995-05-18_Def14a_0000950109-95-001277

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 to be held May 18, 1995, 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 19, 1995.

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 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 5 under the caption “Information Concerning Nominees for Director”;
for the approval of an amendment to the Company’s Restated Certificate of
Incorporation, as amended (the “Certificate of Incorporation”), increasing the
authorized number of shares of Common Stock, $0.01 par value per share (the
“Common Stock”); for the approval of an amended 1992 Amended and Restated Stock
Option Plan E, as amended (the “1992 Stock Option Plan E” or “1992 Plan E”); and
for the approval of the American Management Systems, Incorporated Outside
Directors Stock-for-Fees Plan (the “Stock-for-Fees Plan”).

On September 23, 1994, the Company announced a 3-for-2 split of its Common
Stock, effective October 28, 1994, for shareholders of record on October 7,
1994. 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 29, 1995, there were outstanding 26,489,645 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 29, 1995, will be
entitled to vote at the meeting.

Votes cast in person or by Proxy at the Annual Meeting of Shareholders,
abstentions and Broker Non-votes (as defined below) will be tabulated by the
election inspectors appointed for the meeting and will be considered in the
determination of 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 an
amendment to the Company’s Certificate of Incorporation, which will be approved
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock. 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. 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.

ELECTION OF DIRECTORS

Ten directors are to be elected at the Annual Meeting, each to hold office
until the next Annual Meeting 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 5. 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

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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 under
“Information Concerning Nominees for Director.”

Gordon R. Worley will retire from the Board of Directors effective
immediately prior to the Annual Meeting and will not stand for election this
year. The directors of the Company voted to reduce the number of directors
constituting the Board from eleven members to ten members, effective immediately
upon Mr. Worley’s retirement.

INFORMATION CONCERNING NOMINEES FOR DIRECTOR

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INFORMATION CONCERNING EXECUTIVE OFFICERS

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

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 29, 1995, the number and
percentage of outstanding shares beneficially owned by (i) all persons known by
the Company to own more than 5% of the Company’s Common Stock, (ii) each
director, (iii) each executive officer, and (iv) all executive officers and
directors as a group. Unless otherwise noted below, the persons or entities
named in the table have sole voting and sole investment power with respect to
each of the shares beneficially owned by such person or entity.

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/(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 29, 1995. Accordingly,
Mr. Fenster has 250 options vested and exercisable; Messrs. Malek and
Worley each have 3,248 options vested and exercisable; Mr. Forese has 998
options vested and exercisable; Dr. Leonard-Barton has 8,437 options
vested and exercisable; Mr. Brands has 31,117 options vested and
exercisable; Mr. Giuntini has 37,752

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options vested and exercisable; Dr. Forman has 24,469 options vested and
exercisable; Mr. Altobello has 4,311 options vested and exercisable; and
Messrs. Nicolai, Gross and Rossotti have no options vested and
exercisable. In addition, Mr. Giuntini’s beneficial ownership includes
32,552 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 (twelve persons) have beneficial ownership of
146,382 options vested and exercisable within 60 days of March 29, 1995.

/(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 29, 1995.

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

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

/(5)/ Includes 750 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 49 shares owned by Mr. Fenster’s
wife, an employee of the Company, who has sole power to vote and dispose
of such shares. Mr. Fenster disclaims beneficial ownership with respect
to the shares owned by his wife. Amount of beneficial ownership also
includes 4,590 shares owned by “Esther H. Fenster and Momoe Haas,
Trustees U/W/O George R. Fenster.” Mr. Fenster has a 50% remainder
interest in this trust and may be deemed to beneficially own the shares
held by the trust. Mr. Fenster disclaims beneficial ownership with
respect to the shares owned by the trust.

/(7)/ Amount of beneficial ownership includes 44,517 shares and 32,552 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.

/(8)/ Includes 114,750 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.

/(9)/ Includes 42,750 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.

/(10)/ Includes 121,500 shares each owned by two trusts, totaling 243,000
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 649,350 shares jointly owned by Mr. and Mrs. Rossotti, who
share joint power to vote and dispose of such shares.

/(11)/ Based solely on information provided by representatives of Dr. Selin and
records of the Company’s transfer agent, it is the Company’s
understanding that the amount of beneficial ownership includes 607,138
shares owned directly by Dr. Ivan Selin, and 465,140 shares owned
directly by Mrs. Nina Selin, Dr. Selin’s spouse, who has the sole power
to vote and dispose of such shares. Also includes 53,385 shares owned
directly by his son, Douglas Selin, and 51,990 shares owned directly by
his daughter, Jessica Selin. Dr. Selin disclaims beneficial ownership of
the shares owned by his spouse and children.

/(12)/ Based solely on the January 31, 1995 filing on Schedule 13G of The
Prudential Insurance Company of America (“Prudential”), it is the
Company’s understanding that Prudential may have direct or indirect
voting and/or investment discretion over 1,476,077 shares which are held
for the benefit of its clients by its separate accounts, externally
managed accounts, registered investment companies, subsidiaries and/or
other

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affiliates. Of such shares, Prudential has sole voting power and
sole dispositive power over 348,875 shares, and shared voting power and
shared dispositive power over 1,127,202 shares.

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 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, 1994 (the “1994 fiscal year”),
and representations by reporting persons that no other reports were required for
the 1994 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, 1994 to the Company’s
executive officers.

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/(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 below represent the final cash payment awarded for
successful completion of multi-year individual incentive compensation
plans. These awards are made based on the executive officer’s
performance over the entire term of the plan.

In connection with the October 1992 election of Mr. Brands as Vice
Chairman of the Company and Mr. Giuntini’s appointment as President of
the Company, the Compensation Committee of the Board of Directors
terminated their then existing incentive compensation plans as of the
end of fiscal 1992. Accordingly, the amounts shown as LTIP Payouts for
fiscal 1992 for Messrs. Brands and Giuntini represent a proportionate
share of the amount of the award to which each of them would have been
entitled had they completed such plan. In the case of Mr. Brands, the
amount of the LTIP Payout for fiscal 1992 represents his award for
completing one year of a three-year plan that covered fiscal 1992 to
1994, and in the case of Mr. Giuntini, the amount of the LTIP Payout for
fiscal 1992 represents his award for completing two years of the three-
year plan that covered fiscal 1991 to 1993.

/(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 and Messrs. Giuntini and
Forman for fiscal 1992, they include 20-year anniversary awards of
$2,000 each. These numbers also include other miscellaneous compensation
in immaterial amounts for several officers (less than $1,000 per
person).

Option Grants in Fiscal 1994

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
1994 fiscal year.

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(1) Mr. Gross’ 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. Mr.
Gross’ 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) Mr. Gross’ options were awarded with an exercise price equal to the market
value of the Company’s Common Stock on the date of grant.

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 1994 fiscal year of options to purchase
shares of Common Stock pursuant to the 1992 Stock Option 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 1994 fiscal year.

/(1)/ Based on the market value of the Company’s 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 Company’s Common Stock on the last
trading day of 1994 (as measured by the NASDAQ closing bid price of
$19.25), minus the exercise price.

Long-Term Incentive Plan Awards in Last Fiscal Year

Shown below is information with respect to awards made to the Company’s
executive officers during the Company’s 1994 fiscal year under long-term
incentive plans. If the performance goals set forth in the plans are met, the
executive officers will be entitled to receive the incentive compensation
indicated in the table below.

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(1) The long-term incentive compensation plans for Messrs. Brands and Giuntini
are based on pre-tax income targets. The multi-year portion of Mr. Gross’
incentive compensation plan sets a two-year performance goal, for fiscal
1994-1995, for new business development in specified target markets. The
long-term incentive compensation plans for Messrs. Nicolai and Forman
include pre-tax income and non-financial goals. Mr. Rossotti’s incentive
compensation plan was based on the Company’s pre-tax performance for
fiscal 1994 only and, therefore, is not includable in this table as long-
term incentive compensation.

(2) If the Compensation Committee determines that the officer has exceeded the
performance goals set forth in his incentive compensation plan, the
Committee may increase his incentive compensation award above the target
level indicated in the preceding column. The increase would be based on a
formula related to pre-tax income, in the case of Messrs. Brands and
Giuntini, and on the Committee’s judgment of their achievement of their
specified financial and non-financial goals, in the case of Messrs. Gross,
Nicolai and Forman.

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

The Compensation Committee of the Board of Directors, which is composed
entirely of outside directors of the Company (the “Outside Directors”), is
responsible for developing and making recommendations to the Board of Directors
with respect to the Company’s compensation policies generally. The Committee
approves the compensation plans for the Company’s executive officers, including
the Chief Executive Officer (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 granted to the
executive officers.

The Compensation Committee has furnished the following report for fiscal
1994:

Compensation 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.

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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 which 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. 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 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 long-term
incentive compensation plans tied to multi-year performance periods.

Incentive Compensation Plans. Each executive officer of the Company
generally participates in a two or three-year incentive compensation plan. 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 multi-year goals of the executive’s two- or three-year
plan. Some plans also contemplate awards of stock options under the Company’s
shareholder-approved stock option plan. Each executive officer has a plan which
details the executive officer’s goals, the primary 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.
Some plans 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 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

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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. As explained in more detail in note 1 to the Option Grant table,
preceding, only 900 option-shares were granted to executive officers in fiscal
1994, all to Mr. Gross in connection with his new multi-year incentive
compensation arrangement commencing in 1994.

In February 1994, the Compensation Committee approved two-year (1994-1995)
incentive compensation plans for Messrs. Brands and Giuntini, as described in
the Proxy Statement for the May 1994 Annual Meeting under “Proposal to Approve
the Performance-Based Incentive Compensation Plan for Executive Officers.” In
May 1994, the Compensation Committee approved 1994 and 1994-1995 incentive
compensation plans for Messrs. Nicolai and Forman, annual 1994 and 1995 plans
and a two-year (1994-1995) plan for Mr. Gross, and a 1994 plan for Mr. Rossotti.
All of these plans included the same pre-tax income target as a financial
performance goal. The plans for Messrs. Gross, Nicolai, and Forman also included
non-financial goals in their respective areas of responsibility, such as
managing various corporate supports to achieve certain operational goals within
budget. The two-year plan for Mr. Gross included additional financial
performance targets 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. All plans also required that each plan also included higher award
multiples for performance which exceeded the targets by a stated percentage.

In February 1995, the Compensation Committee determined that Messrs.
Brands, Giuntini, Rossotti, and Gross substantially met their financial goals
relative to fiscal 1994 and that Messrs. Nicolai, and Forman had substantially
met their non-financial performance goals, and determined that each had earned
the target payment of one incentive share. These amounts are shown in the
Summary Compensation Table under “Annual Compensation – Bonus.” The Committee on
February 28, 1995 also approved the interim stock option awards to Messrs.
Brands, Giuntini, Gross, Nicolai, and Forman contemplated by their approved
incentive compensation plans and based on achievement of the specified
performance goals for fiscal 1994. Mr. Rossotti’s 1994 incentive compensation
plan did not provide for stock options.

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, 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 last annual meeting.
The Incentive Compensation Plan for Executive Officers significantly limits the
Compensation Committee’s discretion regarding the amount of incentive
compensation paid to an employee covered by such Plan. Because the Compensation
Committee projects that it is unlikely that any Executive Officer other than the
Chief Executive Officer and the President will receive compensation that would
result in a loss of tax deductions under Section 162(m), use of the shareholder-
approved incentive compensation plan has to date been limited to the Chief
Executive Officer and the President. The Compensation Committee will continue to
monitor whether compensation of other Executive Officers 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 was designated Chief Executive Officer of
the Company in September 1993, received an annual base salary of $262,500 for
1994, which represented an increase of 5% over his base salary for 1993.
This increase was not based on any specific corporate performance factors. Mr.
Brands’ annual incentive compensation payments are determined by the
Compensation Committee

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based entirely on targets for the Company’s pre-tax income. His multi-year plan
in effect for fiscal 1994-1995 also contemplates awards of stock options under
the Company’s shareholder-approved stock option plan. The Company made no
initial interim award of options in 1994. Customarily, options representing 10%
of the target number of options to be granted under a multi-year plan are
awarded in the first year of such plan. Mr. Brands had received 1,800 options in
1993 under a 1993-1994 incentive compensation plan which was terminated by the
Compensation Committee at the same February 1994 meeting. In view of the early
termination of Mr. Brands’ 1993-1994 incentive compensation plan, the
Compensation Committee credited Mr. Brands’ 1994-1995 plan with such prior award
of 1,800 options.

Frederic V. Malek (Chairman)
Steven R. Fenster
James J. Forese
Dorothy Leonard-Barton
Gordon R. Worley

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SHAREHOLDER RETURN PERFORMANCE GRAPH

The following graph provides a comparison of the cumulative total return on
the Company’s 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.

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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 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 1994.

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
Committee administers the Company’s employee stock option plans (including 1992
Plan E), 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 Committee meets as required and met six times during 1994.

The Compensation Committee is presently composed of five Outside Directors:
Steven R. Fenster, James J. Forese, Dorothy Leonard-Barton, Frederic V. Malek,
and Gordon R. Worley. The Committee is responsible for developing and making
recommendations to the Board of Directors with respect to the Company’s
compensation policies generally. The 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 1994, the Compensation Committee met twice.

The Audit Committee is presently composed of four Outside Directors: Daniel
J. Altobello, Steven R. Fenster, James J. Forese, and Gordon R. Worley. 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 1994, 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, 1995.

The Board of Directors met five times during 1994, and all members attended
100% of the meetings of the Board and Committees of the Board on which they
serve. Outside Directors are currently entitled to receive fees of $3,000 per
Board meeting attended, plus travel expenses, and such fees and expenses were,
in fact, paid for all meetings attended in fiscal 1994. This fee will increase
to $5,000 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 1994. 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 or October 1994 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
Company’s Common Stock. James J. Forese, who became a director in November 1989,
was granted 5,000 options on November 10, 1989. 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 such Plan, Daniel J. Altobello was granted 7,500 options in
July 1993 when he first became a director. Also under the 1992 Stock Option Plan
E, Messrs. Fenster, Malek, and Worley each were granted 5,000 options in April
1993 because their options granted in 1988 had fully vested. Those grants were
made subject to shareholder

17

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. In addition, if the Stock-for-Fees Plan is approved by the
shareholders at the Annual Meeting, pursuant to such Plan, Outside Directors
will have the opportunity to have the annual retainer and meeting fees, which
would otherwise be paid to the Outside Directors in cash, paid in the form of
Common Stock. See “Proposal to Approve the Stock-for-Fees Plan.”

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Malek, Fenster, Forese, and Worley, and Ms. Leonard-Barton, served
as members of the Compensation Committee throughout fiscal 1994. All of the
foregoing persons continue to serve as members of the Compensation Committee.

James J. Forese is General Manager of IBM Customer Financing and Chairman,
IBM Credit Corporation. In November 1989, International Business Machines
Corporation (“IBM”) acquired Series B Preferred Stock of the Company convertible
into 1,755,000 shares of Common Stock. IBM converted in fiscal 1993 a total of
609,500 shares of Series B Preferred Stock (equivalent to 52% of the shares of
Series B Preferred Stock originally issued to IBM) into 914,250 shares of Common
Stock whereupon AMS purchased such shares of Common Stock from IBM for
approximately $18.7 million (based on the average market price of the underlying
Common Stock for the 20 trading days preceding the purchases). In May 1994, IBM
converted its remaining Series B Preferred Shares into 840,750 shares of Common
Stock and sold all of such shares in the open market.

Revenues earned by the Company, pursuant to a multi-year work agreement
with IBM and other consulting service contracts with IBM, amounted to $6,486,000
in 1994. The Company had $1,070,000 in accounts receivable due from IBM on
December 31, 1994. Margins earned by the Company under its contracts with IBM
fall within the range of margins earned on its other commercial contracts.

CERTAIN TRANSACTIONS

Shaw, Pittman, Potts & Trowbridge, general counsel to the Company, earned
fees and incurred reimbursable expenses totaling approximately $2,045,000 from
AMS in connection with legal services performed for the Company during 1994.
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.

Information concerning certain transactions between the Company and IBM is
provided above under the caption “Compensation Committee Interlocks and Insider
Participation.”

Charles O. Rossotti, Chairman of the Board, served during fiscal 1994 as,
and remains, a director of Caterair International Corporation, a non-publicly
held entity. Daniel J. Altobello, a director of the Company, is Chairman of the
Board, President and Chief Executive Officer of Caterair. Also, Mr. Altobello
owns more than 5% of the equity securities of Caterair.

In fiscal 1994, the Company earned revenues of approximately $579,000 from
systems planning consulting services performed for Caterair. Margins earned by
the Company under its contracts with Caterair fall within the range of margins
earned on the Company’s other commercial contracts.

PROPOSAL TO APPROVE AN AMENDMENT TO
THE CERTIFICATE OF INCORPORATION INCREASING THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK

An amendment (the “Charter Amendment”) to Article Fourth of the Restated
Certificate of Incorporation of the Company, as amended, was adopted by the
Board of Directors on February 24, 1995, subject to approval by the
shareholders. The text of the Charter Amendment is set forth in Exhibit A to
this Proxy Statement and is incorporated herein by reference, and the discussion
herein is qualified in its entirety by reference thereto. The Charter

18

Amendment increases the authorized number of shares of Common Stock from
40,000,000 to 100,000,000 shares. Shareholders of the Company’s Common Stock are
not entitled to preemptive rights.

The additional shares are likely to be used for stock splits which the
Company may authorize from time to time. The proposed increase in the authorized
number of shares is necessary to permit future stock splits. The Company has
split its stock five times since 1985, most recently in October 1994 and June
1992, when the Board of Directors authorized 3-for-2 splits. The cumulative
effect of these splits has multiplied one share at the beginning of 1985 into
13.5 shares currently. The additional shares proposed to be authorized could
also be used to satisfy stock options which may be granted under stock option
plans in the future or obligations under other stock-based compensation plans,
such as the Company’s Profit Sharing Plan or the Stock-for-Fees Plan (if
approved by the shareholders). Finally, it would also be possible for the
Company to issue the additional shares proposed to be authorized as stock
dividends or in connection with acquisitions, financings to raise funds, or
other actions to expand or enhance the Company’s business. At this time, the
Company does not contemplate any of these actions which would require the use of
unissued authorized shares, other than the satisfaction of obligations under
benefit plans and the possibility of future stock splits. Conceivably, it may be
possible for the issuance of additional shares to deter potential takeover
efforts if the additional shares were issued to persons who are opposed to such
efforts. However, the Company is not aware of any potential takeover efforts and
the proposed increase in the authorized number of shares was unrelated to any
such concern.

As of March 29, 1995, there were outstanding 26,489,645 shares of Common
Stock and 2,385,378 shares of Common Stock reserved for issuance upon exercise
of the options granted under the Company’s stock option plans. If the Charter
Amendment is approved by the shareholders, based on the number of shares
outstanding on March 29, 1995, there will be 73,510,355 shares of authorized but
unissued Common Stock. The issuance of additional authorized shares pursuant to
a stock split or stock dividend will not reduce the percentage of the total
number of outstanding shares held by any shareholder or have a dilutive
financial effect; the sale of any additional authorized shares will
proportionately reduce the percentage of the total number of outstanding shares
held by any shareholder, although such a sale will not have a dilutive financial
effect unless the additional shares are sold for less than the then fair market
value of the Common Stock. The Board of Directors does not anticipate issuing
additional shares of Common Stock for less than fair market value except to the
extent that the exercise price of employee stock options is less at the time of
the options’ exercise than the fair market value of the Common Stock.

The additional shares of Common Stock to be authorized under the Charter
Amendment may be issued from time to time by the Board of Directors without the
necessity of further shareholder action.

Approval of the Charter Amendment will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock. The Board of
Directors has unanimously adopted a resolution approving the Charter Amendment
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
intend to vote all shares in their control in favor of the Charter Amendment. In
the event that the Charter Amendment is not approved by the shareholders of the
Company at the Annual Meeting, the Board of Directors will reconsider it.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
INCREASING THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK

PROPOSAL TO APPROVE AN AMENDED
1992 STOCK OPTION PLAN E

Introduction and Summary Description of Proposed Amendments

The 1992 Amended and Restated Stock Option Plan E was adopted by the Board
of Directors on February 21, 1992, and was approved by the shareholders on May
8, 1992. The 1992 Stock Option Plan E was amended in 1993 to clarify the
definition of the term “Outside Director” and to provide for automatic grants of
non-qualified stock options to each Outside Director upon completion of five
years of service on the Board of Directors.

19

The shareholders are now being asked to approve 1992 Plan E, as amended by
amendments which were approved by the Board of Directors on February 24, 1995,
subject to shareholder approval (the “1992 Plan E Amendments” or the
“Amendments”). The 1992 Plan E Amendments provide that the nonqualified stock
options previously granted to an Outside Director who terminates his or her
membership on the Board of Directors following completion of at least ten (10)
years of continuous service as a member of the Board of Directors will continue
to vest as long as the individual survives. Thus, upon Gordon R. Worley’s
retirement from the Board of Directors, effective immediately prior to the
Annual Meeting, Mr. Worley’s 4,252 unvested options would not lapse that day,
and he would be able to exercise his 7,500 options until March 31, 1998. The
1992 Plan E Amendments further provide that options may be exercised by such
individual following resignation from the Board of Directors until the option
expires by its terms on the fifth anniversary of its date of grant. The 1992
Plan E Amendments also specify the maximum number of shares (100,000) with
respect to which options may be granted to an executive officer of the Company
during the life of the Plan. This maximum is a new requirement under Section
162(m) of the Internal Revenue Code.

The Board of Directors believes that the 1992 Plan E Amendments will
increase the Company’s ability to retain highly qualified Outside Directors and
compensate such Outside Directors for their services.

The text of 1992 Plan E as proposed to be amended, incorporating the
Amendments that are underlined, is set forth in Exhibit B to this Proxy
Statement. The foregoing description of the Amendments and the following
description of 1992 Plan E are qualified by reference to such text.

Summary Description of 1992 Plan E

The 1992 Stock Option Plan E provides that options to purchase Common Stock
of the Company 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”
are also eligible to receive options under 1992 Plan E. The 1992 Stock Option
Plan E defines “Outside Directors” as directors who have not at any time been
officers or employees of the Company. As of March 29, 1995, 1,049 key employees
(i.e., six executive officers, 104 Vice Presidents, 209 Senior Principals, and
—
730 Principals, including persons in comparable positions) and six Outside
Directors were eligible to participate in 1992 Plan E.

The 1992 Stock Option Plan E 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 the 1992 Stock Option Plan E, the Committee
has authority to determine the employees to be granted options, whether the
options are non-qualified 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 three 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 the 1992 Stock Option Plan E 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 the 1992 Stock Option Plan
E is non-discretionary. Currently, NSOs for 5,000 shares would be granted
automatically to any new Outside Director on the date of the

20

Outside Director’s first election or appointment to the Board. Following
completion of five years of service as an Outside Director, each Outside
Director currently would receive an additional grant of 5,000 shares. 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 same day of
each month thereafter for as long as the person continues to serve as a
director. The Plan 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.

The 1992 Stock Option Plan E currently authorizes the issuance of options
to purchase a maximum of 2,250,000 shares, which reflects stock splits in 1992
and 1994 and is subject to adjustment for future capital changes. Of this
number, 680,380 shares remain available as of March 29, 1995 for issuance
pursuant to options granted thereunder. Shares subject to options granted under
the 1992 Stock Option Plan E 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 the 1992 Stock Option Plan E in any single calendar year
for awards earned for one-year Performance Periods may not exceed 101,250
shares, in the case of Performance Periods beginning on or after January 1,
1992, 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 the Plan to any individual during the life
of the Plan is 100,000 shares, subject to adjustment for future capital changes.
The 1992 Stock Option Plan E as currently in effect does not impose this
maximum.

During the period between the adoption of the 1992 Stock Option Plan E on
February 21, 1992 and March 29, 1995, the Company has authorized the grant of
stock options to purchase an aggregate of 1,828,459 shares of Common Stock under
such Plan, including (i) options to purchase 17,775 shares granted to Patrick W.
Gross, Vice Chairman and Director, (ii) options to purchase 28,687 shares
granted to Paul A. Brands, Vice Chairman, Chief Executive Officer and Director,
(iii) options to purchase 27,783 shares granted to Philip M. Giuntini, President
and Director, (iv) options to purchase 3,600 shares granted to Frank A. Nicolai,
Executive Vice President, Secretary, Treasurer and Director, (v) options to
purchase 20,307 shares granted to Fred L. Forman, Executive Vice President, (vi)
options to purchase 98,152 shares granted to all current executive officers as
a group, (vii) options to purchase 25,014 shares granted to Donna E. Deeley, Mr.
Giuntini’s spouse and a Vice President of the Company, (viii) options to
purchase 1,689,057 shares granted to all current employees, including all
officers who are not executive officers, as a group, and (ix) options to
purchase 7,500 shares to each of Steven R. Fenster, Frederic V. Malek, Gordon
R. Worley and James J. Forese, and options to purchase 11,250 shares to Daniel
J. Altobello, as Outside Directors during this period. No options were granted
to Charles O. Rossotti during this period.

Under the 1992 Stock Option Plan E, 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.
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 the 1992 Stock Option Plan E, except those options
granted in connection with one-year incentive compensation plans, is the fair
market value of the Company’s 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 Company’s
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 Company’s Common Stock, as of a date, or over a
period, that is within three months of the date of grant.

Under the 1992 Stock Option Plan E, 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; provided, however, that no ISO granted on or before
December 31, 1986 may be exercised by an employee while there is outstanding any
ISO which was granted to such employee before the date of the ISO to be
exercised. 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).

21

For purposes of the 1992 Stock Option Plan E, 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 29, 1995, the closing bid price of the Common Stock was $19.50
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.

Under the 1992 Stock Option Plan E, the Board of Directors or the
appropriate Committee has the authority to permit an optionee to pay the
exercise price for shares using shares of the Company’s Common Stock owned for
at least three months, or a combination of cash and such previously-owned stock.

If the Company is merged, consolidated, sold, liquidated, or dissolved, the
1992 Stock Option Plan E also provides for the acceleration of the vesting of
options which would have vested within one year of any such event.

An option is not transferable during the lifetime of the optionee and 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 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.

Under the current version of the 1992 Stock Option Plan E, upon termination
of an Outside Director as a member of the Board of Directors for any reason
other than 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, legatees, or legal representatives, as the case may be, at any time
until the date on which the options expire by their original terms. If the 1992
Plan E Amendments are approved, termination of an Outside Director’s membership
on the Board of Directors by reason of retirement after completion of at least
ten (10) 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 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 ten weeks after
such death or disability. If not previously terminated, all unexercised ISOs
expire ten weeks after such date except if there is outstanding one or more ISOs
granted on or after January 1, 1986, but before January 1, 1987 (a “post-
January 1986 ISO”), then the period during which shares subject to a vested
post-January 1986 ISO may be purchased is automatically extended by one business
day beyond the expiration date (as extended) of the next earlier granted and
outstanding post-January 1986 ISO. 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 the 1992 Stock Option Plan E
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

22

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, 2002.

Tax Consequences

Information regarding the federal income tax consequences to the Company
and to optionees of options granted under the 1992 Stock Option Plan E 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 the 1992
Stock Option Plan E 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 engages 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.

If an optionee who is subject to the “short-swing profit liability” rules
under Section 16(b) of the Act purchases shares of Common Stock of the Company
within six months before the optionee exercises an NSO or an ISO, the tax
consequences of exercising the option which normally occur on the option
exercise date may be delayed for up to six months. In such a case, unless the
optionee makes an election under Section 83(b) of the Internal Revenue Code to
avoid the delay, the tax consequences which normally occur on the exercise date
of an ISO or NSO will occur on the first date on which a sale of the shares of
Common Stock acquired upon exercise of the option would not subject the optionee
to liability under Section 16(b) of the Act.

The 1992 Stock Option Plan E constitutes a new plan approved by the
shareholders on May 8, 1992, for purposes of the qualification of options
granted under such Plan, including any amendments thereto, as incentive stock
options under Section 422 of the Internal Revenue Code.

23

Plan Benefits

The number of stock options that would have been granted during the
Company’s 1994 fiscal year to each of the following persons or groups had the
1992 Plan E Amendments been in effect would not differ from the number which was
in fact granted under 1992 Plan E, as set forth below.

(1) Options which were granted during the Company’s 1994 fiscal year pursuant
to 1992 Plan E.

Required Vote

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 1992 Plan E, as amended by the Amendments, is required for approval
of the Amendments. The Board of Directors has unanimously adopted a resolution
approving 1992 Plan E, as amended by the Amendments, 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 1992 Plan E, as
amended by the Amendments. In the event that 1992 Plan E, as amended by the
Amendments, is not approved by the shareholders of the Company at the Annual
Meeting, the Board of Directors will reconsider the Amendments; unless and until
the Board of Directors takes such further action with respect to the Amendments,
however, the 1992 Plan E will remain in effect in accordance with its terms.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF AN AMENDED 1992 STOCK OPTION PLAN E

24

PROPOSAL TO APPROVE THE STOCK-FOR-FEES PLAN

The Board of Directors adopted on February 24, 1995, subject to the
approval of the Company’s shareholders, the American Management Systems Outside
Directors Stock-for-Fees Plan. The purpose of the Stock-for-Fees Plan is to
provide Outside Directors (directors who are not and have not been employees of
the Company or its subsidiaries) with a means of acquiring or increasing his
proprietary interest in the Company and thereby reinforce the common interest of
directors and shareholders in enhancing the value of the Company’s Common Stock.
If approved by the shareholders, the Stock-for-Fees Plan will give each Outside
Director the opportunity to have their annual retainer and meeting fees, which
would otherwise be paid to the Outside Director in cash, paid in the form of
Common Stock. The text of the Stock-for-Fees plan is set forth in Exhibit C to
this Proxy Statement and the following description of such Plan is qualified by
reference to such text.

The Stock-for-Fees Plan provides that only persons who will be Outside
Directors immediately after the Annual Meeting of Shareholders are entitled to
participate in such Plan. Each Outside Director may elect to have none, one-half
or all of the annual retainer and meeting fees otherwise payable paid in the
form of Common Stock. If the Outside Director elects to participate in the
Stock-for-Fees Plan, all of the annual retainer and meeting fees which would
otherwise be paid to the Outside Director in cash shall be paid in the form of
Common Stock. To comply with Securities and Exchange Commission rules, the
election will become effective six months following receipt by the Secretary of
the Company as to any retainer and meeting fees paid thereafter. An election to
participate continues in effect until (i) the date six months after the Outside
Director delivers to the Secretary written notice of an election to cease
participation; or (ii) the resignation, non-reelection, death or disability of
such Outside Director. An Outside Director who terminates participation in the
Stock-for-Fees Plan may again commence participation by filing a written notice
of election to be effective six months following receipt by the Secretary of the
Company as provided herein. If an Outside Director does not elect to
participate, all fees payable to the Outside Director will be paid in cash. The
Stock-for-Fees Plan has no effect on the amount of fees payable to an Outside
Director.

For participating Outside Directors, all fees payable for service as a
director will be used to purchase from the Company such number of whole shares
of the Common Stock of the Company as is determined by dividing the amount
payable by the closing price of the Company’s Common Stock on the determination
date (which shall be the date of the relevant Board of Directors meeting),
rounding up or down any fractional shares to the nearest whole share.

Each Outside Director who elects to participate in the Stock-for-Fees Plan
will be taxed upon the fair market value of Common Stock upon the issuance of
the Common Stock. For federal income tax purposes, this amount would be taxable
as compensation income from self-employment and the Company would be entitled to
a corresponding deduction.

The aggregate number of shares which may be purchased under the Stock-for-
Fees Plan will not exceed 100,000 shares of Common Stock. In the event of stock
splits and functionally equivalent capital changes to the Common Stock, the
number of shares will be adjusted proportionately automatically.

All five continuing Outside Directors of the Company as of the date of the
Annual Meeting are eligible to participate in the Stock-for-Fees Plan.

The Stock-for-Fees Plan will be administered by the Compensation Committee
of the Board of Directors.

The Board of Directors may amend, modify or terminate the Stock-for-Fees
Plan at any time, except that it may not, however, be amended more frequently
than once every six months. No amendment may, without approval of the
shareholders (i) increase the number of shares available for issuance under the
Stock-for-Fees Plan, except for adjustments in certain circumstances, (ii)
materially modify the requirements as to eligibility to participate, or (iii)
materially increase the benefits accruing to Outside Directors under the Stock-
for-Fees Plan.

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 the Stock-for-Fees Plan is required for approval of such Plan. The
Board of Directors has unanimously adopted a resolution approving the Stock-for-
Fees Plan and directed that it be submitted to the shareholders for their
consideration. The members of the Board of Directors and

25

the Company’s executive officers have advised the Company that they intend
to vote all shares in their control in favor of the Stock-for-Fees Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL
OF THE STOCK-FOR-FEES PLAN

OTHER MATTERS

The Board of Directors does not know of any matters to be presented at the
meeting other than those stated above. If any other business should come before
the meeting, including a vote to adjourn the 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 1996 Annual
Meeting, shareholder proposals intended to be presented at that meeting must be
received by the Company no later than December 18, 1995.

ANNUAL REPORT

A copy of the 1994 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 “1994 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 of the Corporation, American Management
Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033.

BY ORDER OF THE BOARD OF DIRECTORS,

Frank A. Nicolai
Secretary

April 19, 1995
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

26

EXHIBIT A

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED

AMENDMENT

TO ARTICLE FOURTH

Section 1. Authorized Shares. The total authorized capital stock of the
Corporation shall be 104,000,000 shares, consisting of 4,000,000 shares of
Preferred Stock, par value $.10 per share (herein called the “Preferred Stock”),
and 100,000,000 shares of Common Stock, par value $0.01 per share (herein called
the “Common Stock”).

EXHIBIT B

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
1992 AMENDED AND RESTATED STOCK OPTION PLAN E, AS AMENDED
AND IN EFFECT ON MARCH 29, 1995

(as Further Amended February 24, 1995, such Amendment
Subject to Shareholder Approval)

I. Purposes

There are three purposes of 1992 Amended and Restated Stock Option Plan E
(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 at the end of 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 three or
more 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 ten
percent 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 ten-percent 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.

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
percent 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 shall also 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 of Directors, or
shall interfere in any way with the right of the Corporation to terminate the
membership on the Board of Directors 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. For incentive stock plans granted after December 31, 1986, 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 of Directors 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.

– 2 –

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 2,250,000 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 previous 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 Per Year. 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 (i) 202,500 shares, in
the case of Performance Periods ending before January 1, 1992, and (ii) 101,250
shares in the case of Performance Periods beginning on or after January 1, 1992,
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. The maximum number of shares
—————————-
which may be subject to options granted under the Plan to any individual 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 schedule 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
periodically pursuant to a schedule selected 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 schedule selected
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 same day of each month thereafter, so
long as such Outside Director remains a member of the Board of Directors of the
Corporation 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 of
Directors 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 of any portion
of a vested option; provided, however, that (i) options granted to any director
or “officer” of the Corporation or “beneficial owner” of more than ten percent
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, and (ii) no incentive stock option
granted on or before December 31, 1986 may be exercised while there is
outstanding any incentive stock option which was granted before the date of the
incentive stock option to be exercised and which relates to stock in the
Corporation, in a corporation which at the time of granting the earlier
incentive stock option was a parent or

– 3 –

subsidiary of the Corporation, or in a predecessor corporation of any such
corporations. An incentive stock option is considered to be outstanding until
such incentive stock option is exercised in full or expires by reason of lapse
of time.

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
Committee or the Board, which price shall be at least equal to the fair market
value of the underlying Common Stock at the date at 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 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 of Directors or Committee, in
its sole discretion, and determined by the Board of Directors 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.

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 most recent 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 in cash, or in the sole
discretion of the Board or Committee, (i) by exchange of Common Stock of the
Corporation, or (ii) partly in cash and partly by exchange of such Common Stock,
provided that 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 three (3) months prior to the
date of exercise.

– 4 –

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. 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 of Directors 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 void. The “exercise period” for shares subject
to nonqualified stock options held by an employee, his 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 of
Directors 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 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 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 ten (10) weeks 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;
provided, however, that if there is outstanding one or more vested incentive
stock options granted on or after January 1, 1986, but before January 1, 1987 (a
“Post January 1986 Option”), then the period during which shares subject to a
Post January 1986 Option may be purchased shall be extended automatically by one
business day beyond the expiration date (as extended) of the next earlier
outstanding Post January 1986 Option. In no event will any granted and
outstanding incentive stock option expire more than three (3) months after the
date of the optionee’s termination of employment. The foregoing is illustrated
by the following examples. In the case of an employee whose employment is
terminated, except for death or disability, and who has several vested Post
January 1986 Options, the first would expire thirty (30) days after the date of
the employee’s termination; the second would expire thirty (30) days and one (1)
business day after the date of the employee’s termination and the third would
expire thirty (3) days and two (2) business days after the date of the
employee’s termination; and so on for up to three (3) months after the date of
the termination of the employee’s employment. In the case of an employee whose
employment is terminated because of death or disability and who has several Post
January 1986 Options, the first would expire ten (10) weeks after the date of
the employee’s termination; the second would expire ten (10) weeks and one (1)
business day after the date of the employee’s termination; and the third would
expire ten (10) weeks and two (2) business days after the date of termination of
the employee’s termination; and so on for up to three (3) months after the date
of the termination of the employee’s employment.

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

– 5 –

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, and each option shall be exercisable during the optionee’s
lifetime only by him. 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.
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 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 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. 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.

IX. 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 estate
and the executors, administrators or trustees thereof, his heirs and legatees,
and any receiver, trustee in bankruptcy or representative of creditors of such
optionee.

– 6 –

X. Termination and Amendment of the Plan

Subject to obtaining shareholder approval of this Amended and Restated
Stock Option Plan E at the annual meeting of the shareholders on May 8, 1992,
the Plan shall remain in effect until January 1, 2002, 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 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.

XI. 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 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.

XII. 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.

– 7 –

XIII. Approval of Plan; Effective Date

The plan was adopted by the Board of Directors on March 22, 1985, effective
as of March 22, 1985. The Plan was approved by the shareholders in May 1985. The
Plan was amended by resolutions of the Board February 21, 1986, February 17,
1987, March 8, 1987, and March 17, 1988. The Plan was further amended by the
Board of Directors on February 18, 1988, subject to shareholder approval at the
annual meeting of the shareholders on May 13, 1988. The Plan was further amended
by resolutions of the Board on January 7, 1991, and May 10, 1991. The Plan was
further amended and restated by the Board of Directors on February 21, 1992,
subject to, and effective upon, shareholder approval at the annual meeting of
the shareholders on May 8, 1992. The Plan was further amended by the Board of
Directors on February 24, 1993, subject to shareholder approval of the amendment
at the annual meeting of shareholders on May 14, 1993. The Plan was amended by
the Board of Directors on February 24, 1995, subject to shareholder approval of
the amendment at the annual meeting of shareholders on May 18, 1995.

– 8 –

EXHIBIT C

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED
OUTSIDE DIRECTORS STOCK-FOR-FEES PLAN

ARTICLE I – PURPOSE OF THE PLAN

The Outside Directors Stock-for-Fees Plan (the “Plan”) is intended to
provide a means by which individuals who serve as outside directors of American
Management Systems, Incorporated (the “Corporation”) may increase their
proprietary interest in the Corporation by electing to receive the annual
retainer and other fees earned in connection with service as a director in the
form of the Corporation’s $0.01 par value common stock (the “Common Stock”)
rather than in cash.

ARTICLE II – ELIGIBILITY

Each member of the Board of Directors of the Corporation who is not and has
not been an officer or employee of the Corporation (“Outside Director”) shall be
eligible to participate in the Plan.

ARTICLE III – SHARES SUBJECT TO PLAN

The number of shares authorized to be issued pursuant to the Plan is
100,000 shares of the Corporation’s Common Stock subject to adjustment as
provided herein. Those shares may consist, in whole or in part, of authorized
and unissued shares or shares previously acquired or to be acquired by the
Corporation and held in treasury. In the event of any stock dividend, stock
split or other event that is functionally equivalent to a stock split or stock
dividend, the number of remaining shares authorized for issuance under this Plan
shall be adjusted proportionately.

ARTICLE IV – ELECTION TO RECEIVE STOCK

Each Outside Director shall be permitted to receive the remuneration
otherwise payable to the Outside Director as an annual retainer and for
attending meetings of the Board of Directors and meetings of the committees of
the Board of Directors (“Director’s Fees”) in the form of Common Stock rather
than cash in accordance with the following provisions:

(a) Election to Participate. Each Outside Director shall have the
———————–
right to elect to receive Director’s Fees in the form of Common Stock rather
than cash by tendering an irrevocable written election to the Secretary of the
Corporation pursuant to which all Director’s Fees otherwise payable to the
Outside Director shall be paid in the form of Common Stock as provided in (b)
below. Each Outside Director may elect to have one-half or all of the
Director’s Fees paid in the form of Common Stock. Such election shall become
effective six (6) months after its delivery to the Secretary of the Corporation
by the Outside Director. Such election shall remain in effect until the earlier
of (i) the date six (6) months after such Outside Director shall have delivered
to the Secretary of the Corporation irrevocable written notice that his or her
participation shall cease as of the date six months following delivery of the
notice, or (ii) the date on which such Outside Director terminates as a member
of the Board of Directors by reason of resignation, non-reelection, death, or
disability. Any Outside Director who having terminated participation in the
Plan or having failed to elect to participate in the Plan may elect to
participate in the Plan as of the date six (6) months following delivery of
irrevocable written notice of such election to the Secretary of the Corporation.
An Outside Director who does not elect to have Director’s Fees paid in Common
Stock shall receive his or her remuneration in cash at such times that such
remuneration is otherwise due.

(b) Issuance of Shares. If an Outside Director elects to receive
——————
payment of Director’s Fees in the form of Common Stock, such Common Stock shall
be issued as soon as practicable after the annual meeting of shareholders or
meeting of the Board of Directors or committee of the Board of Directors to
which such remuneration relates. The number of shares of Common Stock to be
issued to such Outside Director shall be determined by dividing:

(i) the remuneration otherwise payable to the Outside Director, by

(ii) the closing price of the Corporation’s Common Stock on the
determination date (or, if the Corporation’s Common Stock is not
traded on such date, on the trading day immediately preceding the
date of the determination date), rounding up or down any
fractional share to the nearest whole share.

The determination date shall be the date of the relevant meeting of the
Board of Directors for which fees are payable.

(c) Restrictions on Shares. Shares of Common Stock issued under this
———————-
Plan shall be free of any restrictions except for restrictions applicable under
the Securities Exchange Act of 1934, as amended.

ARTICLE V – AMENDMENT AND TERMINATION

The Board of Directors of the Corporation may amend, modify, alter or
terminate the Plan; provided, however, that without the approval of the
shareholders of the Corporation:

(a) the number of Shares which may be reserved for issuance under the
Plan may not be increased except as provided in Article III hereof;

(b) the class of individuals who are eligible to participate in the
Plan shall not be modified; and

(c) the benefits accruing to Outside Directors under the Plan shall not
be increased materially;

provided, further, that the Plan may not be amended, modified, or altered
– ——– ——-
more than once in any six (6) month period.

ARTICLE VI – MISCELLANEOUS

(a) This Plan shall be administered by the Compensation Committee of
the Board of Directors.

(b) The Plan shall be construed in accordance with and governed by the
laws of the State of Delaware.

(c) This Plan shall become effective on the date on which it is
approved by the shareholders of the Corporation.

– 2 –

Appendix 1

AMERICAN MANAGEMENT SYSTEMS, INCORPORATED

1994 FINANCIAL REPORT

CONTENTS
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