awarded to them are granted and administered by the
Compensation Committee. The Stock Option/Award Committee also administers the
Company’s Profit-Sharing Plan, a stock award plan. Directors and executive
officers are not eligible to participate in the Profit-Sharing Plan. The Stock
Option/Award Committee meets as required and met three times during 1995.

The Compensation Committee is presently composed of five Outside
Directors: Daniel J. Altobello, James J. Forese, Dorothy Leonard-Barton, W.
Walker Lewis, and Frederic V. Malek. Mr. Malek is Chairman of the Compensation
Committee. The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to the Company’s
compensation policies generally. The Compensation Committee approves the
compensation plans for the Company’s executive officers, including the Chief
Executive Officer, and on an annual basis determines the compensation to be paid
to the executive officers. The Compensation Committee alone is responsible for
the granting and administration of stock options granted to the executive
officers and to the Controller. In 1995, the Compensation Committee met twice.

The Audit Committee is presently composed of three Outside Directors:
Daniel J. Altobello, James J. Forese, and Dorothy Leonard-Barton. Mr. Forese is
Chairman of the Audit Committee. This Committee has the responsibility for
making recommendations to the Board of Directors as to the independent
accountants of the Company; for reviewing with the independent accountants, upon
completion of their audit, the scope of their examination, any recommendations
they may have for improving internal accounting controls, management systems, or
choice of accounting principles, and other matters; and for reviewing generally
the accounting control procedures of the Company. In 1995, the Audit Committee
met twice. Also, on the recommendation of the Audit Committee, the Board of
Directors has appointed the accounting firm of Price Waterhouse LLP to audit the
accounts of the Company for the fiscal year ending December 31, 1996.

The Board of Directors met five times during 1995, and all members
attended 100% of the meetings of the Board and Committees of the Board on which
they serve, except that one director was unable to attend one meeting of the
Board of Directors. Outside Directors are currently entitled to receive fees of
$5,000 per Board meeting attended, plus travel expenses, and such fees and
expenses were, in fact, paid for all meetings attended during fiscal 1995. This
fee was increased from $3,000 per meeting, effective with the May 18, 1995
meeting of the Board of Directors. In addition, Outside Directors were paid a
retainer of $5,000 per year during fiscal 1995. Under the Company’s Outside
Directors Stock-for-Fees Plan (the “Stock-for-Fees Plan”), which was approved by
shareholders in May 1995, Outside Directors can elect to have the annual meeting
fees and retainer, which would otherwise be paid to the Outside Directors in
cash, paid in the form of Common Stock. In January 1996, W. Walker Lewis
elected, effective six months after such election pursuant to the Stock-for-Fees
Plan, to have his annual meeting fees and retainer paid in the form of Common
Stock.

Outside Directors also receive automatic grants of stock options, which
vest over five years, pursuant to the Company’s stock option plans. The number
of shares subject to grant, and subject to outstanding options, are adjusted
when stock splits occur. The numbers of options reported below in this paragraph
are the numbers of the original grants and do not give effect to the June 1992,
October 1994, or January 1996 stock splits to the extent such splits occurred
after the date of grant. All options granted to Outside Directors vest at the
rate of 1/60th a month for each month the Outside Director continues to serve as
a director. Pursuant to a prior stock option plan, each Outside Director in May
1988 was granted 5,000 options to purchase shares of the Common Stock. James J.
Forese, who became a director in November 1989, was granted 5,000 options on
November 10, 1989.

17

Dorothy Leonard-Barton, who became a director in September 1991, was granted
5,000 options on September 27, 1991. Under the 1992 Stock Option Plan E, each
new Outside Director is automatically granted 5,000 options (such number subject
to adjustments for splits) upon first becoming a director. Pursuant to an
amendment to 1992 Plan E approved by shareholders in May 1993, each Outside
Director is automatically granted an additional 5,000 options (such number
subject to adjustments for splits), vesting over 5 years, when any options
previously granted have fully vested. Pursuant to 1992 Plan E, Daniel J.
Altobello was granted 7,500 options on July 27, 1993 when he first became a
director, and Frederic V. Malek was granted 5,000 options in April 1993 because
his options granted in 1988 had fully vested. The grant to Mr. Malek was made
subject to shareholder approval, which was obtained in May 1993. In addition,
under the 1992 Stock Option Plan E, Mr. Forese was granted 7,500 options (after
giving effect to the October 1994 stock split) in November 1994 because his
options granted in 1988 had fully vested, and W. Walker Lewis was granted 5,000
options on December 1, 1995 when he became a director.

COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION

Frederic V. Malek, James J. Forese, and Dorothy Leonard-Barton served as
members of the Compensation Committee throughout fiscal 1995. Steven R. Fenster
served as a member of the Compensation Committee during 1995 until his death in
June 1995. The Compensation Committee is presently composed of Messrs. Malek and
Forese, Dr. Leonard-Barton, Daniel J. Altobello, and W. Walker Lewis. Mr. Malek
is Chairman of the Compensation Committee.

During 1995, there were no Compensation Committee interlocks, and there
was no insider participation in the executive compensation decisions of the
Company.

CERTAIN TRANSACTIONS

Shaw, Pittman, Potts & Trowbridge, general counsel to the Company, earned
fees and incurred reimbursable expenses totaling approximately $2,579,962 from
AMS in connection with legal services performed for the Company during 1995.
Barbara M. Rossotti, a member of the firm of Shaw, Pittman, Potts & Trowbridge,
is the spouse of Charles O. Rossotti, Chairman of the Board and a director of
the Company.

PROPOSAL TO APPROVE STOCK OPTION PLAN F

Introduction

The Board of Directors adopted on April 3, 1996, subject to the approval
of the Company’s shareholders, the American Management Systems, Incorporated
Stock Option Plan F because it is anticipated that all of the options to
purchase shares of Common Stock available for issuance under the 1992 Stock
Option Plan E will be exhausted in 1996. As of March 22, 1996, 235,575 shares of
Common Stock remained available for issuance pursuant to options granted under
Plan E. Whether or not Plan F is approved by the shareholders at the Annual
Meeting, all options granted or to be granted under Plan E will remain
outstanding in accordance with their terms. The purposes of Stock Option Plan F
are (i) to offer to those employees who contribute materially to the successful
operation of the Company additional incentive and encouragement to remain in the
employ of the Company by increasing their personal participation in the Company
through stock ownership, (ii) to provide an alternative means of compensating
key employees whose performances contribute significantly to the success of the
Company, and (iii) to attract and retain directors who have not at any time been
officers or employees of the Company (i.e., Outside Directors) and to compensate
such Outside Directors for service to the Company. If approved by the
shareholders, the aggregate number of shares reserved for issuance under Plan F
is 3,800,000 shares, subject to possible adjustment for capital changes.

The text of Plan F is set forth in Exhibit A to this Proxy Statement, and
the following description of such Plan is qualified by reference to such text.

18

Summary Description of Plan F

Stock Option Plan F provides that options to purchase Common Stock may be
granted to any key employee (including officers and directors) of the Company
and its subsidiaries who meets minimum salary and other requirements established
by the Board of Directors. “Outside Directors” also are eligible to receive
options under Plan F. Stock Option Plan F defines “Outside Directors” as
directors who have not at any time been officers or employees of the Company.
As of March 22, 1996, 1,315 key employees (i.e., six executive officers, 123
Vice Presidents, 258 Senior Principals, and 923 Principals, including persons in
comparable positions) and five Outside Directors were eligible to participate in
Plan F.

Stock Option Plan F provides that it shall be administered by the Board
of Directors or the Stock Option/Award Committee, except as provided below. The
Stock Option/Award Committee currently performs this function. In accordance
with the provisions of Stock Option Plan F, the Stock Option/Award Committee has
authority to determine the employees to be granted options, whether the options
are nonqualified stock options (“NSOs”) or incentive stock options (“ISOs”), the
times at which options are granted, the exercise prices of the options, the
numbers of shares subject to the options, the vesting schedule of the options or
whether the options are immediately vested, the times when options terminate,
and whether the exercise price will be paid in cash or stock.

A committee composed of two or more Outside Directors, each of whom is
required to be a “disinterested person” within the meaning of Rule 16b-3
promulgated under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the “Act”), has sole authority to grant options to directors, other
than Outside Directors, and to all persons who are “officers” or “ten percent
shareholders” of the Company within the meaning of Sections 16(a) and 16(b) of
the Act, and to perform all other functions with respect to options granted to
those persons, including amendments to Stock Option Plan F or outstanding
options which affect such persons. (This group currently consists of the
Company’s executive officers and Controller.) The Compensation Committee
currently performs these functions.

Options may be granted to key employees either (a) on the basis of awards
earned under the Company’s incentive compensation programs for groups of key
employees, or (b) as the Board of Directors or the appropriate Committee may
determine. If options are granted in connection with the Company’s incentive
compensation programs, then performance bonuses and options based thereon are
earned based on the employee’s success in meeting predetermined performance
standards during one or more years (the “Performance Period”). Such options are
granted, if at all, at the time that the Company determines that the employee
has met or will meet the employee’s predetermined performance standards for the
Performance Period in question.

The award of options to Outside Directors under Stock Option Plan F is
non-discretionary. NSOs for 5,000 shares would be granted automatically to any
new Outside Director on the date of the Outside Director’s first election or
appointment to the Board. Following completion of five years of service as an
Outside Director, each Outside Director would receive an additional grant of
5,000 shares. Dorothy Leonard-Barton will complete five years of service as an
Outside Director on September 27, 1996. One sixtieth of such options vest on the
date of election or appointment of each such Outside Director to the Board, and
1/60th vest on the last day of each month thereafter for as long as the person
continues to serve as a director. Stock Option Plan F provides that options
granted to all directors, officers and ten percent shareholders (as defined for
purposes of Sections 16(a) and 16(b) of the Act) are not exercisable for a
period of at least six months from the date of grant.

Stock Option Plan F authorizes the issuance of options to purchase a
maximum of 3,800,000 shares, subject to adjustment for future capital changes.
Shares subject to options granted under Stock Option Plan F which terminate or
expire unexercised are available for the grant of future options. The number of
shares which may be subject to options granted under Stock Option Plan F in any
single calendar year for awards earned for one-year Performance Periods may not
exceed 200,000 shares, subject to possible adjustment for capital changes. There
is no annual limitation on options granted with respect to awards earned for
Performance Periods of more than one year. However, the maximum number of shares
which may be subject to options granted under Plan F to any “covered employee,”
as defined in Section 162(m) of the Internal Revenue Code, during the life of
such Plan is 100,000 shares, subject to adjustment for future capital changes .

Under Stock Option Plan F, NSOs are exercisable only to the extent they
are vested. For employees, the Board of Directors or the appropriate Committee
selects a vesting schedule over a period of up to five years

19

or provides for vesting upon the attainment of specified performance goals or
other events. Optionees who receive NSOs are entitled to exercise at any time,
or from time to time, all or any portion of a vested NSO; provided, however,
that all NSOs expire no later than five years after the date of grant. The
exercise price of all NSOs granted under Stock Option Plan F, except those
options granted in connection with one-year incentive compensation plans, is the
fair market value of the Common Stock on the date of grant of the option. NSOs
granted in connection with one-year incentive compensation plans may be granted
with exercise prices other than the fair market value of the Common Stock on the
date of grant only if the exercise price is determined by a formula selected by
the Board (or the appropriate Committee) that is based on the fair market value
of the Common Stock, as of a date, or over a period, that is within three months
of the date of grant.

Under Stock Option Plan F, ISOs are exercisable only to the extent they
are vested. ISOs vest over a period of up to seven years. Employees who have
been granted ISOs may exercise at any time, or from time to time, all or any
portion of a vested ISO. ISOs expire up to eight years after the date they are
granted. The exercise price of ISOs is determined by the appropriate Committee
and must be at least equal to the fair market value of the Common Stock on the
date the ISO is granted (except ISOs granted to ten percent shareholders, in
which case the price may not be less than 110% of fair market value).

For purposes of Stock Option Plan F, the fair market value of the Common
Stock is the closing bid price of the Common Stock as quoted in the National
Association of Securities Dealers Automated Quotation System (“NASDAQ”) in the
national market on the date of grant of the option, or, if there is no trade on
such date, on the most recent date upon which the Common Stock was traded. On
March 22, 1996, the closing bid price of the Common Stock was $26.25 per share.

Options granted to employees may be amended to advance the date on which
the option vests. If an option is so amended, the amendment also may provide
that the shares which would not have been vested under the original vesting
schedule shall be subject to repurchase for a period of time by the Company at
the original exercise price upon termination of employment of the employee for
any reason. If the Company is merged, consolidated, sold, liquidated, or
dissolved, Stock Option Plan F also provides for the automatic acceleration of
the vesting of options which would have vested within one year of any such
event.

An option is exercised by giving written notice to the Company,
specifying the full number of shares of Common Stock to be purchased and
tendering payment to the Company of the exercise price. Payment for shares
issued upon the exercise of an option may consist of cash or delivery of a
properly executed exercise notice, together with irrevocable instructions to a
broker to promptly deliver to the Company the number of sales or loan proceeds
required to pay the exercise price. Under Stock Option Plan F, the Board of
Directors or the appropriate Committee also has the authority to permit an
optionee to pay the exercise price for shares using shares of the Common Stock
owned for at least six months, or a combination of cash and such previously-
owned stock.

An option is not transferable during the lifetime of the optionee, other
than by will, by the laws of descent and distribution, or pursuant to a
qualified domestic relations order (“QDRO”). Unless transferred under a QDRO, an
option is exercisable during the optionee’s lifetime only by the optionee. Upon
termination of an employee’s employment with the Company for any reason
whatsoever, all options held by such employee which are not exercisable on the
date of such termination shall expire. To the extent nonqualified stock options
are exercisable on such date, shares subject to nonqualified stock options held
by an employee may be purchased during the “exercise period,” after which the
nonqualified stock options shall expire and all rights granted under the
agreement pursuant to which the options were granted shall become null and void.
The “exercise period” for shares subject to nonqualified stock options held by
an employee, his or her heirs, legatees or legal representatives, as the case
may be, ends on the earlier of (i) the date on which the nonqualified stock
option expires by its terms, or (ii) (A) except in the case of death or
disability, within thirty days, or (B) in the case of death or disability,
within one year after the date of termination of employment. If the Board of
Directors or the appropriate Committee determines that an employee has committed
certain defined acts of misconduct such as embezzlement, fraud, dishonesty,
breach of fiduciary duty or deliberate disregard of the Company’s rules
resulting in loss, damage or injury to the Company, neither the employee nor his
or her estate would be entitled to exercise any option whatsoever.

Upon termination of an Outside Director as a member of the Board of
Directors for any reason other than certain retirement events, death or
disability, all options held by such Outside Director which are not exercisable
on the date of such termination shall expire. In the event of termination by
reason of death or disability, all options then unvested vest automatically, and
all options may be exercised by the Outside Director, his or her heirs,

20

legatees, or legal representatives, as the case may be, at any time until the
date on which the options expire by their original terms. Termination of an
Outside Director’s membership on the Board of Directors by reason of retirement
after completion of at least ten years of continuous service will extend vesting
and exercisability of such Director’s options. Options unvested on the date of
retirement will continue to vest at the rate of 1/60th per month for so long as
such Director survives, and vested options will be exercisable at any time until
the date on which all such options expire by their original terms, five years
from the date of grant.

All ISOs held by an employee will expire unless exercised by the
employee, his or her heirs, legatees or legal representatives, as the case may
be, before the earlier of (1) the date on which the ISO expires by its terms, or
(2)(a) except in the case of death or disability, within thirty days after the
date employment is terminated, or (b) in the case of death or disability, within
one year after the date of termination of employment. In no event will a granted
and outstanding ISO expire more than three months after the date of the
employee’s termination of employment.

The Board of Directors may at any time amend Stock Option Plan F or the
terms of options granted under such Plan, except that no amendment may, without
approval of the shareholders, (i) materially increase the benefits accruing to
the participants under the Plan, (ii) increase the number of shares which may be
issued under the Plan, except for adjustments in certain circumstances, or
(iii) materially modify the requirements as to eligibility for participation
in the Plan. An amendment to an option granted to an Outside Director may not be
made more frequently than every six months unless necessary to comply with the
Internal Revenue Code or the Employee Retirement and Income Security Act of
1974, as amended.

The Plan shall remain in effect until January 1, 2006.

Tax Consequences

Information regarding the federal income tax consequences to the Company
and to optionees of options granted under Stock Option Plan F follows. This
information is not intended to be exhaustive and is only intended to briefly
summarize the federal income tax statutes, regulations and currently available
agency interpretations thereof, and is intended to apply to Stock Option Plan F
as normally operated. It is recommended that optionees consult their own
professional tax advisors for personal and specific advice about options.

An optionee has no tax consequences from the grant of an NSO. Upon
exercise of an NSO, the optionee has compensation income taxable at ordinary
income tax rates on the amount by which the fair market value of the shares
received as of the date of exercise exceeds the exercise price. The Company is
entitled to a deduction equal to the amount of compensation income to the
optionee as long as income taxes are withheld on the optionee’s compensation
income. Upon the sale of Common Stock acquired through the exercise of an NSO,
any difference between the amount realized and the fair market value of the
Common Stock as of the date of exercise will be capital gain or loss.

An employee is not taxed upon the grant of an ISO. Except for the
possible imposition of the alternative minimum tax, an optionee is not taxable
on the exercise of an ISO. Unlike the exercise of an NSO, the Company is not
entitled to a deduction with respect to an ISO unless the optionee engaged in a
disqualifying disposition described below. Upon a sale of shares acquired upon
exercise of an ISO, the employee will recognize capital gain or loss, as the
case may be, equal to the difference between the amount realized on the sale and
the exercise price, provided the sale occurs at least two years after the grant
of the ISO and at least one year after the exercise of the ISO. If these holding
periods are not satisfied, the sale of shares acquired upon exercise of an ISO
is a “disqualifying disposition.” If the sale is a disqualifying disposition,
the excess of the fair market value of the shares on the date the ISO was
exercised over the exercise price is compensation income taxable at ordinary
income tax rates, and any excess of the sale price of the shares over the fair
market value of the shares on the date the ISO was exercised would be capital
gain. The Company would be entitled to a deduction equal to the amount of
compensation income taxable to the optionee. The excess of the fair market value
of the shares at the time of exercise over the exercise price of the ISO
increases the optionee’s alternative minimum taxable income.

21

New Plan Benefits

The number of stock options that would have been granted during the
Company’s 1995 fiscal year to each of the following persons or groups had
Plan F been in effect would not differ from the number which was in fact granted
under 1992 Plan E, as set forth below.

Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Option Term
Name and Position Compounded Annually /(1)/ Number of Units/(2)/
– —————– ——————- —————
5% 10%
——— ———

Charles O. Rossotti……………………………………………… $ 0 $ 0 0
Chairman of the Board of Directors and Director

Patrick W. Gross………………………………………………… 15,236 33,666 4,050
Vice Chairman of the Board of Directors and Director

Paul A. Brands………………………………………………….. 30,472 67,331 8,100
Vice Chairman of the Board of Directors, Chief Executive Officer, and
Director

Philip M. Giuntini………………………………………………. 30,472 67,331 8,100
President and Director

Frank A. Nicolai………………………………………………… 15,236 33,666 4,050
Executive Vice President, Secretary, Treasure, and Director

Fred L. Forman………………………………………………….. 15,236 33,666 4,050
Executive Vice President

All current executive officers as a group………………………….. 106,652 235,660 28,350

All current directors who are not executive officers as a group………. 40,061 88,524 7,500

All employees as a group………………………………………… 2,775,802 6,133,286 730,252

/(1)/ The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option, and that the
option is exercised and the shares are sold on the last day of its term
for the appreciated stock price. Such values do not include consideration
of income tax consequences.

/(2)/ Options which were granted during the Company’s 1995 fiscal year pursuant
to 1992 Plan E.

Vote Required

The affirmative vote of the holders of a majority of the shares of Common
Stock present at the Annual meeting or represented by Proxy and entitled to vote
to approve Plan F is required for approval of such plan. The Board of Directors
has unanimously adopted a resolution approving Plan F and directed that it be
submitted to the shareholders for their consideration. The members of the Board
of Directors and the Company’s executive officers have advised the Company that
they intend to vote all shares in their control in favor of Plan F. In the
event that Plan F is not approved by the shareholders of the Company at the
Annual Meeting, the Board of Directors will reconsider Plan F.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF STOCK OPTION PLAN F

22

PROPOSAL TO APPROVE THE PERFORMANCE-BASED
INCENTIVE COMPENSATION PLAN FOR EXECUTIVE OFFICERS

Introduction
A component of the Company’s compensation scheme for senior staff and
officers, including executive officers, has been the participate in incentive
compensation programs. These programs provide participants who meet their
performance goals with the opportunity to earn significant amounts of additional
compensation. These programs are designed to connect a significant amounts of
additional compensation. These programs are designed to connect a significant
component of the executive officers’ compensation with the Company’s achievement
of its annual financial objectives and to recognize the performance of officers
in fulfilling their responsibilities.
The Compensation Committee believes that the programs are of substantial
benefit to the Company because they link the interests of the officers with
those of the Company’s shareholders. Under the current federal tax laws, the
Company’s deduction for compensation payments made to each executive officer is
limited to $ 1 million, excluding compensatory amounts not required by IRS rules
to be counted in the computation of whether the $1million ceiling has been
reached. Payments under incentive compensation programs that qualify as
“performance-based compensation” under rules issued by IRS, are exempt from the
limitation for compensation deductions for federal income tax purposes. On
February 22, 1996, the Board of Directors terminated the existing incentive
compensation plan for executive officers and adopted the American Management
Systems, Incorporated 1996 Incentive Compensation Plan for Executive Officer
(i.e., the Plan). The IC Plan is intended to provide incentive compensation that
is fully deductible by the Company for federal income tax purposes. No payment
of any amounts under incentive compensation agreements (i.e., IC Agreements)
issued under the IC Plan may be made unless such Plan is approved by the
shareholders at the Annual Meeting. If the IC plan is not approved by the
shareholders, the Compensation Committee may still determine to provide other
incentive compensation to executive officers, and depending on the amount of
compensation received by such officers, the Company may lose federal income tax
deductions for some portion of the compensation paid to such officers.
Furthermore, establishment of the IC Plan is not intended to preclude the
Compensation Committee from providing executive officers with participation in
other incentive compensation programs. Historically, the Compensation Committee
has also awarded stock options under the Company’s stock option plans to
executive officers based on the Company’s attainment of the same performance
goals that are used in IC Plan, and the Compensation Committee expects to
continue that practice. The Compensation Committee has also historically
established incentive compensation programs for executive officers that are
based on the attainment of professional goals that are personal to the various
executives. The attainment of the various goals under these programs is not
always objectively determined and such incentive compensation arrangements are,
therefore, not eligible for coverage by a performance-based compensation plan
that meets IRS requirements. The determination of the amount, if any, payable
to an executive officer under such other incentive compensation plans is made
independently of the executive officer’s entitlement under the IC Plan.
Currently, Patrick W. Gross, Frank A Nicolai, and Fred L. Forman also
participate in incentive compensation programs with personal performance goals.
The following summary describes the material features of the IC Plan. Such
summary is qualified in its entirety by reference to the complete text of the
IC Plan as set forth in Exhibit B to this Proxy Statement.

Summary Description of IC Plan
Eligibility. Only the executive officers of the Company are eligible to
participate in the IC Plan (a “Participant”). The Group of executive officers
currently includes six persons. Participation in the IC Plan is evidenced by
receipt of an IC Agreement. The Compensation Committee selects those eligible
officers who will receive IC Agreements under the IC Plan and, subject to the
terms of such Plan, establishes the terms of the IC Agreement.
Administration. The regularly appointed Compensation Committee serves as
the committee to administer the IC Plan. In all cases, the Compensation
Committee must have at least three members and no member of the Board may serve
on the Compensation Committee unless such person is an “Outside Director” within
the meaning of Section 162(m)(4)(C)(i) of the Internal Revenue Code, and
applicable guidance issued thereunder.

23

Performance Periods. An IC Agreement issued by the Compensation Committee
may cover from one to three fiscal years of the Company (the “IC Performance
Period”). In all cases, the determination of the cumulative amount payable to
a Participant (the “IC Award”) includes a component that is intended to allow
the Compensation Committee to take into account the Company’s expected financial
performance for the fiscal year immediately following the IC Performance Period
specified in an IC Agreement (the “Outlook Year”). The Compensation Committee
may also specify in an IC Agreement that the fiscal years and Outlook Year
receive different weightings in determining the amount payable under the IC
Agreement.

Performance Targets. A Participant’s entitlement to payment of amounts
resulting from participation in the IC Plan is dependent on the Company’s
financial performance relative to annual target amounts for the Company’s
consolidated earnings before income taxes (“Annual profit Targets”) for each
fiscal year during the IC Performance Period and the Outlook Year.

Performance Share. The Compensation Committee specifies in each IC
Agreement a percentage, not more than 200% of base salary, that is the
performance share (the “IC Performance Share”) percentage used in determining
the amount of an IC Award. No IC Agreement which has been granted by the
Compensation Committee has a performance share exceeding 125%. The Compensation
Committee expects that grants with IC Performance Share percentages in excess of
100% will occur only when, in such Committee’s judgement, the increased amount
of compensation that would result is justified by the amount of increase in the
Company’s annual profit that would be achieved.

Performance Factor. The performance factor (the “IC Performance Factor”)
is a multiplicative factor which is used in determining the amount of an IC
Award. The IC Performance Factor applicable to an IC Agreement is a function of
the length of the Participant’s IC Performance Period and the Company’s
“Percentage of Target Achieved,” as shown in the table contained in the
subsection below entitled, “Calculation of Award.”

Calculation of Award. Subject to receipt by a Participant of a
non-refundable Interim IC Award (as defined below), a Participant’s IC Award is
not subject to a minimum or maximum amount and is determined based on the
Participant’s base salary, the Participant’s IC Performance Share, and the
Company’s financial performance relative to the Annual Profit Targets specified
in the Participant’s IC Agreement for the fiscal years in the IC Performance
Period and the Outlook Year. Base salary used for computing IC Awards is equal
to $350,000 for 1996, and for each subsequent year, base salary used for
computing IC Awards is equal to the preceding year’s limit increased by 10%
(i.e., $385,000 for 1997, $423,500 for 1998, etc.). Currently, the actual base
salaries of all executive officers are lower than the plan specified amount, and
the Compensation Committee will use its discretion to compute an IC Award
payable based on the Participant’s actual base salary when lower than the plan
specified amount. The plan specified base salary amount for each year is
intended to comply with IRS rules and provide a maximum IC Award amount that may
be paid at any specified level of annual profit achievement. In no event may a
base salary for any year in excess of the plan specified amount be used in
computing an IC Award. A Participant’s IC Award is determined in accordance
with the following steps:

Step 1 – Multiply the Annual Profit Target for each fiscal year and the
Outlook Year by the weighting given to the Annual Profit target for that
fiscal year or Outlook year.

Step 2 – Multiply the actual pre-tax earnings for each fiscal year other
than the Outlook Year and 110% of targeted pre-tax earnings for the Outlook
Year by the weighting given to the Annual Profit Target for that fiscal
year or Outlook Year. The use of 110% of targeted performance for the
Outlook Year is intended to preclude the payment of an IC Award based on a
projection for an uncompleted fiscal year, which projection exceeds 110% of
targeted financial performance. Furthermore, the Compensation Committee
expects to use its discretion to reduce an IC Award to the amount that
would be payable based on such Committee’s projection of the Company’s pre-
tax earnings for the Outlook Year. The Compensation Committee may not,
however, compute an IC Award based on Outlook Year performance in excess of
110% of targeted performance.

Step 3 – Divide the sum of each of the amounts determined in Step 2 by the
sum of each of the amounts determined in Step 1 to determine the Percentage
of Target Achieved.

Step 4 – Based on the Percentage of Target Achieved, determine a
Participant’s Cumulative IC Performance Factor under the following:

24

Cumulative IC Performance Factors
Based on Length of IC Performace Period
—————————————
For a 1-Year For a 2-Year For a 3-Year
Percentage of Target Achieved IC Agreement IC Agreement IC Agreement
—————————– ———— ———— ————

115% or more/(1)/
110% but less than 115% 1.50 6.00 9.00
105% but less than 110% 1.25 5.00 7.50
100% but less than 105% 1.00 4.00 6.00
95% but less than 100% 0.75 3.00 4.50
90% but less than 95% 0.50 2.00 3.00
85% but less than 90% 0.25 1.00 1.50
less than 85% 0.00 0.00 0.00

/(1)/ If the Percentage of Target Achieved is 115% or more, the applicable
IC Performance Factor is determined by adding an additional 25% of
the IC Performance Factor for 100% of target achievement for each
additional 5% increment by which 100% of target achievement is
exceeded. For example, if the Percentage of Target Achieved is 115%
for an IC Agreement with a IC Performance Period of two years, the
Cumulative IC Performance Factor applicable is 7.00 (i.e., 6.00, plus
25% of 4.00).

Step 5 – Determine the Participants’s IC Award under the following formula:

Salary x IC Performance Share x Cumulative IC Performance Factor = IC Award

Interim Awards on Certain IC Agreements. Unless an IC Agreement provides
otherwise, an IC Agreement that has an IC Performance Period of more than one
year entitles the Participant to receive interim payments (an “Interim IC
Award”) on the last day of February following each year during the IC
Performance Period. Once paid, Interim IC Awards are not refundable to the
Company. The Interim IC Awards are determined in the same manner as described
above, except that financial performance of 110% of targeted performance is used
for all fiscal years for which financial results have not yet been reported.
The Compensation Committee expects to use its discretion to reduce the amount of
an Interim IC Award to the amount that would be payable if its projection of
pretax earnings is used for those years for which earnings results have not been
reported. Similar to the use of 110% of targeted financial performance for the
Outlook Year component of an IC Award calculation described above, use of 110%
of targeted performance for years for which financial results have not been
reported precludes IC Awards based on projections in excess of 110% of targeted
performance, and the Compensation Committee may not compute an Interim IC Award
based on performance in excess of 110% of targeted performance for any fiscal
year for which financial results have not yet been reported. In addition,
“Interim IC Performance Factors” and “Cumulative Interim IC Performance Factors”
set forth in the following schedules apply respectively for determining Interim
IC Awards after the first fiscal year and the second fiscal year, in the case of
an IC Agreement covering three fiscal years:

25

Projected Percentage of Target Interim IC Cumulative Interim IC
Achieved for the IC Performance Period Performance Factor/(1)/ Performance Factor/(2)/
————————————– —————— ——————

115% or more/(3)/
110% but less than 115% 1.50 3.00
105% but less than 110% 1.25 2.50
100% but less than 105% 1.00 2.00
95% but less than 100% 0.75 1.50
90% but less than 95% 0.50 1.00
85% but less than 90% 0.25 0.50
less than 85% 0.00 0.00

/(1)/ This column applies to an Interim IC Award after the first
fiscal year of an IC Agreement with an IC Performance Period of
two or three years.

/(2)/ This column applies to an Interim IC Award after the second
fiscal year of an IC Agreement with an IC Performance Period of
three years.

/(3)/ If the Projected Percentage of Target Achieved is 115% or more,
the IC Performance Factor is determined by adding an additional
25% of the IC Performance Factor for 100% of target achievement
for each additional 5% increment by which 100% of target
achievement is exceeded. For example, if the Projected
Percentage of Target Achieved is 115% after the end of the first
fiscal year of an IC Agreement that includes two fiscal years,
the IC Performance Factor is 1.75 (i.e., 1.50, plus 25% of
1.00).

Payment of Awards. Notwithstanding any provision of the IC Plan or an IC
Agreement, no amount is payable under the IC Plan until the Compensation
Committee has certified both the amount of the Company’s earnings before taxes
that are used in computing the IC Award or Interim IC Award payable and that all
other material terms of the IC Agreement have been met. Not later than the last
day of February following the end of the IC Performance Period, the Company
will pay an amount equal to the IC Award in the case of an IC Agreement that
included only one fiscal year. In the case of other IC Agreements, not later
than the last day of February following the end of the IC Performance Period,
the Company will pay an amount equal to the IC Award reduced by the Interim IC
Awards and up to 16 2/3% of the IC Award which is retained for a deferred
payout. The percentage amount that is retained for a deferred payout is payable
in four equal installments on the last day of each succeeding month.

Acceleration of Payment. An IC Award or portion of an IC Award otherwise
payable by the last day of February may be accelerated by the Compensation
Committee so that such IC Award or portion of an IC Award is paid as early as
the preceding December 1. The Compensation Committee may accelerate payment of
an IC Award only to the extent it certifies the earnings before taxes and other
material terms of the IC Agreement have been met, the IC Award made is
discounted for early payment to the extent required by Section 162(m) of the
Internal Revenue Code and the accelerated payment does not affect IC Awards
under the IC Plan from qualifying as “performance-based compensation” under
Section 162(m)(4) of the Internal Revenue Code.

Adjustment of Award. The Compensation Committee, for reasons in addition
to those previously described, may reserve the right in an IC Agreement to
reduce the Participant’s IC Award to less than the maximum amount. The
Compensation Committee may not increase the maximum award under the IC Plan to
any Participant.

26

Employment Generally Required. Unless a Participant dies or is disabled,
a Participant may not receive an amount payable as a result of receiving an IC
Agreement unless the Participant is employed by the Company on the scheduled
payment date. In the event a Participant terminates from the Company as a
result of death or disability, the Compensation Committee may, in its
discretion, continue to make payments due under an IC Agreement to the
Participant or the Participant’s estate in the event of a Participant’s death.

Amendment or Termination. The Compensation Committee reserves the right to
amend, suspend, or terminate the IC Plan or adopt a new plan at any time,
without approval of the Company’s shareholders; provided that no such amendment
may without the consent of the Participant adversely affect the payment of any
amount to such Participant, and provided further that no amendment shall be
effective until the approval of the Company’s shareholders has been obtained to
the extent that shareholder approval is required for purposes of Section 162(m)
of the Internal Revenue Code.

New Plan Benefits

On February 22, 1996, the Compensation Committee established the terms for
IC Agreements with each of the executive officers of the Company. The IC
Agreements for Paul A. Brands, Philip M. Giuntini, Frank A. Nicolai, and Fred L.
Forman have IC Performance Periods of two years. Charles O. Rossotti and Patrick
W. Gross have IC Agreements with IC Performance Periods of one year for each of
1996 and 1997. Assuming the IC Plan is approved by the shareholders at the
Annual Meeting, the Company achieves financial performance equal to 100% and to
110% of the Annual Profit Targets set forth in their IC Agreements, and the
Compensation Committee exercises its discretion as described above, the
estimated future payments to the executive officers are as follows:

Dollar Value of Estimated Future Payouts/(1)/,/(2)/
—————————————-

IC
IC Performance Factor Average
IC Agreement Performance for 100% of Target Paid in 1997 Paid in 1998 Annual
Name and Position Performance Period Share Profit for 1996 for 1997 Payment
—————– —————— —– —— ——– ——– ——-

Company Achieves 100% of Target Profits
– —————————————

Charles O. Rossotti 1996-97 100% 1.0 $250,000 $250,000 $250,000
Chairman of the Board of
Directors and Director

Patrick W. Gross 1996-97 75% 1.0 219,000 232,500 225,750
Vice Chairman of the Board
of Directors and Director

Paul A. Brands 1996-97 125% 4.0 380,000 1,230,000 805,000
Vice Chairman of the Board
of Directors, Chief
Executive Officer, and
Director

Philip M. Giuntini 1996-97 125% 4.0 380,000 1,230,000 805,000
President and Director

Frank A. Nicolai 1996-97 37.5% 4.0 0 426,000 213,000
Executive Vice President,
Secretary, Treasurer, and
Director

Fred L. Forman 1996-97 37.5 4.0 0 465,000 232,500
Executive Vice President ——- ——— ——–

All executive officers as a group 1,229,000 3,833,500 2,531,250

27

Dollar Value of Estimated Future Payouts/(1),(2)/
—————————————-
IC
IC Performance Factor Average
IC Agreement Performance for 110% of Target Paid in 1997 Paid in 1998 Annual
Name and Position Performance Period Share Profit for 1996 for 1997 Payment
—————– —————— —– —— ——– ——– ——-
Company Achieves 110% of Target Profits/(3)/
– —————————————

Charles O. Rossotti 1996-97 100% 1.5 375,000 375,000 375,000
Chairman of the Board of
Directors and Director

Patrick W. Gross 1996-97 75% 1.0 219,000 232,500 225,750
Vice Chairman of the Board
of Directors and Director

Paul A. Brands 1996-97 125% 6.0 570,000 1,845,000 1,207,500
Vice Chairman of the Board
of Directors, Chief
Executive Officer, and
Director

Philip M. Giuntini 1996-97 125% 6.0 570,000 1,845,000 1,207,500
President and Director

Frank A. Nicolai 1996-97 37.5% 6.0 0 639,000 319,500
Executive Vice President,
Secretary, Treasurer, and
Director

Fred L. Forman 1996-97 37.5% 6.0 0 697,500 348,750
Executive Vice President ——— ——— ———

All executive officers as a group 1,734,000 5,634,000 3,684,000

/(1)/ Amounts are estimates, based on projected 1996 or 1997 base
salary as appropriate, and achievements of the Company’s
financial targets for pre-tax income for fiscal 1996 and 1997.
The Company elected to present projected information in the table
as more meaningful to the shareholders than pro forma data based
on historical financial results. No assurance can be given that
these IC amounts will be earned, as they are based on the
Company’s projections for fiscal 1996 and 1997.

/(2)/ Excludes additional incentive compensation payable to Messrs.
Gross, Nicolai, and Forman, which is based on achievement of
individual non-financial goals and is not payable pursuant to the
IC Plan.

/(3)/ The IC Plan contains no maximum amount. The IC Award increases
for each additional 5% increment by which the Company’s financial
performance exceeds the target.

Vote Required

The affirmative vote of the holders of a majority of the votes cast with
respect to the proposal to approve the IC Plan is required for approval of such
Plan. The Board of Directors has unanimously adopted a resolution approving the
IC Plan and directed that it be submitted to the shareholders for their
consideration. The members of the Board of Directors and the Company’s executive
officers have advised the Company that they intend to vote all shares in their
control in favor of the IC Plan. In the event that the IC Plan is not approved
by the shareholders of the Company at the Annual Meeting, the Board of Directors
will reconsider the such Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE INCENTIVE COMPENSATION PLAN FOR EXECUTIVE OFFICERS

28

OTHER MATTERS

A representative from Price Waterhouse LLP, independent public accountants
to the Company, is expected to be present at the Annual Meeting, will have an
opportunity to make a statement should the representative desire to do so, and
is expected to be available to respond to appropriate questions during such
Meeting.

The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than those stated above. If any other business should come
before the Annual Meeting, including a vote to adjourn such Meeting, the persons
named in the enclosed Proxy will vote thereon at the Meeting, or any adjournment
thereof, as he or they determine to be in the best interests of the Company.

To be included in the Proxy Statement and form of Proxy for the 1997 annual
meeting, shareholder proposals intended to be presented at that meeting must be
received by the Company no later that December 13, 1996.

ANNUAL REPORT

A copy of the 1995 Annual Report of the Company (which includes condensed
financial data and a letter to stockholders) accompanies this Proxy Statement.
Appendix 1 to this Proxy Statement, titled “1995 Financial Report,” contains all
of the financial information (including the Company’s audited financial
statements), and certain general information, previously published in the
Company’s Annual Report. Appendix 1 is incorporated herein by reference. A
copy of the Company’s Annual Report on Form 10-K may be obtained without charge
by writing to Frank A. Nicolai, Secretary, American Management Systems,
Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.

BY ORDER OF THE BOARD OF DIRECTORS,

Frank A. Nicolai
Secretary
April 11, 1996
Fairfax, Virginia

SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REMINDED TO DATE,
SIGN, AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED.

29

EXHIBIT A

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
STOCK OPTION PLAN F

I. Purposes

There are three purposes of Stock Option Plan F (the “Plan”). The first
is to offer to those employees who contribute materially to the successful
operation of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the “Corporation”)
additional incentive and encouragement to remain in the employ of the
Corporation by increasing their personal participation in the Corporation
through stock ownership. The second purpose is to provide an alternative means
of compensating key employees whose performances contribute significantly to the
success of the Corporation. The third is to attract and retain directors who
have not at any time been officers or employees of the Corporation (“Outside
Directors”) and to compensate such Outside Directors for service to the
Corporation. The Plan provides a means whereby optionees may purchase shares of
the $0.01 par value common stock of the Corporation (the “Common Stock”)
pursuant to options. The options may be either one of two types, (1) “incentive
stock options” which will qualify as such under Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”), or under any applicable successor
statute, or (2) “nonqualified stock options,” that is, options which are not
intended to qualify as incentive stock options under Section 422 of the Code.

II. Administration

Except as otherwise provided in this Section 2, the Plan shall be
implemented and administered by the Board of Directors of the Corporation (the
“Board”) or a Stock Option/Award Committee (the “Committee”) appointed by the
Board and composed of three or more directors of the Corporation.

The Committee may be delegated the authority and discretion to adopt and
revise such rules and regulations as it shall deem necessary for the
administration of the Plan, and to determine, consistent with the provisions of
the Plan, the employees to be granted options, whether such options shall be
nonqualified stock options or incentive stock options, the times at which
options shall be granted, the option price of the shares subject to each option
(subject to Paragraph D of Section 6), the number of shares subject to each
option, the vesting schedule of options or whether the options shall be
immediately vested, the times when options shall terminate, and whether the
exercise price of options shall be paid in cash or stock. Acts of a majority of
the members of the Committee at a meeting at which a quorum is present, or acts
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. The Committee’s actions, including any
interpretation or construction of any provisions of the Plan or any option
granted hereunder, shall be final, conclusive and binding unless otherwise
determined by the Board at its next regularly scheduled meeting. No member of
the Board or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any option granted under it.

Notwithstanding any other provision of this Section or the Plan or any
documentation governing incentive compensation plans pursuant to which officers
may elect to receive options under this Plan, a committee composed of at least
two Outside Directors, each of whom is a “disinterested person” within the
meaning of Rule 16b-3(c)(2)(i) of the Securities and Exchange Commission, shall
have the sole authority (a) to make awards to directors of the Corporation who
are not Outside Directors and to all persons who are “officers” of the
Corporation or “beneficial owners” of more than 10% of any class of equity
security of the Corporation, as defined for purposes of Sections 16(a) and 16(b)
of the Securities Exchange Act of 1934, as amended (the “Act”), and (b) to
perform all other functions of the Board or Committee with respect to
outstanding awards to any of such directors, officers, or 10% shareholders,
including without limitation amendments to this Plan or such outstanding awards
which affect such persons. Further, notwithstanding any other provision of this
Section or the Plan, all awards made to Outside Directors shall be automatic and
nondiscretionary as set forth in the Plan.

A-1

III. Eligibility; Participation; Special Limitations

All key employees (including officers and directors) of the Corporation, or
any corporation in which the Corporation owns stock possessing more than 50% of
the voting power (a “Subsidiary”), who meet minimum salary and other
requirements established by the Board, shall be eligible to receive options
under the Plan. All Outside Directors also shall be eligible to receive options
under the Plan. An employee who has been granted an option may be granted an
additional option or options or rights under the Plan if the Committee or the
Board shall so determine. The granting of an option under the Plan shall not
affect any outstanding stock option previously granted to an employee under the
Plan or any other plan of the Corporation.

Nothing contained in the Plan, or in any option granted pursuant to the
Plan, shall (i) confer upon any employee the right to continued employment, or
shall interfere in any way with the right of the Corporation or a Subsidiary to
terminate the employment of such employee at any time or (ii) confer upon any
Outside Director the right to continued membership on the Board, or shall
interfere in any way with the right of the Corporation to terminate the
membership on the Board of such Outside Director.

In no event, however, shall an incentive stock option be granted to any
person who then owns (as that term is defined in Section 424 of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Corporation or of any of its Subsidiaries, unless the exercise
price as determined under Paragraph D of Section 6 hereof is equal to at least
110% of the fair market value of the stock subject to the incentive stock option
as of the date of grant and unless the term during which such incentive stock
option may be exercised does not exceed five years from the date of the grant
thereof. Options will not be treated as incentive stock options to the extent
that the aggregate fair market value (determined as of the date the option is
granted) of the Common Stock with respect to which options are exercisable for
the first time by an employee during any calendar year (under all incentive
stock option plans of the Corporation and its Subsidiaries) exceeds $100,000.

IV. Basis of Grant

Options shall be granted to employees either (a) on the basis of awards
earned under the Corporation’s incentive compensation programs for groups of key
employees, as in effect from time to time, or (b) as the Board or the Committee
may determine from time to time. If options are granted based on (a) hereof,
then performance bonuses and options based thereon shall be earned based on the
employee’s success in meeting predetermined performance standards during one or
more years (the “Performance Period”). Options shall be granted under (a)
hereof, if at all, at the time that the Corporation determines in its judgment
that the employee has met or will meet the employee’s predetermined performance
standards for the Performance Period.

Each Outside Director automatically shall be granted non-qualified stock
options to purchase 5,000 shares on the date of the Outside Director’s first
election or appointment to the Board, subject to vesting as provided in
Paragraph B of Section 6 hereof. Each Outside Director automatically shall be
granted non-qualified stock options to purchase an additional 5,000 shares (the
“Additional Options”) on the day after all stock options previously granted
under this paragraph become 100% vested (other than vesting by reason of death
or disability). All such subsequent grants of stock options shall vest, as to
one-sixtieth, on the date of grant and shall thereafter be subject to vesting as
provided in Paragraph B of Section 6 hereof.

V. Number of Shares and Options

A. Shares of Stock Subject to the Plan. The number of shares authorized to
———————————–
be issued pursuant to options granted under the Plan is 3,800,000 shares,
subject to adjustment in accordance with the provisions of Paragraph G of
Section 6 hereof. Shares subject to options granted under the Plan may be
authorized and unissued shares or shares previously acquired or to be acquired
by the Corporation and held in treasury. Any shares subject to an option which
expires for any reason or is terminated unexercised as to such shares may again
be subject to an option granted under the Plan.

B. Maximum Number of Options. The number of shares which may be subject to
————————-
options granted under the Plan in any single calendar year for awards earned for
one-year Performance Periods shall not exceed

A-2

200,000 shares, subject to adjustment in accordance with Paragraph G of Section
6 hereof. There shall be no annual limitation on options granted with respect to
awards earned for Performance Periods of more than one year. Notwithstanding the
foregoing, the maximum number of shares which may be subject to options granted
under the Plan to any “covered employee” of the Corporation for purposes of
Section 162(m) of the Code during the life of the Plan shall be 100,000 shares
subject to adjustment in accordance with Paragraph G of Section 6 hereof.

VI. Terms and Conditions of Options

A. Option Agreement. Each option granted pursuant to the Plan shall be
—————-
evidenced by an agreement (“Option Agreement”) between the Corporation and the
optionee receiving the option. Option Agreements (which need not be identical)
shall state whether the option is an incentive stock option or a nonqualified
stock option, shall designate the number of shares and the exercise price of the
options to which they pertain, shall set forth the vesting provisions of the
options or state that the options are vested immediately. The Option Agreements
shall be in writing, dated as of the date the option is granted, and shall be
executed on behalf of the Corporation by such officers as the Board or the
Committee shall authorize. Option Agreements generally shall be in such form and
contain such additional provisions as the Board or the Committee, as the case
may be, shall prescribe, but in no event shall they contain provisions
inconsistent with the provisions of the Plan.

B. Exercise of Options. Options are exercisable only to the extent they are
——————-
vested. Options granted to employees shall vest either immediately or pursuant
to provisions determined by the Board or the Committee at the same time the
option is granted, except that the maximum vesting period for nonqualified stock
options shall be five (5) years and the maximum vesting period for incentive
stock options shall be seven (7) years. The Option Agreement shall either state
that the options are fully vested upon grant and immediately exercisable in full
or shall set forth the vesting provisions determined by the Board or the
Committee.

One-sixtieth of options granted to each Outside Director shall vest on the
first date of election or appointment of each such Outside Director and an
additional one-sixtieth shall vest on the last day of each month, so long as
such Outside Director remains a member of the Board and, if such Outside
Director resigns as an Outside Director after completion of ten (10) or more
years of continuous service as an Outside Director, so long as such individual
survives, until such option is vested in full. Upon termination of an Outside
Director as a member of the Board by reason of death or disability, all options
held by such Outside Director shall vest fully as of the date of termination.

Optionees may exercise at any time or from time to time all or any portion
of a vested option; provided, however, that options granted to any director or
“officer” of the Corporation or “beneficial owner” of more than 10% of any class
of equity security of the Corporation, as defined for purposes of Sections 16(a)
and 16(b) of the Act shall not be exercisable for a period of at least six
months from the date of grant.

C. Repurchase Amendment. Options granted to employees may be amended to
——————–
advance the date on which the option shall vest. If an option is so amended, the
amendment also may provide that the shares which would not have been vested
under the vesting schedule set forth in the Option Agreement shall be subject to
repurchase by the Corporation for a specified period of time at the original
exercise price if the employment of the optionee is terminated for any reason
prior to expiration of the repurchase period. The amendment shall be evidenced
by a written agreement (the “Repurchase Amendment”) between the Corporation and
the optionee, shall be executed on behalf of the Corporation by such officers as
the Board or the Committee shall authorize, and shall be in such form and
contain such provisions as the Board or the Committee, as the case may be, shall
prescribe.

D. Exercise Price
————–

1. Incentive Stock Options. The price at which incentive stock options
———————–
granted pursuant to the Plan may be exercised shall be determined by the Board
or the Committee, which price shall be at least equal to the fair market value
of the underlying Common Stock at the date that the options are granted. In the
case of incentive stock options granted to a person who owns, immediately after
the grant of such incentive stock option, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation or of any
of

A-3

its Subsidiaries (as more fully set forth in Section 3 hereof), the purchase
price of the Common Stock covered by such incentive stock option shall not be
less than 110% of the fair market value of such stock on the date of grant.

2. Nonqualified Stock Options. The price at which all nonqualified stock
————————–
options granted pursuant to the Plan may be exercised, except those options
granted on the basis of awards earned for one-year Performance Periods under the
Corporation’s incentive compensation programs, shall be the fair market value of
the Common Stock on the date of grant. The exercise price of nonqualified stock
options granted on the basis of awards earned for one-year Performance Periods
under the Corporation’s incentive compensation programs may be other than the
fair market value of the Common Stock on the date of grant only if the exercise
price is determined by a formula which is based on the fair market value of the
Common Stock, as of a date, or for a period, that is within three months of the
date of grant and which is selected by the Board or Committee, in its sole
discretion, and determined by the Board or Committee, in its sole discretion, to
be in the best interests of the Corporation and consistent with the intent of
the incentive compensation program. The exercise price as determined under any
such formula may be below fair market value of the Common Stock on the date of
grant. Notwithstanding the foregoing, the exercise price of any option granted
to a “covered employee” for purposes of Section 162(m) of the Code shall be the
fair market value of the Common Stock on the date of grant.

3. Fair Market Value. For purposes of the Plan the term “fair market value”
—————–
shall be defined as the closing bid price of the Common Stock quoted over the
National Association of Securities Dealers Automated Quotation System (“NASDAQ”)
in the national market on the date of grant of the option or if there is no
trade on such date, the closing bid price on the last preceding date upon which
such Common Stock was traded. In the event that the Common Stock is not traded
over NASDAQ, the term fair market value shall be defined as the closing bid
price of the Common Stock published in the National Daily Stock Quotation
Summary on the date of grant of the option, of if there are no quotations
published on such date, on the most recent date upon which such Common Stock was
quoted. In the event that the Common Stock is listed upon an established stock
exchange or exchanges, such fair market value shall be deemed to be the highest
closing price of the Common Stock on such stock exchange or exchanges on the
date the option is granted, or if no sale of the Common Stock shall have been
made on any exchange on that date, then the next preceding day on which there
was a sale of such stock.

4. Payment. Payment of the exercise price may be (i) in cash, (ii) by
——-
delivery to the Corporation of (x) irrevocable instructions to deliver to a
broker the stock certificates representing the shares for which the option is
being exercised, and (y) irrevocable instructions to the broker to sell such
shares and promptly deliver to the Corporation the portion of the proceeds equal
to the exercise price, or in the sole discretion of the Board or Committee,
(iii) by exchange of Common Stock of the Corporation, or, (iv) partly in cash
and partly by exchange of such Common Stock, provided that for purposes of (iii)
and (iv) the value of such Common Stock shall be the fair market value on the
date of exercise, and further provided that such Common Stock shall have been
held by the optionee for a period of at least six (6) months prior to the date
of exercise.

The Board or the Committee may permit deferred payment of all or any part of
the purchase price of the shares purchased pursuant to the Plan, provided the
par value of the shares must be paid in cash.

E. Suspension or Termination of Options. Subject to earlier termination as
————————————
provided below, (i) all nonqualified stock options shall expire, and all rights
granted under nonqualified stock Option Agreements shall become null and void on
the date specified in the Option Agreement, which date shall be no later than
five (5) years after the nonqualified stock options are granted and (ii) all
incentive stock options shall expire, and all rights granted under incentive
stock Option Agreements shall become null and void on the date specified in the
Option Agreement, which date shall be no later than eight (8) years after the
date the incentive stock options are granted.

Upon termination of an employee’s employment with the Corporation or a
Subsidiary for any reason whatsoever, or upon termination of an Outside Director
as a member of the Board for any reason other than resignation as an Outside
Director following completion of ten (10) or more years of continuous service as
an Outside Director, death or disability, all options held by such employee or
Outside Director which are not exercisable on the date of such termination shall
expire. To the extent nonqualified stock options are exercisable on such date,
shares subject to nonqualified stock options held by an employee may be
purchased during the “exercise period,” after which the nonqualified stock
options shall expire and all rights granted under the Option Agreement shall
become null and

A-4

void. The “exercise period” for shares subject to nonqualified stock options
held by an employee, his or her heirs, legatees or legal representatives, as the
case may be, ends on the earlier of (i) the date on which the nonqualified stock
option expires by its terms, or (ii) (A), except in the case of death or
disability, within thirty (30) days, or (B) in the case of death or disability,
within one (1) year after the date of termination of employment. Upon
termination of an Outside Director as a member of the Board for the reason of
resignation as an Outside Director following completion of at least ten (10)
years of continuous service as an Outside Director, death or disability, shares
subject to nonqualified stock options may be purchased by the Outside Director,
his or her heirs, legatees, or legal representatives, as the case may be, at any
time until the date on which the nonqualified stock option expires by its terms.

To the extent incentive stock options are exercisable on the date of
termination, shares subject to incentive stock options may be purchased by the
employee, his or her heirs, legatees or legal representatives, as the case may
be, on the earlier of (i) the date on which the incentive stock option expires
by its terms or (ii) (A) except in the case of death or disability, within
thirty (30) days, or (B) in the case of death or disability, within one (1) year
after the date of termination of employment, after which the incentive stock
options shall expire and all rights under the Option Agreements shall become
null and void.

The disability of an optionee shall be determined in the sole discretion of
the Board whose determination of such disability shall be absolute, final and
conclusive.

If the Director of Human Resources of the Corporation or his or her
designee reasonably believes an optionee other than an Outside Director has
committed an act of misconduct as described in this paragraph, the Director of
Human Resources may suspend the Participant’s rights to exercise any option
pending a determination by the Board. If the Board determines an optionee other
than an Outside Director has committed an act of embezzlement, fraud,
dishonesty, nonpayment of any obligation owed to the Corporation, breach of
fiduciary duty or deliberate disregard of Corporation rules resulting in loss,
damage or injury to the Corporation, or if an optionee makes an unauthorized
disclosure of any trade secret or confidential information, engages in any
conduct constituting unfair competition, induces any customer to breach a
contract with an optionee or induces any principal for whom the Corporation acts
as agent to terminate such agency relationship, neither the optionee nor his or
her estate shall be entitled to exercise any option whatsoever. In making such
determination, the Board shall act fairly and shall give the optionee an
opportunity to appear and present evidence on his or her behalf at a hearing
before a committee of the Board. For any optionee who is an “officer” for
purposes of Section 16 of the Act, the determination shall be made by the
Committee.

F. Non-Transferability of Options. Options pursuant to the Plan are not
——————————
transferable by the optionee otherwise than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined by
the Code, Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder. Except as permitted by the preceding
sentence, no option nor any right granted under an Option Agreement shall be
transferred, assigned, pledged, hypothecated or disposed of in any other way
(whether by operation of law or otherwise), or be subject to execution,
attachment or similar process, and each option shall be exercisable during the
optionee’s lifetime only by the optionee. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of such options or of such other rights
contrary to the provisions hereof, or to subject such options or such other
rights to execution, attachment or similar process, such options and such other
rights shall immediately terminate and become null and void.

G. Adjustment Provisions. Except as otherwise provided in this Paragraph G,
———————
in the event of changes in the Common Stock by reason of any stock split,
combination of shares, stock dividend, reclassification, merger, consolidation,
reorganization, recapitalization or similar adjustment, or by reason of the
dissolution or liquidation of the Corporation, appropriate adjustments may be
made in (i) the aggregate number of or class of shares available under the Plan,
and (ii) the number, class and exercise price of shares remaining subject to all
outstanding options. Whether any adjustment or modification is to be made as a
result of the occurrence of any of the events specified in this section, and the
extent thereof, shall be determined by the Board, whose determination shall be
binding and conclusive. Notwithstanding the previous sentence, in the event of a
stock split, stock dividend or other event that is functionally equivalent to a
stock split or stock dividend, (i) the number of shares subject to then-
outstanding options will be adjusted so that upon exercise of the option, the
holder of each option will be entitled to receive the

A-5

number of shares or other securities which the holder would have been entitled
to receive after the event had the option been exercised immediately before the
earlier of the date of the consummation of the event or the record date of the
event (the “event date”), (ii) the price of each share subject to then-
outstanding options will be adjusted proportionately so that the aggregate
purchase price for all then-outstanding options will be the same immediately
after the event date as before the event date, (iii) an appropriate and
proportionate adjustment will be made as of the event date in the maximum number
of shares that may be issued pursuant to options granted under the Plan, (iv)
any adjustment with respect to then-outstanding incentive stock options will be
made in a transaction that does not constitute a modification under Section
424(h)(3) of the Code, and (v) any option to purchase fractional shares
resulting from an adjustment will be eliminated. Existence of the Plan or of
Option Agreements pursuant to the Plan shall in no way impair the right of the
Corporation or its stockholders to make or effect any adjustments,
recapitalizations, reorganizations or other changes in the Corporation’s capital
structure or its business, or any merger, consolidation, dissolution or
liquidation of the Corporation, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock of the
Corporation, or any grant of options on its stock not pursuant to the Plan.

VII. Rights as a Shareholder

Optionees shall not have any of the rights and privileges of shareholders
of the Corporation in respect of any of the shares subject to any option granted
pursuant to the Plan unless and until a certificate, if any, representing such
shares shall have been issued and delivered.

VIII. Withholding

To the extent required by applicable federal, state, local or foreign law,
an optionee shall make arrangements satisfactory to the Corporation for the
satisfaction of any withholding tax obligations that arise by reason of an
option exercise or the disposition of shares acquired upon exercise of an
incentive stock option. The Corporation shall not be required to issue shares
until such obligations are satisfied. The Committee may permit these
obligations to be satisfied by having the Corporation withhold a portion of the
shares of Common Stock that otherwise would be issued upon exercise of the
option, or to the extent permitted, by permitting the optionee to tender shares
owned by the optionee.

IX. Receipt of Prospectus

Upon the execution of an Option Agreement, each optionee receiving options
pursuant to the Plan shall be given a Prospectus, as filed by the Corporation
under the Securities Act of 1933, including any exhibits thereto, describing the
Plan. Each Option Agreement shall contain an acknowledgment by the optionee
that the requirements of this section have been met.

X. Successors

The provisions of the Plan shall be binding upon, and inure to the benefit
of, all successors of any optionee, including, without limitation, his or her
estate and the executors, administrators or trustees thereof, his or her heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such optionee.

XI. Termination and Amendment of the Plan

Subject to obtaining shareholder approval of this Stock Option Plan F at
the annual meeting of the shareholders on May 10, 1996, the Plan shall remain in
effect until January 1, 2006, unless sooner terminated as hereinafter provided.
The Board shall have complete power and authority at any time to terminate the
Plan or to make such modification or amendment thereof as it deems advisable and
may from time to time suspend, discontinue or abandon the Plan, provided that no
such action by the Board shall adversely affect any right or obligation with
respect to any grant theretofore made, and, further provided that without
approval by vote of the shareholders, the Board shall not adopt any amendment
that would (i) materially increase the benefits accruing to participants under
the Plan, (ii) increase the number of shares which may be issued under the Plan
(except as

A-6

provided in Paragraph G of Section 6 hereof), or (iii) materially modify the
requirements as to eligibility for participation in the Plan.

An amendment revising the exercise price, date of exercisability, vesting
provisions or number of shares subject to an nonqualified stock option granted
to an Outside Director shall not be made more frequently than every six months
unless necessary to comply with the Code or with the Employee Retirement Income
Security Act of 1974, as amended.

XII. Indemnification of Committee

In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys’ fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan, Option Agreements or any
option granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is liable
for negligence or misconduct in the performance of his or her duties; provided
that within sixty (60) days after institution of any such action, suit or
proceeding a Committee member shall in writing offer the Corporation the
opportunity, at its own expense, to defend the same.

XIII. Merger of the Corporation

Unless the options issued pursuant to this Plan are assumed in a
transaction to which Section 424(a) of the Code applies, if the Corporation
shall (i) merge or consolidate with another corporation under circumstances
where the Corporation is not the surviving corporation, (ii) sell all, or
substantially all of its assets, or (iii) liquidate or dissolve, then each
option shall terminate on the date and immediately prior to the time such
merger, consolidation, sale, liquidation or dissolution become effective or is
consummated, provided that the holder of the option shall have the right
immediately prior to the effectiveness or consummation of such merger,
consolidation, sale, liquidation or dissolution, to exercise any or all of the
vested portion of the option, unless such option has otherwise expired or been
terminated pursuant to its terms or the terms hereof. In the event of such
merger, consolidation, sale, liquidation or dissolution, any portion of an
outstanding option which would have vested within one year after the date on
which such merger, consolidation, sale, liquidation or dissolution becomes
effective or is consummated shall vest immediately prior to the effectiveness or
consummation of such merger, consolidation, sale, liquidation or dissolution and
shall be part of the vested portion of the option which the holder of the option
may exercise.

XIV. Approval of Plan; Effective Date

The plan was adopted by the Board on April 3, 1996, subject to and
effective upon shareholder approval of the plan at the annual meeting of
shareholders on May 10, 1996, or such other date on which the 1996 annual
meeting of shareholders is held.

A-7

EXHIBIT B

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
1996 INCENTIVE COMPENSATION PLAN
FOR
EXECUTIVE OFFICERS

This American Management Systems, Incorporated 1996 Incentive Compensation
Plan for Executive Officers (the “Plan”) is adopted by AMERICAN MANAGEMENT
SYSTEMS, INCORPORATED (the “Corporation”) in order to attract, motivate and
retain eligible officers. The Plan is intended to promote the interests of the
Corporation and its shareholders by providing eligible officers with the
opportunity to earn incentive compensation that is linked to the financial
performance of the Corporation.

Incentive compensation provided under the Plan is intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended, and the Plan shall be interpreted consistently with such
intent. Existence of this Plan is not intended to preclude the Corporation from
providing additional incentive compensation to eligible officers or incentive
compensation under other plans, agreements or arrangements to an officer,
whether such officer is eligible to participate in the Plan or actually
participates in the Plan.

I. Definitions

A. “Annual Profit Targets” mean the specified levels of pre-tax profits of
the Corporation that are set forth in an IC Agreement and are used to determine
whether the Participant will receive an Award and the amount of the Award under
the Plan.

B. “Award” means the amount of money payable to a Participant who has
received an IC Agreement.

C. “Board” means the Board of Directors of the Corporation.

D. “Code” means the Internal Revenue Code of 1986, as amended.

E. “Committee” means the committee appointed pursuant to Article II to
administer the Plan.

F. “Corporation” means American Management Systems, Incorporated.

G. “Fiscal Year” means the fiscal year of the Corporation.

H. “IC Agreement” means the incentive compensation agreement evidencing
the terms of a Participant’s participation in the Plan.

I. “Interim Award” means with respect to an IC Agreement with a
Performance Period of more than one Fiscal Year, the interim payments made
pursuant to Article V prior to the end of the Performance Period.

J. “Outlook Year” means with respect to an IC Agreement, the Fiscal Year
immediately following the last Fiscal Year included in the Performance Period
for the IC Agreement.

K. “Participant” means an eligible executive officer of the Corporation
that has received an IC Agreement under the Plan.

B-1

L. “Percentage of Target Achieved” or “Target Achievement” means the
percentage determined in Step 4 of Article IV, Paragraph C, that reflects the
degree to which all of the Annual Profit Targets applicable to an IC Agreement
have been achieved or exceeded.

M. “Performance Factor” or “Cumulative Performance Factor” means the
multiplicative factor that is used in determining the amount of an Award or
Interim Award, that is based on the Performance Period for an IC Agreement and
the Percentage of Target Achievement, and that is determined under Article IV,
Paragraph C, Step 4 or Article V.

N. “Performance Goal” means one or more preestablished, objective
performance goals stated in a Participant’s IC Agreement.

O. “Performance Period” means the fiscal years of the Corporation that are
included in an IC Agreement, exclusive of the Outlook Year, for purposes of
determining attainment of the Performance Goals, all as provided in Article IV,
Paragraph A of the Plan.

P. “Performance Share” means with respect to an IC Agreement, a percentage
not in excess of 200% that is specified in a Participant’s IC Agreement and that
is used in computing the Award with respect to the IC Agreement.

Q. “Plan” means this Incentive Compensation Plan for Executive Officers.

R. “Salary” means with respect to an IC Agreement, $350,000.00 for 1996,
and for each subsequent year Salary shall equal the preceding year’s limit
increased by 10%; provided however, that the Committee may use its discretion to
reduce the amount of an Award to no more than the amount that would be payable
based on the Participant’s annual base salary for the last Fiscal Year in the
Performance Period, or the only Fiscal Year in the case of an IC Agreement with
a Performance Period of one year.

II. Administration

The regularly appointed compensation committee of the Board shall serve as
the Committee that administers the Plan unless the Board shall appoint another
compensation committee of members of the Board to administer the Plan. In all
cases, the Committee shall have at least three (3) members and no member of the
Board may serve on the Committee unless such person is an “outside director”
within the meaning of Section 162(m)(4)(C)(i) of the Code, and applicable
guidance issued thereunder.

The Committee shall have the full power and authority, subject to
provisions of the Plan, to select executive officers to receive IC Agreements,
determine the terms of IC Agreements, promulgate rules and regulations as it
deems appropriate for the proper administration of the Plan, interpret the terms
of the Plan, certify whether the Performance Goals and the material terms of an
IC Agreement are met prior to payment of any amount under the Plan, and to
otherwise take any and all action as it deems to be necessary or appropriate in
connection with the operation of the Plan. Decisions and selections of the
Committee shall be made by a majority of its members, and if made pursuant to
the terms of the Plan shall be final.

Action of the Committee may be evidenced by approved minutes of a meeting
of the Committee, or a document executed by any member of the Committee or an
officer of the Corporation authorized by the Committee to execute documents on
the Committee’s behalf.

III. Participation

A. Eligibility. Only those officers of the Corporation classified as
———–
executive officers of the Corporation shall be eligible to participate in the
Plan and receive an IC Agreement under the Plan.

B. Designation of Participants. The Committee shall select those eligible
—————————
officers who shall receive an IC Agreement under the Plan. The IC Agreement
shall be in writing, shall specify the Performance Period to

B-2

which the IC Agreement relates, and shall include a description of the
Performance Share, Annual Profit Targets, and any other material terms of the IC
Agreement.

IV. Incentive Compensation Agreement

A. Performance Periods. IC Agreements under the Plan shall be for
——————-
Performance Periods of at least one Fiscal Year and for no more than three (3)
consecutive Fiscal Years. The Committee shall specify the Performance Period
applicable to each IC Agreement, and the special weighting to be given to
performance for each Fiscal Year in the Performance Period and the Outlook Year.
An IC Agreement for a Performance Period must be established not later than
ninety (90) days after the beginning of the first day of the first Fiscal Year
in the Performance Period covered by the IC Agreement.

A Participant may receive multiple IC Agreements, provided that IC
Agreements that are outstanding at the same time may not have Performance
Periods that cover the same Fiscal Years. The inclusion of the Outlook Year in
determining an Award shall not be treated as part of a Performance Period.
Furthermore, if an IC Agreement is terminated prior to the end of the
Performance Period, the Participant may receive a new IC Agreement that includes
Fiscal Years covered by the original IC Agreement, provided that the Participant
receives no Award for such Fiscal Years.

B. Performance Goals. The right to receive an Award and amount of an Award
—————–
is conditioned on the Corporation’s performance relative to Annual Profit
Targets established with respect to pre-tax earnings of the Corporation for the
Fiscal Years in the Performance Period and the Outlook Year. Pre-tax earnings
means earnings before income taxes as reported or to be reported on the
Corporation’s consolidated financial statements, or in the case of an Outlook
Year, the earnings before income taxes that are projected to be reported by the
Corporation.

C. Calculation of Award. The Award to a Participant is determined based on
——————–
Participant’s Salary, the Participant’s Performance Share, and the Performance
Factor resulting from the Corporation’s attainment of the Annual Profit Targets
specified in the Participant’s IC Agreement for the Fiscal Years in the
Performance Period and the Outlook Year. A Participant’s Award for the entire
period covered by an IC Agreement is determined in accordance with the following
steps:

Step 1 – Multiply the Annual Profit Target for each Fiscal Year in the
——
Performance Period and the Outlook Year by the weighting given to the Annual
Profit Target for that Fiscal Year or Outlook Year.

Step 2 – Multiply the actual pre-tax earnings for each Fiscal Year in the
——
Performance Period and 110% of the Annual Profit Target for the Outlook Year by
the weighting given to the Annual Profit Target for that Fiscal Year or Outlook
Year.

Step 3 – Divide the sum of each of the amounts determined in Step 2 by the
——
sum of each of the amounts determined in Step 1 to determine the Percentage of
Target Achieved.

Step 4 – Based on the Percentage of Target Achieved, determine a
——
Participant’s Cumulative Performance Factor under the following table:

B-3

Cumulative Performance Factor
Based on
Length of Performance Period
————————————————–
For a For a For a
Percentage of Target 1-Year 2-Year 3-Year
Achieved IC Agreement IC Agreement IC Agreement
– —————————- —————- —————- ————–

115% or more* (see below)

110% but less than 115% 1.50 6.00 9.00

105% but less than 110% 1.25 5.00 7.50

100% but less than 105% 1.00 4.00 6.00

95% but less than 100% 0.75 3.00 4.50

90% but less than 95% 0.50 2.00 3.00

85% but less than 90% 0.25 1.00 1.50

less than 85% 0.00 0.00 0.00

* If the Percentage of Target Achieved is 115% or more, the applicable
Performance Factor is determined by adding an additional 25% of the Performance
Factor for 100% of Target Achievement for each additional 5% increment by which
100% of Target Acheivement is exceeded. For example, if the Percentage of Target
Achieved is 115% for an IC Agreement with a Performance Period of 2 years, the
Cumulative Performance Factor is 7.0 (i.e., 6.0, plus 25% of 4.0).

Step 5 – Determine the Participant’s Award, if any, under the following
——
formula: Salary x Performance Share x Cumulative Performance Factor = Award

D. Adjustment of Award. The Committee reserves the right to reduce the
——————-
amount of the Award (including an Interim Award under Article V) to a
Participant. Such reduction, if any, shall be based on the Committee’s
determination of the projected pre-tax earnings for the Outlook Year if such
projected amount is less than the assumed amount of 110% of the Annual Profit
Target for the Outlook Year used in Article IV, Paragraph C, Step 2; on the
Participant’s annual base salary as provided in Article I, Paragraph R; and on
such additional factors as are specified in the Participant’s IC Agreement,
which factors shall be determined by the Committee in its sole discretion. In
reaching its determination of the projected pre-tax earnings for the Outlook
Year, the Committee shall consider, but shall not be bound by, the amount that
the Corporation projects will be reported for such year, as contained in the
Corporation’s business plan for the Outlook Year. The Committee may not increase
the Award under the Plan to any Participant in excess of the Award calculated
under the preceding Paragraph C.

V. Payment of Awards and Interim Awards

A. Certification and Payment. No payment of any Award, including an
————————-
Interim Award, shall be made to a Participant until the Committee has certified
in writing that the Performance Goals and other material terms of an IC
Agreement have been met and the Participant is entitled to payment.

Unless an IC Agreement provides otherwise, in the case of an IC Agreement
covering a Performance Period of more than one Fiscal Year, Interim Awards
shall, if earned, be made following the end of each Fiscal Year (other than the
last Fiscal Year) included in the Performance Period. Unless the IC Agreement
provides for no Interim Awards or lower levels of Interim Awards, the Interim
Awards shall be determined under the method for determining an Award under
Article IV, Paragraphs C and D with the following modifications. For purposes of
determining the amount of pre-tax earnings for a Fiscal Year for which financial
results have not yet been reported and the amount of pre-tax earnings for the
Outlook Year, each of which is necessary to apply Step 2 or Article IV,
Paragraph C, the pre-tax earnings will be 110% of the Annual Profit Target for
such Fiscal Year or Outlook Year. The Committee may, in its discretion, reduce
the amount of the Interim Award payable by reducing the amount of pre-tax
earnings used in computing an Interim Award to the Committee’s determination
regarding the amount of

B-4

pre-tax earnings for such Fiscal Year or Outlook Year. In reaching its
determination regarding such pre-tax earnings, the Committee shall consider, but
shall not be bound by, the amount that the Corporation projects will be reported
for each of such years, as contained in the Corporation’s business plan prepared
for the year in which payment will occur. Also, in lieu of the Performance
Factors provided in Article IV, the Performance Factors set forth in the
following schedule shall be used:

Cumulative*
Projected Percent of Interim* Interim
Target Achieved for the Performance Performance
Performance Period Factor Factor
——————————— ————— ————-

115% or more** (see below)

110% but less than 115% 1.50 3.00

105% but less than 110% 1.25 2.50

100% but less than 105% 1.00 2.00

95% but less than 100% 0.75 1.50

90% but less than 95% 0.50 1.00

85% but less than 90% 0.25 0.50

less than 85% 0.00 0.00

* The column “Interim Performance Factor” applies to an Interim Award after
the first Fiscal Year of an IC Agreement with a Performance Period of two
(2) or three (3) years. The column “Cumulative Interim Performance Factor”
applies to an Interim Award after the second Fiscal Year of an IC Agreement
with a Performance Period of three (3) years.

** If the Projected Percentage of Target Achieved is 115% or more, the
Performance Factor is determined by adding an additional 25% of the
Performance Factor for 100% of Target Achievement for each additional 5%
increment by which 100% Target Achievement is exceeded. For example, if the
Projected Percentage of Target Achieved is 115% after the end of the first
Fiscal Year of an IC Agreement that includes two (2) Fiscal Years, the
Performance Factor is 1.75 (i.e., 1.5, plus 25% of 1.0).

Interim Awards for a Fiscal Year in a Performance Period shall be made not
later than the last day of February following the end of the Fiscal Year for
which the Interim Award is made. When determining the amount of the Interim
Award after the second year for an IC Agreement with a Performance Period of
three (3) years, the Interim Award, if any, made with respect to such IC
Agreement after the first Fiscal Year shall be subtracted from the amount
determined using the Cumulative Interim Performance Factor for the second Fiscal
Year. Interim Awards shall be subtracted from the total Award for the
Performance Period. Interim Awards once made are not refundable to the
Corporation.

The final or remaining amount of an Award to a Participant for a Performance
Period shall be determined not later than the last day of February following the
end of the last Fiscal Year included in the Performance Period. If the IC
Agreement is for only one Fiscal Year, the full amount shall be payable not
later than such determination date. Otherwise, not later than such determination
date, an amount equal to X less Y shall be paid, where X is the Award multiplied
—-
by a fraction, the numerator of which is the number of months in the Performance
Period reduced by four (4) and the denominator of which is the number of months
in the Performance Period and Y is the total amount of Interim Awards made with
respect to such IC Agreement. The remaining amount of the Award shall be paid in
four (4) equal installments on the last day of each succeeding month.

B. Employment on Payment Date Generally Required. Except as provided in
———————————————
this paragraph, no Participant shall receive payment of an amount with respect
to an Award (including an Interim Award unless such Participant is an active
employee of the Corporation (or a subsidiary) as of the scheduled payment date
for such amount). A Participant who dies or is disabled during the Performance
Period may continue to receive amounts payable under an IC Agreement, if the
Committee, in its discretion, determines to make such payments. For

B-5

purposes of this paragraph, a Participant shall be disabled if the participant
is determined to be disabled under the Corporation’s long-term disability plan
in which the Participant participates.

C. Acceleration of Payment. An Award or portion of an Award otherwise
———————–
payable by the last day of February may be accelerated by the Committee so that
such Award or portion of Award is paid as early as the preceding December 1st.
The Committee may accelerate payment of an Award only to the extent it certifies
the earnings before taxes and other material terms of the IC Agreement have been
met, the Award made is discounted for early payment to the extent required by
Section 162(m) and the accelerated payment does not affect Awards under the Plan
from qualifying as “performance-based compensation” under Section 162(m)(4) of
the Code.

VI. Amendment or Termination

The Board reserves the right to amend, suspend, or terminate the Plan or
adopt a new plan at any time; provided that no such amendment shall without the
consent of the Participant affect the payment of any IC Agreement to the such
Participant. In case any one or more of the provisions contained in the Plan
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of the Plan.

VII. Miscellaneous

A. Nonassignment. The interest of any Participant under the Plan shall not
————-
be assignable either by voluntary or involuntary assignment or by operation of
law, except by will or the laws of descent and distribution.

B. Interpretation. This Plan is intended to provide Participants with the
————–
opportunity to receive incentive compensation that is deductible by the
Corporation without regard to the limitations of Section 162(m)(1) of the Code
and shall be construed accordingly. The Plan shall otherwise be governed by the
laws of the State of Delaware and construed in accordance therewith.

C. No Employment Right. The granting of an IC Agreement confers on no
——————-
employee the right to employment or continued employment by the Corporation. The
right of the Corporation to terminate the employment of a Participant shall not
be diminished or affected by reason of receipt of an IC Agreement under the
Plan.

VIII. Effective Date

This Plan is adopted effective as of January 1, 1996, provided that no
payment of an Award shall be made under the Plan unless the Plan is approved by
the shareholders of the Corporation at its 1996 annual meeting of shareholders.

B-6

APPENDIX 1

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

1995 FINANCIAL REPORT

CONTENTS
– ———————————————————————-

Business of AMS 1

Financial Statements and Notes 3

Report of Independent Accountants 19

Management’s Discussion and Analysis of Financial
Condition and Results of Operations 20

Assumptions Underlying Certain Forward-Looking
Statements and Factors That May Affect Future Results 24

Five-Year Financial Summary 25

Five-Year Revenues by Target Market 26

Selected Quarterly Financial Data and Information
on AMS Stock 27

Other Information 28

BUSINESS OF AMS

OVERVIEW

With 1995 revenues of $632 million, the business of American Management
Systems, Incorporated and its wholly-owned subsidiaries (“AMS” or the “Company”)
is to partner with clients to achieve breakthrough performance through the
intelligent use of information technology. AMS provides a full range of
consulting services from strategic business analysis to the full implementation
of solutions that provide genuine results, on time and within budget. AMS
measures success based on the results and business benefits achieved by its
clients.

AMS is a trusted business partner for many of the largest and most
respected organizations in the markets in which it specializes. Each year,
approximately 85% of the Company’s business comes from clients it worked with in
previous years.

Organizations in AMS’s target markets — telecommunications firms;
financial services institutions; state and local governments and education
organizations; federal government agencies; and other corporate clients — have
a crucial need to exploit the potential benefits of information and systems
integration technology. The Company helps clients fulfill this need by
continuing to build a professional staff which is composed of experts in the
necessary technical and functional disciplines; managers who can lead large,
complex systems integration projects; and business and computer analysts who can
devise creative solutions to complex problems.

Another significant component of AMS’s business is the development of
proprietary software products, either with its own funds or on a cost-shared
basis with other organizations. These products are principally licensed as
elements of custom tailored systems and, to a lesser extent, as stand-alone
applications. The Company expensed $19.4 million in 1995, $20.4 million in
1994, and $18.7 million in 1993 for research and development associated with
proprietary software. As a percentage of services and products (S&P) revenues,
license and maintenance fee revenues were less than 15% during each of the last
three years.

In order to serve clients, outside of the U.S.A., AMS has expanded
internationally by establishing eleven subsidiaries or branches. Exhibit 21 of
this Form 10-K provides a complete listing of all AMS subsidiaries (and
branches), showing name, year organized (acquired), and place of incorporation.
Services and products revenues attributable to non-US operations of AMS were
approximately $170.0 million in 1995, $92.1 million in 1994, and $52.8 million
in 1993. Additional information on revenues, operating profits, and assets
attributable to AMS’s geographic areas of operation is provided in Note 11 of
the consolidated financial statements appearing in Exhibit 13 of this Form 10-K.

Founded in 1970, AMS services clients worldwide. AMS’s approximately 5,400
full-time employees are located at our headquarters in Fairfax, Virginia and in
offices in 48 cities throughout North America and Europe.

1

TELECOMMUNICATIONS FIRMS

AMS markets systems consulting and integration services for order
processing, customer care, billing, accounts receivable, and collections, both
for local exchange and interexchange carriers and for cellular telephone
companies. Most of the Company’s work involves developing and implementing
customized capabilities using AMS’s application software products as a
foundation.

FINANCIAL SERVICES INSTITUTIONS

AMS provides information technology consulting and systems integration
services to money center banks, major regional banks, insurance companies, and
other large financial services firms. The Company specializes in corporate and
international banking, consumer credit management, global custody and securities
control systems, and bank management information systems.

STATE AND LOCAL GOVERNMENTS AND EDUCATION

AMS markets systems consulting and integration services, and application
software products, to state, county, and municipal governments for financial
management, revenue management, human resources, social services, and public
safety functions. The Company also markets services and application software
products to universities and colleges.

FEDERAL GOVERNMENT AGENCIES

The Company’s clients include civilian and defense agencies and aerospace
companies. Assignments require knowledge of agency programs and management
practices as well as expertise in computer systems integration. AMS’s work for
defense agencies often involves specialized expertise in engineering and
logistics.

OTHER CORPORATE CLIENTS

The Company also solves information systems problems for the largest firms
in other industries. AMS has systems integration and operations contracts with
several large organizations and intends to pursue more. AMS provides technical
training and technical consulting services in software technology for large
scale business systems.

2

FINANCIAL STATEMENTS AND NOTES

American Management Systems, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31
(In millions except per share data) 1995 1994 1993
________________________________________________________________________________
REVENUES

Services and Products $561.5 $408.8 $321.7
Reimbursed Expenses 70.9 51.1 42.3
—— —— ——
632.4 459.9 364.0

EXPENSES
Client Project Expenses 348.6 246.9 189.3
Other Operating Expenses 192.3 140.1 115.6
Corporate Expenses 40.8 32.6 28.4
—— —— ——
581.7 419.6 333.3

INCOME FROM OPERATIONS 50.7 40.3 30.7

OTHER (INCOME) EXPENSE
Interest Expense 2.3 1.4 0.7
Other Income (1.4) (0.6) (0.7)
—— —— ——
0.9 0.8 0.0

INCOME BEFORE INCOME TAXES 49.8 39.5 30.7

INCOME TAXES 20.6 16.1 12.9

NET INCOME 29.2 23.4 17.8

DIVIDENDS AND ACCRETION ON SERIES B
PREFERRED STOCK – 0.3 0.8
—— —— ——
NET INCOME TO COMMON SHAREHOLDERS $ 29.2 $ 23.1 $ 17.0
====== ====== ======
WEIGHTED AVERAGE SHARES AND EQUIVALENTS 40.7 38.7 36.7
====== ====== ======
NET INCOME PER COMMON SHARE $ 0.72 $ 0.60 $ 0.46
====== ====== ======

________________
See Accompanying Notes to Consolidated Financial Statements.

3

American Management Systems, Inc.

CONSOLIDATED BALANCE SHEETS

December 31 (In millions except per share data) 1995 1994
________________________________________________________________________________
ASSETS
– ——————————————————————————–

CURRENT ASSETS

Cash and Cash Equivalents $ 35.8 $ 34.2
Accounts and Notes Receivable 206.1 141.1
Prepaid Expenses and Other Current Assets 8.9 6.7
—— ——
250.8 182.0

FIXED ASSETS
Equipment 47.4 52.7
Furniture and Fixtures 14.2 12.1
Leasehold Improvements 11.4 10.6
—— ——
73.0 75.4
Accumulated Depreciation and Amortization (35.9) (46.7)
—— ——
37.1 28.7

OTHER ASSETS
Purchased and Developed Computer Software (Net of
Accumulated Amortization of $47,700,000 and
$41,100,000) 33.0 28.8
Intangibles (Net of Accumulated Amortization of
$2,100,000 and $1,600,000) 6.8 7.4
Other Assets (Net of Accumulated Amortization of
$4,900,000 and $3,500,000) 9.8 5.3
—— ——
49.6 41.5
—— ——

TOTAL ASSETS $337.5 $252.2
====== ======

________________
See Accompanying Notes to Consolidated Financial Statements.

4

American Management Systems, Inc.

CONSOLIDATED BALANCE SHEETS

December 31 (In millions except per share data) 1995 1994
_______________________________________________________________________________

LIABILITIES AND STOCKHOLDERS’ EQUITY
– ——————————————————————————-
CURRENT LIABILITIES

Notes Payable and Capitalized Lease Obligations $ 23.1 $ 9.5
Accounts Payable 8.6 7.0
Accrued Incentive Compensation 28.3 17.1
Other Accrued Compensation and Related Items 25.3 16.6
Deferred Revenues 26.3 25.7
Other Accrued Liabilities 2.3 3.9
Income Taxes Payable 2.3 1.8
—— ——
116.2 81.6
Deferred Income Taxes 19.0 11.0
—— ——
135.2 92.6

NONCURRENT LIABILITIES
Notes Payable and Capitalized Lease Obligations 20.4 12.9
Other Accrued Liabilities 0.7 0.7
Deferred Income Taxes 5.7 7.7
—— ——
26.8 21.3
—— ——

TOTAL LIABILITIES 162.0 113.9

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, 48,867,891 and 48,301,656 Issued and
40,040,454 and 39,294,780 Outstanding) 0.5 0.5
Capital in Excess of Par Value 65.4 60.2
Retained Earnings 141.8 112.6
Currency Translation Adjustment (0.7) (1.4)
Common Stock in Treasury, at Cost
(8,827,437 and 9,006,876 Shares) (31.5) (33.6)
—— ——
175.5 138.3
—— ——

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $337.5 $252.2
====== ======

________________
See Accompanying Notes to Consolidated Financial Statements.

5

American Management Systems, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31 (In millions) 1995 1994 1993
– —————————————————————————————————-

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 29.2 $ 23.4 $ 17.8
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 30.2 20.7 17.6
Deferred Income Taxes 6.0 5.2 5.1
Provision for Doubtful Accounts 1.6 1.5 1.0
Loss on Disposal of Assets – – 0.1
Changes in Assets and Liabilities:
Increase in Trade Receivables (66.5) (41.0) (16.1)
(Increase) Decrease in Prepaid Expenses and Other
Current Assets (2.3) 1.9 (4.5)
(Increase) Decrease in Other Assets (9.1) (1.9) 0.7
Increase in Accrued Incentive Compensation 14.1 5.2 5.3
Increase in Accounts Payable and Other Accrued
Compensation and Liabilities 8.7 5.7 1.4
Increase (Decrease) in Deferred Revenues 0.6 11.0 (2.3)
Increase in Income Taxes Payable 0.5 1.6 0.2
—— —— ——
Net Cash Provided from Operating Activities 13.0 33.3 26.3
—— —— ——

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (22.5) (17.0) (13.3)
Purchase of Computer Software (2.3) (1.5) (1.4)
Investment in Software Products (13.7) (9.9) (11.7)
Other Investments and Intangibles 0.4 (0.1) (9.1)
Proceeds from Sale of Fixed Assets and Computer Software 0.5 0.2 0.7
—— —— ——
Net Cash Used in Investing Activities (37.6) (28.3) (34.8)
—— —— ——

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 26.5 12.8 15.0
Payments on Borrowings (5.4) (4.5) (6.5)
Proceeds from Common Stock Options Exercised 5.3 5.5 2.9
Payments to Acquire Treasury Stock (0.8) – (18.7)
Dividends Paid on Preferred Stock – (0.3) (0.8)
—— —— ——
Net Cash Provided (Used) in Financing Activities 25.6 13.5 (8.1)
—— —— ——
Increase (Decrease) in Currency Translation Adjustment 0.6 0.1 (0.3)
—— —— ——
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1.6 18.6 (16.9)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 34.2 15.6 32.5
—— —— ——
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35.8 $ 34.2 $ 15.6
====== ====== ======

NON-CASH OPERATING AND FINANCING ACTIVITIES:
Treasury Stock Utilized to Satisfy Accrued
Incentive Compensation Liability $ 2.9 $ 0.6 $ 2.1
Conversion of Preferred Stock to Common Stock – 8.5 9.2

_______________
See Accompanying Notes to Consolidated Financial Statements.

6

American Management Systems, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions)

Common
Stock Capital in Currency Total
(Par Value Excess of Translation Retained Treasury Stockholders’
$0.01) Par Value Adjustment Earnings Stock Equity
– ———————————————————————————————————————————–

Balance, December 31, 1992, as
previously reported $0.3 $31.8 $(1.2) $ 72.5 $(17.6) $ 85.8

Effect of January 5, 1996 3-for-2 Stock
Split on December 31, 1992 Balances 0.2 (0.2) 0.0

Common Stock Options Exercised – 2.9 2.9
Preferred Stock Converted – 9.2 9.2
Tax Benefit Related to Exercise
of Common Stock Options 1.0 1.0
Currency Translation Adjustment (0.3) (0.3)
Common Stock Repurchased (18.7) (18.7)
Restricted Stock Awarded 2.1 2.1
1993 Net Income 17.8 17.8
Dividends and Accretion on Series B
Preferred Stock (0.8) (0.8)
—— —— —– —— —— —–

Balance, December 31, 1993 0.5 44.7 (1.5) 89.5 (34.2) 99.0

Common Stock Options Exercised – 5.4 5.4
Preferred Stock Converted – 8.5 8.5
Tax Benefit Related to Exercise of
Common Stock Options 1.6 1.6
Currency Translation Adjustment 0.1 0.1
Common Stock Repurchased – –
Restricted Stock Awarded 0.6 0.6
1994 Net Income 23.4 23.4
Dividends and Accretion on Series B
Preferred Stock (0.3) (0.3)
—— —— —– —— —— ——
Balance, December 31, 1994 0.5 60.2 (1.4) 112.6 (33.6) 138.3

Common Stock Options Exercised – 3.3 3.3
Tax Benefit Related to Exercise of
Common Stock Options 1.9 1.9
Currency Translation Adjustment 0.7 0.7
Common Stock Repurchased (0.8) (0.8)
Restricted Stock Awarded 2.9 2.9
1995 Net Income 29.2 29.2
—— —— —— —— —— ——
Balance, December 31, 1995 $0.5 $65.4 $(0.7) $141.8 $(31.5) $175.5
====== ====== ====== ====== ====== ======

________________
See Accompanying Notes to Consolidated Financial Statements.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

The business of American Management Systems, Incorporated and its wholly-
owned subsidiaries (“AMS” or the “Company”) is to partner with clients to
achieve breakthrough performance through the intelligent use of information
technology. AMS provides a full range of consulting services from strategic
business analysis to the full implementation of systems solutions. The Company’s
primary target markets include telecommunications firms, financial services
institutions, state and local governments and education, federal government
agencies and other corporate clients. AMS services clients worldwide through its
offices in North America and Europe.

A. Revenue Recognition

Revenues on fixed-price contracts are recorded using the percentage of
completion method based on the relationship of costs incurred to the estimated
total costs of the project. Revenues on cost reimbursable contracts and time
and material contracts are recorded as labor and other expenses are incurred.
Losses on contracts are recorded in the period they are first determined.

Revenues from licenses of “off-the-shelf” software products, where the
Company has insignificant remaining obligations, are recorded at the time of
delivery, less a proportionate amount deferred to cover the costs required to
complete the performance of the contract which is later recognized on a
percentage of completion basis. In contracts where the Company has significant
obligations, all revenues are recognized on a percentage of completion basis.
Revenues from software maintenance contracts are recognized ratably over the
maintenance period.

On benefits-funded contracts, where management believes that there is some
uncertainty as to the timing of payments, revenues are deferred (and costs
incurred are capitalized) until the client begins to realize the benefits.
Revenues for computer services are recorded on the basis of usage at scheduled
contract prices per unit of production, or the contract minimum monthly charge,
whichever is greater.

The costs associated with cost-plus government contracts are subject to
audit by the U.S. Government. In the opinion of management, no significant
adjustments or disallowances of costs are anticipated beyond those provided for
in the financial statements.

B. Software Development Costs

The Company develops proprietary software products using its own funds, or
on a cost-shared basis with other organizations, and records such activities as
research and development. These software products are then licensed to
customers, either as stand-alone applications, or as elements of custom-built
systems.

The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86 — “Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed”. For projects
fully funded by the Company, significant development costs incurred beyond the
point of demonstrated technological feasibility are capitalized and, after the
product is available for general release to customers, such costs are amortized
on a straight-line basis over a three-year period or other such shorter period
as might be required. The Company recorded $9.5 million of amortization in 1995,
$8.4 million of amortization in 1994, and $7.7 million in 1993. Unamortized
costs were $28.2 million and $24.0 million at December 31, 1995 and 1994,
respectively.

8

Including the above mentioned amortization expense, the Company expensed
$19.4 million in 1995, $20.4 million in 1994, and $18.7 million in 1993 for
research and development.

Purchased software licenses will continue to be accounted for as set forth
in Note 1.C.

C. Fixed Assets, Purchased Computer Software Licenses and Intangibles

Fixed assets and purchased computer software licenses are recorded at cost.
Furniture, fixtures, and equipment are depreciated over estimated useful lives
ranging from 3 to 15 years. Leasehold improvements are amortized ratably over
the lesser of the applicable lease term or the useful life of the improvement.
For financial statement purposes, depreciation is computed using the straight-
line method. Purchased software licenses are amortized over two to five years
using the straight-line method. Intangibles are generally amortized over 5 to
15 years.

D. Income Taxes

Deferred income taxes included in the accompanying financial statements are
primarily the result of (i) the use of the accrual method of accounting for
financial statement purposes versus the use of a modified accrual method of
accounting for income tax purposes, and (ii) for certain assets, the use of
different depreciation methods for financial reporting than for tax reporting.

E. Net Income per Common Share

Net income per common share has been computed using the treasury stock
method based on the weighted average number of common shares and equivalent
common shares outstanding. All share and per share amounts (except with respect
to historical discussions of IBM holdings of common stock and except where
otherwise noted) have been adjusted to reflect the Company’s three-for-two stock
splits, effective January 5, 1996, and October 28, 1994, respectively.

F. Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The carrying
amount approximates fair value because of the short maturity of these
instruments.

G. Currency Translation

For operations outside the United States that prepare financial statements
in currencies other than the U.S. dollar, the Company translates income
statement amounts at the average monthly exchange rates throughout the year. The
Company translates assets and liabilities at year-end exchange rates. The
resulting translation adjustments are shown as a separate component of
Stockholders’ Equity.

H. Impact of New Accounting Pronouncements

In 1995, the Financial Accounting Standards Board issued two new Statements
of Financial Accounting Standards which the Company must adopt in 1996: No. 121
(“SFAS No. 121”) “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of” and No. 123 (“SFAS No. 123”) “Accounting
for Stock-Based Compensation.” The Company intends to implement SFAS No. 121 in
1996, and management expects no material adjustments to the financial statements
as a result of implementing this standard. Regarding SFAS No. 123, the Company
intends to implement the disclosure requirements in 1996.

9

I. Principles of Consolidation

The consolidated financial statements include the accounts of American
Management Systems, Incorporated and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated.

J. Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported. Future actual results could be
different due to these estimates.

NOTE 2 — SIGNIFICANT CUSTOMERS

Total revenues from the U.S. Government, comprising 72 clients in 1995, 69
clients in 1994, and 74 clients in 1993, were approximately $97.1 million in
1995, $88.5 million in 1994, and $80.1 million in 1993. No other customer
accounted for 10% or more of total revenues in 1995, 1994, or 1993.

NOTE 3 — SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
(All share amounts are shown on a historical basis)

On September 11, 1989, the Company sold to International Business Machines
Corporation (“IBM”) 11,700 shares of 7.5% Series A Cumulative Convertible
Preferred Stock for $18 million. On November 13, 1989, these shares were
exchanged for 1,170,000 shares of 7.5% Series B Cumulative Convertible Preferred
Stock (“Series B Shares”), reducing the per share price to $15.38. The Series B
Shares entitled the holders to an annual 7.5% cumulative preferred dividend
($1.15 per share).

In February 1993, the Company and IBM agreed to restructure IBM’s equity
relationship with the Company. Under the modified equity agreement, IBM
converted 409,500 Series B Shares (equivalent to 35% of the Series B Shares
originally issued to IBM) into 614,250 shares of Common Stock on February 5,
1993, whereupon AMS purchased such shares of Common Stock from IBM at a purchase
price of approximately $22.64 per share. The modified agreement permitted IBM to
sell, at any time before September 10, 1994, such number of shares of Common
Stock acquired on conversion of Series B Shares (approximately 264,000 shares of
Common Stock at the current conversion ratio) as would reduce IBM’s holdings to
below five percent of the Company’s outstanding voting securities. The Company
had a right of first refusal with respect to such proposed sales. In June 1993,
the Company exercised such right and acquired 300,000 shares of common stock (on
conversion of 200,000 Series B Shares) for $16.00 per share. As of December 31,
1993, these Series B Shares were convertible at any time into Common Shares on a
one-for-one and one-half basis and represented a 4.8% interest in the voting
power of the Company on a fully diluted basis.

In May 1994, IBM converted all of its remaining 560,500 Series B Shares
into 840,750 shares of Common Stock. Shortly after conversion IBM sold all of
such shares of Common Stock in the open market. Because of the conversions of
Series B Shares described above, dividends payable in both 1994 and 1993
decreased from prior years. No dividends were paid to IBM in 1995, $288,000 was
paid in 1994, and $834,000 was paid in 1993.

10

NOTE 4 — ACCOUNTS AND NOTES RECEIVABLE

December 31 (In millions) 1995 1994
– ——————————————————————————–

Trade Accounts Receivable
Amounts Billed $153.6 $ 98.9
Amounts Not Billed 50.3 42.3
Contract Retention 5.7 3.9
—— ——
Total 209.6 145.1

Notes Receivable – –
Other Receivables 1.4 (0.7)
Allowance for Doubtful Accounts (4.9) (3.3)
—— ——
Total $206.1 $141.1
====== ======

Approximately 9.6% of the December 31, 1995 total accounts receivable
balance relates to work performed by the Company under subcontractor agreements
between the Company and a prime contractor in the child support enforcement
business. These amounts span four different contracts which the prime contractor
has with state/local government clients in three states. Additionally, 3.1% of
the Company’s total accounts receivable balance relates to a contract with a
foreign government which has been experiencing cash flow difficulties. The
Company expects to receive all funds due from these clients and has received
payments in recent months.

11

NOTE 5 — NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS

In December 1993, the Company entered into a multi-currency revolving
credit agreement with NationsBank of North Carolina, N.A. (the “NationsBank
Agreement”) that provides for borrowings of up to $15 million (or the US Dollar
“USD” equivalent), less outstanding letters of credit issued by NationsBank,
which at December 31, 1995 totaled $1 million. The revolving credit loan bears
interest, for USD borrowings, at the lesser of NationsBank’s prime rate or 0.50%
over the weekly federal funds rate, and for non-USD borrowings, 0.50% over the
NationsBank’s 30-day LIBOR rate. The credit facility allows certain of the
Company’s foreign subsidiaries to borrow funds, directly from NationsBank, in
their local currencies. In addition, the NationsBank Agreement requires an
annual commitment fee equal to 0.25% of the $15 million commitment, payable in
quarterly installments. Amounts outstanding under the revolving credit loan on
December 31, 1996 are automatically converted to a four-year term note at terms
defined in the NationsBank Agreement.

In August 1994, the Company and NationsBank negotiated Amendment Number 1
to the NationsBank Agreement, which increased the borrowing capacity from $15
million to $25 million, with a corresponding increase in the annual commitment
fee. All other terms of the original agreement remain in force.

In July 1994, the Company entered into a separate revolving credit
agreement with Wachovia Bank of North Carolina, N.A. (the “Wachovia Agreement”)
that provides for borrowings of up to $15 million, in USD, and by the parent
company only. All other terms, including automatic conversion to a term note,
are similar to the NationsBank Agreement.

Both revolving credit facilities contain similar covenants with which the
Company must comply. These include: (i) maintaining a minimum stockholders’
equity (excluding treasury stock) of $80 million, (ii) maintaining a current
ratio of at least 1.25 to 1.00, (iii) having a debt/equity ratio that does not
exceed 2.0 to 1.0, (iv) maintaining the Company’s interest coverage ratio at
less than 3.0 to 1.0, and (v) limiting the Company to new money debt borrowings,
excluding the revolving credit facilities, of $10 million annually unless the
two banks agree to waive this covenant. At December 31, 1995, the Company was in
compliance with all covenants.

The aggregate weighted average borrowings under the NationsBank Agreement
was approximately $15.6 million in 1995, and $2.8 million during 1994, at daily
weighted average interest rates of approximately 5.9% in 1995 and 5.3% in 1994.
The maximum borrowed under this agreement was $23.5 million in 1995 and $11.6
million during 1994. During 1995 and 1994, there were no borrowings under the
Wachovia Agreement.

In January 1994, the Company entered into an $8 million, unsecured 5-year
term loan, at an interest rate of 5.25%, to finance the purchase of a company.
Principal and interest are payable monthly through January 1999.

During 1993, the Company entered into two unsecured, 5-year term loans
totaling $15 million, at interest rates between 5.25% and 5.40% and with
principal and interest payable monthly through 1998. Funds were used to prepay a
$5 million unsecured note, bearing interest at 10.75%, and to replace working
capital that had been used in reacquiring the Company’s Common Stock.
Additionally, during 1995 the Company entered into two unsecured, 7-year term
loans totaling $15 million, at interest rates between 6.88% and 6.92%, and with
principal and interest payable monthly through 2002. Funds were used to replace
working capital that had been used in acquiring fixed assets. The Company
acquired the necessary waivers to the new money debt borrowing covenant.

12

The following schedule summarizes the total outstanding notes and
capitalized lease obligations. Differences between the face value and the fair
value are considered immaterial.

December 31 (In millions) 1995 1994
– ——————————————————————————-

Revolving Line-of-Credit at December 31, $16.3 $ 4.8

Unsecured Notes With Interest at 5.25% – 6.92%
Principal and Interest Payable Monthly Through
August 2002 27.2 17.6
—– —–
Total Notes Payable and Capitalized Lease Obligations $43.5 $22.4
===== =====

Principal amounts are repayable as shown below:

1996 $23.1
1997 6.7
1998 5.7
1999 2.3
2000 and Beyond 5.7
——
43.5
Less Current Portion 23.1
——
Long-Term Portion $20.4
======

Interest paid by the Company totaled $2.3 million in 1995, $1.4 million in
1994, and $0.7 million in 1993.

13

NOTE 6 — EQUITY SECURITIES

At December 31, 1995, the Company had a stock option plan, 1992 Amended and
Restated stock option Plan E as amended (the “1992 Plan E”), under which the
Company was authorized to issue up to 3,375,000 shares of common stock as
incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). The
1992 Plan E, which was approved by the shareholders in May 1992, replaced Stock
Option Plan E (“Plan E”). Under both plans, the exercise price of an ISO granted
is not less than the fair market value of the common stock on the date of grant
and for NSOs, the exercise price is either the fair market value of the common
stock on the date of the grant or, when granted in connection with one-year
performance periods under the Company’s incentive compensation program, the
exercise price may be determined by a formula selected by the Board or
appropriate Board committee that is based on the fair market value of the common
stock as of a date, or for a period, that is within three months of the date of
grant. In cases where the average market value exceeds the exercise price, the
differential is recorded as compensation expense. Under both plans, options
expire up to eight years from the date of grant. Options granted are exercisable
immediately, in monthly installments, or at a future date, as determined by the
appropriate Board committee or as otherwise specified in the plan.

At December 31, 1995, there were 828,068 shares available for the grant of
future options under the 1992 Plan E. No options remain available for grant
under any previous stock option plan. The number of option shares outstanding
and exercisable at December 31, 1995, under Plan E and 1992 Plan E combined was
2,307,669 for which the aggregate exercise price was $18,921,821.

Additional information with respect to stock options awarded pursuant to
such plans is summarized in the following schedule.

Number of
Options Exercise Price
Shares per Share
– ————————————————————————————-

For the Year Ended December 31, 1993:
Options Granted 1,048,008 $ 6.83 – $10.11
Options Canceled 16,599 3.55 – 10.11
Options Exercised 720,363 0.87 – 8.72
Balance Outstanding at December 31, 1993 3,638,535 1.91 – 10.11

For the Year Ended December 31, 1994:
Options Granted 726,303 8.45 – 11.50
Options Canceled 48,971 3.60 – 10.11
Options Exercised 1,071,819 1.91 – 10.11
Balance Outstanding at December 31, 1994: 3,244,048 3.45 – 11.50

For the Year Ended December 31, 1995:
Options Granted 737,752 11.53 – 19.33
Options Canceled 9,486 3.59 – 11.53
Options Exercised 566,235 3.44 – 14.83
Balance Outstanding at December 31, 1995 3,406,079 3.59 – 19.33

At its February 1995 meeting, the Board authorized the Company to expend up
to $10,000,000 to repurchase additional shares of its common stock, from time to
time, for its stock-based benefit plans or for other corporate purposes. In
1995, the Company repurchased 60,000 shares of its common stock in the open
market. In May 1995, the shareholders approved an amendment to the Company’s
charter, increasing the authorized number of shares of Common Stock from
40,000,000 to 100,000,000. In 1994, the Company did not repurchase, other than
fractional shares from the October stock split, any of its common stock.

14

NOTE 7 — INCOME TAXES

Year Ended December 31 (In millions) 1995 1994 1993
– ——————————————————————————————————-

Income before income taxes for the year ended
December 31 was derived in the following jurisdictions:

Domestic $ 42.6 $36.8 $33.5
Foreign 7.2 2.7 (2.8)
—— —– —–
$ 49.8 $39.5 $30.7
====== ===== =====

The provision for income taxes is comprised of the following:
Current:
Federal $ 9.4 $ 7.8 $ 6.8
State 1.8 2.1 1.3
Foreign 3.4 1.0 (0.3)
Deferred:
Federal 5.4 5.1 4.1
State 0.6 0.2 1.0
Foreign – (0.1) –
—— —– —–
Total Provision $ 20.6 $16.1 $12.9
====== ===== =====

Tax expenses were different from the amounts computed
by applying the statutory federal income tax rate to
income before income taxes.
The differences were as follows:
Federal Tax Provision Based on Statutory Rates $ 17.4 $13.8 $10.7
Research and Development Tax Credits, Net of Addback (0.5) (0.6) (0.5)
State Income Tax, Net of Federal Income Tax Benefit 1.9 1.9 1.5
Other 1.8 1.0 1.2
—— —– —–
Actual Tax Provision $ 20.6 $16.1 $12.9
====== ===== =====

Deferred tax liabilities (assets) were comprised of the following
for the years ended December 31:
Liabilities:
Unbilled Receivables $ 20.4 $15.0 $11.5
Capitalized Software 10.0 9.8 9.4
Other 6.6 3.7 3.3
—— —– —–
Total Gross Deferred Tax Liabilities 37.0 28.5 24.2

Assets:
Deferred Maintenance Revenue (2.4) (3.3) (4.4)
Restricted Stock (3.0) (1.9) (1.7)
Accrued Leave Costs (2.2) (1.8) (1.4)
Bad Debt Expense (2.2) (1.6) (0.7)
Other Deferred Revenue (0.5) (0.1) (0.2)
Other (2.0) (1.1) (0.7)
—— —– —–
Total Gross Deferred Tax Assets (12.3) (9.8) (9.1)
—— —– —–
Net Deferred Tax Liabilities $ 24.7 $18.7 $15.1
====== ===== =====

The Company paid income taxes of approximately $16.4 million, $9.1 million,
and $11.8 million, in 1995, 1994, and 1993, respectively.

15

NOTE 8 — EMPLOYEE PENSION PLAN

The Company has established a simplified employee pension plan, which
became effective January 1, 1980. Contributions are based on the application of
a percentage specified by the Company to the qualified gross wages of eligible
employees. The Company makes annual contributions to the plan equal to the
amount accrued for pension expense. Total expense of the plan was $6.3 million
in 1995, $5.2 million in 1994, and $4.5 million in 1993.

NOTE 9 — COMMITMENTS AND CONTINGENCIES

The Company occupies production facilities and office space (real property)
and uses various pieces of equipment under operating lease agreements, expiring
at various dates through the year 2011.

The commitments under these agreements, as of December 31, 1995, are
summarized in the table below. Payments under the real property leases are
generally subject to escalation based upon increases in the Consumer Price
Index, operating expenses, and property taxes. Sublease income represents
payments due to the Company from third parties under formal sublease agreements
covering real property.

Operating lease expense for 1995, 1994, and 1993 was approximately $27.9
million, $21.4 million, and $18.6 million, respectively.

The Company recorded rental income of $0.5 million in 1995, $0.5 million in
1994, and $0.7 million in 1993, which was principally related to subleases of
space not being utilized by the Company.

The Company has several loan agreements that restrict or limit: the amount
of dividends that can be paid; the selling or pledging of accounts receivable;
the transfer of assets to a subsidiary; and the amount of cash that can be used
to acquire another business. In addition, these agreements stipulate that the
Company must maintain certain financial ratios and minimum levels of
shareholders’ equity.

The Company has an extended leave program for titled employees that
provides for compensated leave of eight weeks after seven years of service. The
leave is not vested and can be taken only at the discretion of management.
Because of the extended period over which the leave accumulates and the highly
discretionary nature of the program, the amount of extended leave accumulated at
any period end, which will ultimately be taken, is indeterminable. Consequently,
the Company expenses such leave as it is taken.

As reported in AMS’s Form 10-Q for the quarter ended September 30, 1995 and
filed November 14, 1995, Andersen Consulting LLP (“Andersen”) sued AMS on July
20, 1995, claiming copyright infringement and appropriation of trade secrets,
and seeking injunctive relief as well as damages. On August 25, 1995, the
United States District Court for the Southern District of New York, in which
the suit is pending, denied Andersen’s request for a preliminary injunction
based on Andersen’s delay in filing suit.

AMS has vigorously contested Andersen’s claims. On August 30, 1995, AMS
served its answer together with counterclaims against Andersen. In its answer,
AMS denied any liability by Andersen. AMS claimed that no trade secret
protection exists in the concepts cited by Andersen and that AMS has utilized
no confidential information of Andersen. AMS claimed that Andersen defamed AMS
and attempted to interfere with AMS’s contracts and opportunities by
disseminating false statements regarding AMS. Management believes that the
resolution of this matter will not have a material impact on the financial
condition or the results of operations of the Company.

16

Gross Rentals and Maintenance Payments
————————————–

Net Rentals
and
Sublease Maintenance
(In millions) Real Property Equipment Total Income Payments
– ————————————————————————————————

1996 $ 23.2 $2.4 $ 25.6 $0.1 $ 25.5
1997 22.6 2.1 24.7 0.1 24.6
1998 20.6 0.9 21.5 – 21.5
1999 19.5 0.6 20.1 – 20.1
2000 17.2 0.2 17.4 – 17.4
2001 through 2011 121.1 – 121.1 – 121.1
—— —- —— —— ——

Total $224.2 $6.2 $230.4 $0.2 $230.2
====== ==== ====== ====== ======

NOTE 10 — RELATED PARTY TRANSACTIONS

The Company incurred legal fees and reimbursable expenses payable to
Shaw, Pittman, Potts & Trowbridge, general counsel to the Company, totaling
approximately $2.5 million, $2.0 million, and $1.4 million in 1995, 1994, and
1993, respectively. A member of the firm of Shaw, Pittman, Potts & Trowbridge
is the spouse of one of the Company’s executive officers.

NOTE 11 — BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

AMS operates in one industry segment — providing computer and
information technology products and services to large clients in targeted
vertical markets. However, AMS markets its services and products worldwide and
its operations can be grouped into two main geographic areas according to the
location of each AMS company. The two groupings consist of United States
locations and non-US locations (Canada, England, Belgium, Portugal, Sweden, The
Netherlands, Mexico, Spain, Switzerland, Australia, and Germany). Pertinent
financial data, by geographic area, is summarized below.

Year Ended December 31 (In millions) 1995 1994 1993
– ——————————————————————————–

Services and Products Revenues
U.S. Companies $490.1 $356.3 $288.4
Non-US Companies 71.4 52.5 33.3
—— —— ——
Consolidated Total 561.5 408.8 321.7
====== ====== ======
Income (Loss) From Operations
U.S. Companies 44.4 37.6 33.6
Non-US Companies 6.3 2.7 (2.9)
—— —— ——
Consolidated Total 50.7 40.3 30.7
====== ====== ======
Identifiable Assets
U.S. Companies 290.0 231.5 172.6
Non-US Companies 47.5 20.7 12.4
—— —— ——
Consolidated Total $337.5 $252.2 $185.0
====== ====== ======

17

Revenues from AMS’s U.S. Companies include export s ales to non-US
clients of $98.6 million in 1995, $39.6 million in 1994, and $19.5 million in
1993. As a result, the Company’s total non-US services and products revenues
were as follows:

Year Ended December 31 (In millions) 1995 1994 1993
– —————————————————————————————-

Exports By U.S. Companies $ 98.6 $39.6 $19.5
Non-US Companies 71.4 52.5 33.3
—— —– —–
Total Non-US Services and Products Revenues $170.0 $92.1 $52.8
====== ===== =====
Percent of Total Services and Products Revenues 30.3% 22.5% 16.4%
====== ===== =====

18

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
American Management Systems, Incorporated

In our opinion, the accompanying consolidated financial statements
appearing on pages 3 to 18 of the 1995 Financial Statements present fairly, in
all material respects, the financial position of American Management Systems,
Incorporated and its subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company’s
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Washington, D.C.
February 14, 1996

19

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
revenue of major items in the Consolidated Statements of Operations and the
percentage change in such items from period to period (see “Financial Statements
and Notes”). The effect of inflation and price changes on the Company’s
revenues, income from operations, and expenses, is comparable to the general
rate of inflation in the U.S. economy.

Period-to-Period
Percentage of Total Revenue Change
————————— ——————-
1995 1994
vs. vs.
1995 1994 1993 1994 1993
– ——————————————————————————————————————–

Revenues
Services and Products 88.8% 88.9% 88.4% 37.4% 27.1%
Reimbursed Expenses 11.2 11.1 11.6 38.7 20.8
—– —– —–
100.0 100.0 100.0 37.5 26.3

Expenses
Client Project Expenses 55.1 53.6 52.0 41.2 30.4
Other Operating Expenses 30.4 30.5 31.8 37.3 21.2
Corporate Expenses 6.5 7.1 7.8 25.2 14.8
—– —– —–
92.0 91.2 91.6 38.6 25.9

Income from Operations 8.0 8.8 8.4 25.8 31.3

Other (Income) Expense 0.1 0.2 0.0 12.5 –
—– —– —–
Income Before Income Taxes 7.9 8.6 8.4 26.1 28.7

Income Taxes 3.3 3.5 3.5 28.0 24.8
—– —– —–
Net Income 4.6 5.1 4.9 24.8 31.5

Dividends and Accretion on Series B
Preferred Stock – 0.1 0.2 – (62.5)
—– —– —–
Net Income to Common Shareholders 4.6 5.0 4.7 26.4 35.9

Weighted Average Shares and Equivalents 5.2 5.4

Net Income per Common Share 20.0 30.4

20

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, forward-looking statements, orally or in writing, including, without
limitation, 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 in
this Form 10-K of important factors that could cause the Company’s actual
results to differ materially from those projected in such forward-looking
statements.

REVENUES

Services and products revenues (“S&P revenues”) increased 37% and 27%
during 1995 and 1994 compared to the preceding year. Over 85% of each year’s S&P
revenues came from clients for whom the Company performed services in prior
years. Looking ahead to 1996, the Company expects continued substantial growth;
however, at lower rates of increase than was experienced in 1995 and 1994.

Business with non-US clients increased 85% and 74% (to $170 million and $92
million) during 1995 and 1994, respectively, and accounted for approximately 51%
and 45% of the total S&P revenue increase of the Company for these two years.
Business with European clients has dominated the rise in non-US business,
increasing 83% (to $139 million) and 166% (to $76 million) in each of the past
two years, with revenues from Telecommunications Firms being the principal
driver. For the year 1996, the Company expects the rate of increase in non-US
business, and European business in particular, to be somewhat lower than the
rates of increase realized in 1995.

In the Telecommunications Firms market, S&P revenues increased 70% compared
to 1994. Over 79% of this increase is attributable to business with non-US
clients, which increased 109% during 1995 (to $129 million). Business in this
market is characterized by large projects, with relatively few clients.
Approximately 80% of the 1995 S&P revenues in this market came from work with 12
clients. Comparing 1994 to 1993, S&P revenues had increased 55% overall, with a
150% increase in non-US business. For 1996, the Company expects the annual
growth rate in this market will be below that for 1995 but greater than the
Company’s overall growth rate.

In the Financial Services Institutions target market, 1995 S&P revenues
increased 44% over 1994, owing principally to build-ups in business with clients
who started large projects in the second half of 1994. Business with non-US
clients account for approximately 28% of the revenues in this market ($37
million). Comparing 1994 to 1993, business in this market had increased 53%,
with approximately one-fourth of the 1994 increase attributable to the Company’s
acquisition of Vista Concepts, Inc., which occurred in December 1993. For 1996,
the Company expects S&P revenue growth in this market to increase at rates in
line with the Company’s overall revenue growth.

In the State and Local Government and Education target market, S&P revenues
increased 17% in 1995 and 24% in 1994. The 1995 increase was fueled by several
large contracts with state taxation departments seeking to make substantial
improvements in their ability to collect delinquent taxes. On some of these
contracts, the Company’s fees are paid out of the benefits (increased
collections) that the client achieves. For such contracts where the timing of
the benefits are uncertain, the Company defers revenues (and profits) until a
future date. The Company expects S&P revenues in the State and Local Government
and Education market to increase in 1996, at rates in line with the increase in
the Company’s overall S&P revenues.

21

S&P revenues in the Federal Government Agencies target market increased 9%
in 1995, after having decreased 4% in 1994. The Company expects S&P revenues in
this target market, for 1996, to increase at approximately the same rate as
1995.

S&P revenues from Other Corporate Clients increased 20% in 1995 and 5%
during 1994. S&P revenues from this market, which represents business not
covered by the Company’s other markets, for 1996, are expected to increase at a
rate in line with the Company’s overall growth in S&P revenues. The largest
contributor to the 1995 increase, and projected 1996 increase, is in the
Company’s business with health care institutions, where 1995 revenues exceeded
$13 million.

EXPENSES

Client project expenses and other operating expenses together increased
39%, approximately the same rate as the S&P revenue growth rate. While some
expenses such as, client project, recruiting, staff development, employee
relocation, and the European infrastructure, increased at rates greater than the
overall Company growth rate, other expenses, such as product support, research
and development, and business development, increased at rates below the overall
growth rate. Comparing 1994 to 1993, client project and other operating expenses
increased 27%, which was also the growth rate in S&P revenues. Looking to 1996,
the Company anticipates that these expenses will be more in line with the slower
revenue growth.

Corporate expenses increased 25% and 15% in 1995 and 1994, respectively.
For both years, the slower growth is principally due to the aggregate increases
in corporate sponsored technology and training programs, and performance-based
compensation accruals at rates slower than the revenue growth.

INCOME FROM OPERATIONS

Income from operations increased 26% in 1995, compared to 1994. This rate
of increase was less than the S&P revenue increase, because 1) the Company
invested heavily in building up its staff capacity, and 2) margins at the
project level were reduced due to the stress of absorbing so many new people.
Comparing 1994 to 1993, income from operations increased 31%, which was slightly
greater than the revenue growth rate. For 1996, if the Company is successful in
controlling the S&P growth rate, the Company expects profit margins to be
greater than the 1995 level.

OTHER (INCOME) EXPENSE

Interest expense increased 64% in 1995, and 102% in 1994, because of
interest payments on additional long-term debt incurred by the Company during
1993, 1994 and 1995. Other income increased 125% in 1995, compared to 1994, due
primarily to higher levels of short-term investments throughout 1995, when
compared to 1994.

INCOME TAXES

The Company’s effective tax rate for 1995 was 41.4% compared to 40.8% in
1994. The increase in tax rates is primarily due to 1995 losses in a foreign
subsidiary, and lower research tax credits. The 1993 effective tax rate was
42.1%.

22

FOREIGN CURRENCY EXCHANGE

Approximately 30% of the Company’s total S&P revenues in 1995, 23% in 1994,
and 16% in 1993, 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 objective in all cases, and
therefore the Company does take some risk that profits will be impacted by
foreign currency exchange fluctuations. However, these risks may be mitigated
to the extent to which the Company: 1) successfully negotiates short-term
contracts (one year or less), or 2) negotiates provisions that allow pricing
adjustments related to currency fluctuations.

LIQUIDITY AND CAPITAL RESOURCES

The Company provides for its operating cash requirements primarily through
funds generated from operations, using bank borrowings primarily for cash and
currency management with respect to the short term impact of certain cyclical
uses such as annual payments of incentive compensation. At December 31, 1995,
the Company’s cash and cash equivalents totaled $35.8 million, up from $34.2
million at the end of 1994. For 1995 cash provided from operating activities
was $13.0 million. Cash provided from operating activities was lower than
expected due to increases in the Company’s accounts receivable and to continued
delays in collecting accounts receivable related to subcontract work with a
prime contractor in the child support enforcement business, and a receivable
related to a contract with a foreign government which is experiencing continued
cash flow problems. The Company expects to receive all funds due from these
clients, and has received payments in recent months.

The Company invested over $28.5 million in purchases of fixed assets and
software, and in computer software development during 1995. The Company,
including its foreign subsidiaries, borrowed an aggregate of $26.5 million. Of
this total, $15.0 million represented two 7-year fixed rate borrowings. The
remaining net increase in borrowed money debt of $11.5 million consisted of
foreign currency borrowings by the Company’s foreign subsidiaries under the
Company’s $25 million revolving line of credit with a U.S. bank, all of which
borrowings remained at December 31, 1995. The aggregate weighted average
short-term borrowings during 1995 was approximately $15.6 million, at a weighted
average interest rate of 5.9%. During 1995, the Company made approximately $5.4
million in installment payments of principal on outstanding debt owed to banks;
the Company also received approximately $5.3 million during the period from the
exercise of stock options.

At December 31, 1995, the Company’s debt-equity ratio, as measured by total
liabilities divided by common stockholders’ equity, was 0.92, up from 0.82 at
December 31, 1994.

The Company’s material unused source of liquidity at the end of 1995
consisted of approximately $22.7 million under its revolving lines of credit. In
July 1994, the Company entered into a $15 million revolving credit facility with
a second U.S. bank, and in August 1994, increased its other revolving credit
facility from $15 million to $25 million. Accordingly, the Company’s aggregate
borrowing capacity under revolving lines of credit is $40 million. The Company
believes that its liquidity needs can be met from the various sources described
above.

All share and per share amounts (except with respect to historical
discussions of IBM holdings of common stock and except where otherwise noted)
have been adjusted to reflect the effect of the Company’s three-for-two stock
splits, effective January 5, 1996 and October 28, 1994, respectively.

23

ASSUMPTIONS UNDERLYING CERTAIN FORWARD-LOOKING

STATEMENTS AND

FACTORS THAT MAY AFFECT FUTURE RESULTS

In the next few years, the Company expects growth in both revenues and
profits to continue at rates slightly higher than the Company’s historical long-
term rates, although not at the exceptional rates posted in 1994 and 1995. This
more controlled and lower growth should enable the Company to improve its profit
margins which were reduced during the last two years owing to heavy investment
in building up staff capacity, infrastructure, and the stress of absorbing so
many new people.

The Company faces a number of risks in continuing to expand even at these
more moderate rates; and the principal risks are those 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.
In order to meet our contractual commitments, AMS must continue to be able to
successfully recruit, train, and assimilate large numbers of new employees
annually. Moreover, this staff must be re-deployed on projects throughout North
America, Europe, and other locations.

There is also the risk of successfully managing large projects and the risk
of a material impact on results because of the unanticipated suspension or
cancellation of a large project. The suspension or cancellation of a project
could result in a drop in revenues, the need to relocate staff, a potential
dispute with a client regarding money owed, and a diminution of AMS’s
reputation. Certain other risks, including, but not limited to, the Company’s
increasing international scope of operations, are discussed elsewhere in this
Form 10-K. Because the Company operates in a rapidly changing and highly
competitive market, additional risks not discussed in this Form 10-K may emerge
from time to time. The Company cannot predict such risks or assess the impact,
if any, such risks may have no 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.

24

FIVE-YEAR FINANCIAL SUMMARY

Year Ended December 31/1//
(In millions except share and per share data) 1995 1994 1993 1992 1991
– ——————————————————————————————————————————-
OPERATING RESULTS
– ——————————————————————————————————————————-

Services and Products Revenues $561.5 $408.8 $321.7 $295.5 $246.4
Total Revenues 632.4 459.9 364.0 332.5 284.4

Client Project Expenses 348.6 246.9 189.3 175.2 153.1
Other Operating Expenses 192.3 140.1 115.6 104.7 94.4
Corporate Expenses 40.8 32.6 28.4 23.2 16.8
—— —— —— —— ——
Total Operating Expense 581.7 419.6 333.3 303.1 264.3
—— —— —— —— ——

Income From Operations 50.7 40.3 30.7 29.4 20.1

Other (Income) Expense 0.9 0.8 – – (0.1)
—— —— —— —— ——

Income Before Income Taxes 49.8 39.5 30.7 29.4 20.2

Income Taxes 20.6 16.1 12.9 11.9 7.6

Income Before Cumulative Effect of —— —— —— —— ——
Change in Accounting Method 29.2 23.4 17.8 17.5 12.6

Cumulative Effect of Change in
Accounting for Income Taxes/2/ – – – 1.6 –
—— —— —— —— ——
Net Income 29.2 23.4 17.8 19.1 12.6

Dividends and Accretion on Series B
Preferred Stock – 0.3 0.8 1.5 1.5
—— —— —— —— ——
Net Income per Common Shareholders $ 29.2 $ 23.1 $ 17.0 $ 17.6 $ 11.1
====== ====== ====== ====== ======

PER COMMON SHARE DATA
– ——————————————————————————————————————————-

Income per Common Share Before Cumulative
Effect of Change in Accounting Method $ 0.72 $ 0.60 $ 0.46 $ 0.45 $ 0.32

Cumulative Effect per Common Share of
Change in Accounting for Income Taxes/3/ – – – 0.05 –
—— ——- —— —— ——
Net Income per Common Share $ 0.72 $ 0.60 $ 0.46 $ 0.50 $ 0.32
Weighted Average Shares and Equivalents 40,707,633 38,731,422 36,663,440 35,466,059 34,960,943
Common Shares Outstanding at Year End 40,040,454 39,294,780 36,258,602 35,265,923 33,683,625

FINANCIAL POSITION
– —————————————————————————————————————————–

Total Assets $337.5 $ 252.2 $185.0 $165.9 $146.5
Fixed Assets, Net 37.1 28.7 21.3 16.8 17.2
Working Capital 115.6 89.4 67.3 72.2 48.5
Noncurrent Liabilities 26.8 21.3 19.6 12.0 11.6
Stockholders’ Equity 175.5 138.3 99.0 85.8 62.2

____________________________________

/1/ 1991 amounts have been restated in accordance with the Company’s adoption,
in 1992, of new software revenue recognition principles. Additionally,
certain operating expenses for 1991-1993 have been reclassified for
comparative purposes.

/2/ In 1992, the Company adopted FAS 109 — Accounting for Income Taxes.

/3/ All share and per share data have been restated to reflect the
three-for-two stock split that was effective on January 5, 1996.

25

FIVE-YEAR REVENUES BY TARGET MARKET

Year Ended December 31 (In millions)/1/ /2/ 1995 1994 1993 1992 1991
– ————————————————————————————————————

Services and Products

Telecommunication Firms $205.2 $120.6 $ 77.8 $ 61.2 $ 32.4
Financial Services Institutions 131.3 91.5 59.9 57.1 49.7
State and Local Governments and Education 95.9 81.6 66.0 59.9 52.5
Federal Government Agencies 95.8 87.5 91.6 89.8 75.2
Other Corporate Clients 33.3 27.6 26.4 27.5 36.6
—— —— —— —— ——
Total Services and Products Revenues 561.5 408.8 321.7 295.5 246.4
Reimbursed Expenses Revenues 70.9 51.1 42.3 37.0 38.0
—— —— —— —— ——
Total Revenues $632.4 $459.9 $364.0 $332.5 $284.4
====== ====== ====== ====== ======

__________________________________

/1/ 1991 amounts have been restated in accordance with the Company’s adpotion,
in 1992, of new software revenue recognition principles.

/2/ Effective in 1993, the Company eliminated Energy Industry Clients as a
separately reported market with the revenues reclassified under Federal
Government Agencies and Other Corporate Clients.

26

SELECTED QUARTERLY FINANCIAL DATA AND INFORMATION ON AMS STOCK (UNAUDITED)

The following summary represents the results of operations for the two years
in the period ended December 31, 1995. The common stock of American Management
Systems, Inc., is traded in the NASDAQ over-the-counter market under the symbol
AMSY. References to the stock prices are the high and low bid prices during the
calendar quarters.

(In millions except per share data)

Net Income to Net Income
Income Before Common per Common Stock Bid Price
—————
Revenues Income Taxes Shareholders Share High Low
– ———————————————————————————————————————-
1995:
– ———————————————————————————————————————-

March 31 $135.7 $ 8.3 $ 4.9 $0.12 $14.000 $11.417
June 30 157.5 11.5 6.6 0.16 16.917 12.667
September 30 162.7 12.9 7.5 0.19 18.333 15.500
December 31 176.5 17.1 10.2 0.25 20.500 15.583

1994:
– ———————————————————————————————————————-

March 31 $100.3 $ 7.9 $ 4.5 $0.12 $ 9.111 $ 8.167
June 30 109.8 10.1 5.8 0.15 11.111 8.611
September 30 119.1 9.8 5.8 0.15 12.000 9.555
December 31 130.7 11.7 7.0 0.18 12.833 10.250

The Company has never paid any cash dividends on its common stock and does
not anticipate paying dividends in the foreseeable future. Its policy is to
invest retained earnings in the operation and expansion of its business. Future
dividend policy with respect to its common stock will be determined by the Board
of Directors based upon the Company’s earnings, financial condition, capital
requirements, and other then-existing conditions. The Company paid dividends of
$288,000 in 1994, and $834,000 in 1993 to the holder of the Series B Preferred
Stock. (See Note 3 of “Notes to Consolidated Financial Statements” in this
exhibit.) No shares of Series B Preferred Stock remain outstanding, having been
converted in 1994.

The approximate number of shareholders of record of the Company’s common
stock as of March 22, 1996 was 957.

27

OTHER INFORMATION

TRANSFER AGENT AND REGISTRAR

Chemical Mellon Shareholder Services, L.L.C.
Ridgefield Park, N.J.

INDEPENDENT ACCOUNTANTS

Price Waterhouse LLP
Washington, D.C.

COUNSEL

Shaw, Pittman, Potts & Trowbridge
Washington, D.C.

STOCKHOLDER AND 10-K INFORMATION

Financial inquiries should be directed to Frank A. Nicolai, Secretary of the
Company, American Management Systems, Incorporated, 4050 Legato Road, Fairfax,
Virginia 22033. Telephone (703) 267-8000. A complimentary copy of the
Company’s Annual Report on Form 10-K filed with the Securities and Exchange
Commission will be provided upon written request.

ANNUAL MEETING

The annual shareholders meeting has been scheduled for May 10, 1996 in Fairfax,
Virginia, for stockholders of record on March 22, 1996.

28

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

PROXY FOR ANNUAL MEETING OF SHAREHOLDERS — MAY 10, 1996

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.

The undersigned hereby appoints Charles O. Rossotti, Patrick W. Gross, and
Frank A. Nicolai, and each of them, as proxies, with full power of substitution
in each, to vote all shares of the common stock of American Management Systems,
Incorporated (the “Company”), which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company to be held on May 10, 1996 at
10:00 A.M. local time, and at any adjournment thereof, on all matters set forth
in the Notice of Annual Meeting and Proxy Statement, dated April 11, 1996, a
copy of which has been received by the undersigned, as follows on the reverse
side.

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED
“FOR” EACH OF THE MATTERS STATED.

1. ELECTION OF DIRECTORS: [_] GRANT AUTHORITY to vote for all nominees listed to
the right (except as marked to the contrary).

[_] WITHHOLD AUTHORITY to vote for all nominees
listed to the right.

Charles O. Rossotti, Patrick W. Gross, Paul A. Brands,
Philip M. Giuntini,Frank A. Nicolai, Daniel J.
Altobello, James J. Forese, Dorothy Leonard-Barton, W.
Walker Lewis, Frederic V. Malek.

INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee’s name in
the space provided below.

2. APPROVAL OF STOCK OPTION PLAN F:
[_] FOR [_] AGAINST [_] ABSTAIN

3. APPROVAL OF PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN FOR EXECUTIVE
OFFICERS:
[_] FOR [_] AGAINST [_] ABSTAIN

4. GRANT AUTHORITY upon such other matters as may come before the meeting,
including the adjournment of the meeting, as they determine to be in the best
interests of the Company:
[_] FOR [_] AGAINST [_] ABSTAIN

Dated: ______________________, 1996

____________________________________

____________________________________

Signature of Shareholder(s)

IMPORTANT: Please mark this Proxy, date, sign exactly as your name(s)
appear(s), and return in the enclosed envelope. If shares are held
jointly, signature need only include one name. Trustees and others
signing in a representative capacity should so indicate.



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