<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1994
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 33-61022
POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT NO. 33-47244
POST-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT NO. 33-40079
POST-EFFECTIVE AMENDMENT NO. 4 TO REGISTRATION STATEMENT NO. 33-34375
POST-EFFECTIVE AMENDMENT NO. 5 TO REGISTRATION STATEMENT NO. 33-28185
POST-EFFECTIVE AMENDMENT NO. 7 TO REGISTRATION STATEMENT NO. 33-21145
- - - - - - - --------------------------------------------------------------------------------
- - - - - - - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3630868
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
10260 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 546-6000
(Address, including zip code, and telephone number,
including area code of Registrant's principal executive offices)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
DR. LORENZ A. KULL DOUGLAS E. SCOTT, ESQ.
President and Chief Operating Officer Corporate Vice President and General Counsel
Science Applications International Corporation Science Applications International Corporation
10260 Campus Point Drive 10260 Campus Point Drive
San Diego, California 92121 San Diego, California 92121
(619) 546-6000 (619) 546-6000
</TABLE>
(name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALES TO THE PUBLIC:
FROM TIME TO TIME AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED* BE REGISTERED PER UNIT** OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock,
par value $.01 per share................... 6,347,788 shs. $14.46 $91,789,015 $31,651.61
<FN>
*This Registration Statement also relates to an indeterminate number of
interests in the Science Applications International Corporation Cash or
Deferred Arrangement, the Science Applications International Corporation 1993
Employee Stock Purchase Plan, the Science Applications International
Corporation Stock Compensation Plan and the Science Applications International
Corporation Management Stock Compensation Plan pursuant to which certain of
the shares of Class A Common Stock offered pursuant to the Prospectus included
as part of this Registration Statement may be issued and delivered or sold.
**Estimated solely for the purpose of calculating the registration fee.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS
CONTAINED HEREIN WILL BE USED IN CONNECTION WITH THE SECURITIES COVERED BY THIS
REGISTRATION STATEMENT AND REGISTRATION STATEMENTS NOS. 33-61022, 33-47244,
33-40079, 33-34375, 33-28185 AND 33-21145.
- - - - - - - --------------------------------------------------------------------------------
- - - - - - - --------------------------------------------------------------------------------
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) OF REGULATION C AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... The Company; Government Contracts; Securities Offered
by the Prospectus
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page; Market Information
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Securities Offered by the Prospectus
8. Plan of Distribution................................. Outside Front Cover Page; Securities Offered by the
Prospectus; Market Information
9. Description of Securities to be Registered........... Securities Offered by the Prospectus; Description of
Capital Stock
10. Interest of Named Experts and Counsel................ Legal Opinion; Experts
11. Material Changes..................................... Not Applicable
12. Incorporation of Certain Information by Reference.... Information Incorporated by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS [LOGO]
28,360,000 SHARES OF CLASS A COMMON STOCK
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
Of the 28,360,000 shares of Class A Common Stock, par value $.01 per share,
of the Company (the "Class A Common Stock") offered hereby, 28,151,000 shares
may be offered and sold by the Company and 209,000 shares may be offered and
sold by certain directors of the Company (the "Selling Stockholders"). See
"Securities Offered by the Prospectus." The Company will not receive any portion
of the net proceeds from the sale of shares by the Selling Stockholders.
The 28,151,000 shares of Class A Common Stock offered by the Company are
anticipated to be offered as follows: (i) 3,000,000 shares may be offered and
sold by the Company (including shares sold by stockholders through the limited
market maintained by Bull, Inc. (the "Limited Market"), the sale of which may be
attributed to the Company) to present and future employees, consultants and
directors and to the trustees for the benefit of employees of certain
subsidiaries of the Company under their retirement plans; (ii) 50,000 shares may
be issued and delivered to a trustee for the benefit of employees under the
Company's Profit Sharing Retirement Plan II; (iii) 1,500,000 shares may be
issued and delivered to a trustee for the benefit of employees under the
Company's Employee Stock Ownership Plan; (iv) 2,250,000 shares may be issued and
delivered to a trustee for the benefit of employees under the Company's Cash or
Deferred Arrangement; (v) 1,000,000 shares may be awarded to employees and
directors under the Company's 1984 Bonus Compensation Plan; (vi) 600,000 shares
may be issued and delivered to a trustee for the benefit of employees under the
Company's Stock Compensation Plan and Management Stock Compensation Plan; (vii)
441,000 shares may be offered and sold to a trustee or agent for the benefit of
employees under the Company's 1993 Employee Stock Purchase Plan; and (viii)
19,310,000 shares may be issued upon the exercise of options granted and
available to be granted under the Company's 1982 and 1992 stock option plans.
The foregoing allocation of the total shares offered by the Company represents
the Company's current anticipated use of such shares and is provided for
illustrative purposes only. The actual number of shares offered and sold by the
Company under each category may exceed or be less than the indicated number. All
of the shares of Class A Common Stock offered hereby will be subject to certain
restrictions (including restrictions on their transferability) set forth in the
Company's Certificate of Incorporation (the "Certificate of Incorporation") and
may be subject to certain other contingencies. See "Securities Offered by the
Prospectus," "Employee Benefit Plans" and "Description of Capital Stock --
Common Stock -- Restrictions on Class A Common Stock." The Selling Stockholders
and all other stockholders (other than the Company) will pay a commission to
Bull, Inc., a wholly-owned subsidiary of the Company, equal to two percent of
the proceeds from the sale of shares of Class A Common Stock sold by them in the
Limited Market. Bull, Inc. is a registered broker-dealer whose business is
limited to effecting purchases and sales of the Company's securities. See
"Market Information -- The Limited Market."
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------
The purchase price of the shares of Class A Common Stock offered hereby,
other than those shares issuable upon exercise of options or awarded under the
Company's 1984 Bonus Compensation Plan, the Management Stock Compensation Plan
or the Stock Compensation Plan, will be the formula price described below (the
"Formula Price"). The Formula Price is reviewed four times each year, generally
in conjunction with Board of Directors meetings which are currently scheduled
for April, July, October and January and is subject to the limitation that in no
case may it be less than 90% of the net book value per share of Class A Common
Stock at the end of the quarter immediately preceding the date on which a price
revision is to occur. The price applicable to shares of Class B Common Stock,
par value $.05 per share, of the Company (the "Class B Common Stock") will be
equal to five times the Formula Price. The Formula Price is determined according
to the following formula (the "Formula"): the price per share is equal to the
sum of (i) a fraction, the numerator of which is the stockholders' equity of the
Company at the end of the fiscal quarter immediately preceding the date on which
a price revision is to occur ("E") and the denominator of which is the number of
outstanding common shares and common share equivalents at the end of that fiscal
quarter ("W(1)"), and (ii) a fraction, the numerator of which is 5.66 multiplied
by the market factor ("M" or "Market Factor"), multiplied by the earnings of the
Company for the four fiscal quarters immediately preceding the price revision
("P"), and the denominator of which is the weighted average number of
outstanding common shares and common share equivalents for those four fiscal
quarters, as used by the Company in computing primary earnings per share ("W").
The number of outstanding common shares and common share equivalents described
above assumes the conversion of each share of Class B Common Stock into five
shares of Class A Common Stock. The 5.66 multiplier is a constant which was
first included in the Formula in March 1976. The Market Factor is a numerical
factor which is intended to reflect existing securities market conditions
relevant to the valuation of the Class A Common Stock and the Class B Common
Stock. The Market Factor is generally reviewed quarterly by the Board of
Directors in conjunction with an appraisal which is prepared by an independent
appraisal firm for the committee administering the Company's qualified
retirement plans (the "Committee") and which is relied upon by the Committee and
the Board of Directors. See "Market Information -- Price Range of Class A Common
Stock and Class B Common Stock." Since January 14, 1994, the Market Factor has
been 1.5. Prior thereto and since April 12, 1991, the Market Factor was 1.4.
Subject to the limitation set forth above, the Formula Price of the Class A
Common Stock, expressed as an equation, is as follows:
<TABLE>
<S> <C> <C> <C>
FORMULA PRICE = E + 5.66MP
-- -------
W(1) W
</TABLE>
On April 9, 1994, the Formula Price was $14.46, and the price for the Class
B Common Stock was $72.30.
THE DATE OF THIS PROSPECTUS IS APRIL , 1994
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC"
or "Commission"), Washington, D.C., a Registration Statement under the
Securities Act of 1933 (the "Securities Act") with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits thereto. For further information,
reference is made to such Registration Statement and exhibits. Statements
contained in this Prospectus as to any contract, plan or other document are not
necessarily complete and in each instance reference is made to the copy of such
contract, plan or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. Copies of
the Registration Statement and the exhibits thereto may be inspected without
charge at the offices of the Commission listed below, and copies of all or any
part thereof may be obtained from the Commission upon payment of prescribed
fees.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
requirements of the Exchange Act, the Company files with the Commission,
reports, proxy statements and other information which can be inspected and
copied at the offices of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661-2511; and 75 Park Place, New York, New York
10007. Copies of such materials can be obtained at prescribed rates from the
Commission's Public Reference Section, Washington, D.C. 20549.
INFORMATION INCORPORATED BY REFERENCE
The following documents, each of which has been filed by the Company with
the Commission pursuant to the Exchange Act, are incorporated herein by
reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1994 (the "1994 10-K");
(ii) the Annual Reports of the Company's Employee Stock Purchase Plan
for the plan year ended January 31, 1994 and the Company's Cash or Deferred
Arrangement for the plan year ended December 31, 1993, which are filed as
exhibits to the 1994 10-K; and
(iii) The Company's Form 8-K Report dated February 18, 1994.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated herein by reference.
The Company undertakes to provide, without charge, to any person to whom a
copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any document incorporated by reference into this Prospectus,
without exhibits (unless such exhibits are incorporated by reference into such
documents). Requests for such copies should be directed to: Science Applications
International Corporation, 10260 Campus Point Drive, San Diego, California
92121, Attention: Corporate Secretary (telephone (619) 535-7323).
THE COMPANY
The Company provides diversified professional and technical services
("Technical Services") to and designs, develops and manufactures high-technology
products ("Products") for its customers. The Company's Technical Services and
Products have primarily been sold to departments and agencies of the U.S.
Government, including the Department of Defense ("DOD"), Department of Energy
("DOE"), Department of Transportation ("DOT"), Department of Veterans Affairs
("VA"), Environmental Protection Agency ("EPA") and National Aeronautics and
Space Administration ("NASA"). Revenues generated from the sale of Technical
Services and Products to the U.S. Government as a
2
<PAGE>
prime contractor or subcontractor accounted for 88% of revenues in fiscal years
1994, 1993 and 1992. The balance of the Company's revenues are attributable to
the sales of Technical Services and Products to foreign governments, commercial
customers and others.
The percentage of revenues attributable to Technical Services and Products
has remained relatively constant at approximately 92% and 8%, respectively, for
fiscal years 1994, 1993 and 1992. Within Technical Services, revenues are
further classified between "National Security" "Environment," "Energy" and
"Other Technical Services," the latter of which includes the Company's health,
space, transportation and commercial information technology business areas. The
percentage of Technical Services revenues attributable to National Security
related work has declined gradually as a percentage of total revenues and was
50% of Technical Services revenues for fiscal year 1994. For fiscal year 1994,
the Environment, Energy and other Technical Services business areas accounted
for 15%, 9% and 17%, respectively, of total revenues.
The Company's principal executive offices are located at 10260 Campus Point
Drive, San Diego, California 92121, telephone (619) 546-6000. As used in this
Prospectus, all references to the Company include, unless the context indicates
otherwise, Science Applications International Corporation and its predecessor
and subsidiary corporations.
GOVERNMENT CONTRACTS
Many of the U.S. Government programs in which the Company participates as a
contractor or subcontractor may extend for several years; however, such programs
are normally funded on an annual basis. All U.S. Government contracts and
subcontracts may be modified, curtailed or terminated at the convenience of the
government if program requirements or budgetary constraints change. In the event
that a contract is terminated for convenience, the Company would be reimbursed
for its allowable costs through the date of termination and would be paid a
proportionate amount of the stipulated profit or fee attributable to the work
actually performed.
Termination or curtailment of major programs or contracts of the Company,
particularly in research and development, could have a material adverse effect
on the results of the Company's operations. Although such contract and program
terminations have not had a material adverse effect on the Company in the past,
no assurance can be given that curtailments or terminations of U.S. Government
programs or contracts will not have a material adverse effect on the Company in
the future.
The Company's business with the U.S. Government and other customers is
generally performed under cost-reimbursement, time-and-materials, fixed-price
level-of-effort or firm fixed-price contracts. Under cost-reimbursement
contracts, the customer reimburses the Company for its direct costs and
allocable indirect costs, plus a fixed fee or incentive fee. Under
time-and-materials contracts, the Company is paid for labor hours at negotiated
hourly rates and reimbursed for other allowable direct costs at actual costs
plus allocable indirect costs. Under fixed-price level-of-effort contracts, the
customer pays the Company for the actual labor hours provided to the customer,
at negotiated hourly rates. Under firm fixed-price contracts, the Company is
required to provide stipulated products, systems or services for a fixed price.
Because the Company assumes the risk of performing a firm fixed-price contract
at the stipulated price, the failure to accurately estimate ultimate costs or to
control costs during performance of the work could result, and in some instances
has resulted, in losses. During the fiscal years ended January 31, 1994, 1993
and 1992, approximately 65%, 62% and 62%, respectively, of Technical Services
revenues were derived from cost-reimbursement type contracts and 12%, 16% and
22%, respectively, of the Technical Services revenues were from firm fixed-price
type contracts with the balance from time-and-materials and fixed-price
level-of-effort type contracts. In contrast, the majority of Products revenues
is derived from firm fixed-price type contracts.
Any costs incurred by the Company prior to the execution of a contract or
contract amendment are incurred at the Company's risk, and it is possible that
such costs will not be reimbursed by the customer. Unbilled receivables in this
category which were included in the Technical Services segment contract revenues
at January 31, 1994 were $16,047,000. Unbilled receivables in this category
which
3
<PAGE>
were included in the Products segment contract revenues at January 31, 1994 were
$181,000. Although no assurance can be given that the contracts or contract
amendments will be received or that the related costs will be recovered, the
Company expects to recover substantially all such costs.
Contract costs for services or products supplied to the U.S. Government,
including allocated indirect costs, are subject to audit and adjustments by
negotiations between the Company and U.S. Government representatives. Indirect
contract costs have been agreed upon through the fiscal year ended January 31,
1990. Contract revenues for subsequent years have been recorded in amounts which
are expected to be realized upon final settlement. However, no assurance can be
given that audits and adjustments for subsequent years will not result in
decreased revenues or profits for those years.
The Company is from time to time subject to certain Government inquiries and
investigations of its business practices. The Company does not anticipate any
action as a result of such inquiries and investigations which would have a
material adverse effect on its consolidated financial position or results of
operations or its ability to conduct business. On February 15, 1994, the Company
was served with search warrants and a subpoena for documents and records
associated with the performance by an operating unit of the Company under three
contracts with the DOD. The search warrants and the subpoena state that the
Government is seeking evidence regarding the making of false statements and
false claims to the DOD, as well as conspiracy to commit such offenses. The
Company has not been apprised of the details that the Government is
investigating nor has it been charged with any wrongdoing. Accordingly, the
Company is unable to assess the impact, if any, of this investigation on its
consolidated financial position, results of operations or ability to conduct
business. For additional information concerning the investigation, reference is
made to the Form 8-K Report filed by the Company on February 18, 1994 with the
SEC, which Form 8-K Report is incorporated herein by reference.
SECURITIES OFFERED BY THE PROSPECTUS
CLASS A COMMON STOCK OFFERED BY THE COMPANY
The shares of Class A Common Stock offered by the Company may be offered
directly or contingently to present and future employees, consultants and
directors of the Company or pursuant to the employee benefit plans of the
Company or its subsidiaries as described below. The Company believes that its
success is principally dependent upon the abilities of its employees,
consultants and directors. Therefore, since its inception, the Company has
pursued a policy of offering such persons an opportunity to make an equity
investment in the Company as an inducement to such persons to become or remain
employed by or affiliated with the Company.
DIRECT AND CONTINGENT SALES TO EMPLOYEES, CONSULTANTS, DIRECTORS AND CERTAIN
SUBSIDIARY RETIREMENT PLANS
At the discretion of the Board of Directors or the Operating Committee of
the Board of Directors (the "Operating Committee"), employees, directors and
consultants may be offered an opportunity to purchase in the Limited Market a
specified number of the shares of Class A Common Stock offered hereby. All such
direct and contingent sales to employees, directors and consultants are effected
through the Limited Market and may be attributed to the Company. Pursuant to the
Certificate of Incorporation, all shares of Class A Common Stock offered by the
Company, directly or contingently, to its employees, consultants or directors
are subject to a right of first refusal and a right of repurchase upon
termination of employment or affiliation. See "Description of Capital Stock --
Common Stock -- Restrictions on Class A Common Stock." In addition, the trustees
of certain retirement plans of subsidiaries of the Company may purchase shares
in the Limited Market on behalf of plan participants, which sales may be
attributable to the Company.
PROFIT SHARING RETIREMENT PLAN II
The Company maintains a profit sharing retirement plan (the "Profit Sharing
Retirement Plan II") which is intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as
4
<PAGE>
amended (the "Code"). Generally, employees of eligible groups within the Company
who have attained the age of 21, completed 12 months of employment and completed
850 hours of service with the Company during one of the applicable 12-month
computational periods are eligible to participate as of the next semi-annual
entry date. Interests of participants in the Profit Sharing Retirement Plan II
vest in accordance with a vesting schedule and other vesting rules set forth in
the Plan. Benefits are payable to a participant in cash within certain specified
time periods following such participant's retirement, permanent disability,
death or other termination of employment. The amount of the Company's annual
contribution to the Profit Sharing Retirement Plan II is determined by, and
within the discretion of, the Board of Directors and may be in the form of cash
or Class A Common Stock. To the extent permitted under the rules of the
committee administering the Plan, each participant may designate that up to 20%
of the Company's contributions allocated to his or her account be invested in
securities of the Company. See "Employee Benefit Plans -- Profit Sharing
Retirement Plan II."
EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an employee stock ownership plan (the "Employee Stock
Ownership Plan") which is a stock bonus retirement plan intended to be qualified
under Section 401(a) of the Code. Generally, employees who have attained the age
of 21, completed 12 months of employment and completed 850 hours of service with
the Company during one of the applicable 12-month computational periods are
eligible to participate as of the next semi-annual entry date, except employees
of groups or units designated as ineligible. Interests of participants in the
Employee Stock Ownership Plan vest in accordance with a vesting schedule and
other vesting rules set forth in the Plan. Each participant, however, is at all
times 100% vested in any amounts transferred from the Cash or Deferred
Arrangement. Benefits are generally payable to a participant in cash, unless the
participant elects, subject to requirements and limitations set forth in the
Employee Stock Ownership Plan, to receive a distribution in shares of stock, and
are payable within certain specified time periods following such participant's
retirement, permanent disability, death or other termination of employment. The
amount of the Company's annual contribution to the Employee Stock Ownership Plan
is determined by, and within the discretion of, the Board of Directors and may
be in the form of cash or Class A Common Stock. Pursuant to the Employee Stock
Ownership Plan and the Certificate of Incorporation, any shares of Class A
Common Stock distributed out of the Employee Stock Ownership Plan will be
subject to a right of first refusal on behalf of the Company and the Employee
Stock Ownership Plan, but will not be subject to the Company's right of
repurchase upon termination of employment or affiliation. See "Employee Benefit
Plans -- Employee Stock Ownership Plan" and "Description of Capital Stock --
Common Stock -- Restrictions on Class A Common Stock."
CASH OR DEFERRED ARRANGEMENT
The Company maintains a Cash or Deferred Arrangement (the "CODA") which is
intended to be qualified under Sections 401(a) and (k) of the Code. Generally,
all employees are eligible to participate, except for employees of groups or
units designated as ineligible. The CODA permits a participant to elect to
defer, for federal income tax purposes, a portion of his or her annual
compensation and to have such amount contributed directly by the Company to the
CODA for his or her benefit. The Company may, but is not obligated to, make a
matching contribution for the benefit of those participants who have elected to
defer a portion of their compensation. The amount of the matching contribution
currently is equal to 30% of the first $2,000 and 15% of amounts above $2,000
which participants have elected to defer in that year. No matching contribution
is provided on amounts deferred in excess of 10% of a participant's
compensation. Further, employees of certain participating groups or units have
been designated as ineligible to receive a matching contribution. The Company
may also make additional contributions in order to comply with Section 401(k) of
the Code. The Company's contributions to the CODA are made in cash unless the
Board of Directors determines to make the contributions in shares of Class A
Common Stock or some other form. Each participant is at all times 100% vested in
his or her CODA account. Benefits are payable to a participant in cash within
certain specified time periods following such participant's retirement,
permanent disability, death or other termination of employment. See "Employee
Benefit Plans -- CODA."
5
<PAGE>
BONUS COMPENSATION PLAN
The Company maintains a bonus compensation plan (the "Bonus Compensation
Plan") which provides for the payment of bonuses in cash and/or shares of Class
A Common Stock to officers, directors and employees. Awards of shares of Class A
Common Stock are distributed during each fiscal year and may be subject to
forfeiture, in whole or in part, in the event of the termination of the
recipient's employment or affiliation with the Company prior to the expiration
of certain vesting periods as determined by the committee administering the
Plan. Pursuant to the Certificate of Incorporation, all shares of Class A Common
Stock awarded pursuant to the Bonus Compensation Plan will be subject to the
Company's right of first refusal and the Company's right of repurchase upon
termination of employment or affiliation. See "Employee Benefit Plans -- Bonus
Compensation Plan" and "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock."
STOCK COMPENSATION PLANS
On April 9, 1994, the Company adopted the Stock Compensation Plan ("Stock
Compensation Plan") and the Management Stock Compensation Plan ("Management
Stock Compensation Plan"), together referred to as the "Stock Compensation
Plans." The Stock Compensation Plans provide for awards of Share Units to
eligible employees of the Company, which Share Units generally correspond to
shares of Class A Common Stock which are held in a trust for the benefit of
participants in the Stock Compensation Plans, but which are subject to claims of
creditors of the Company in the event of the bankruptcy or insolvency of the
Company. Awards under the Stock Compensation Plans are subject to forfeiture, in
whole or in part, in the event of termination of the recipient's employment with
the Company, commencement of a leave of absence from the Company (other than for
disability, qualified military leave or qualified family medical leave) or
conversion to consulting employee status prior to the expiration of applicable
vesting periods as determined by the committee administering the Stock
Compensation Plans. Pursuant to the Certificate of Incorporation, all shares of
Class A Common Stock distributed from the trust associated with the Stock
Compensation Plans will be subject to the Company's right of first refusal and
the Company's right of repurchase upon termination of employment. See "Employee
Benefit Plans -- Stock Compensation Plans" and "Description of Capital Stock --
Common Stock -- Restrictions on Class A Common Stock."
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains the 1993 Employee Stock Purchase Plan (the "Stock
Purchase Plan") for the benefit of substantially all of its employees. The Stock
Purchase Plan provides for the purchase of Class A Common Stock through payroll
deductions by participating employees and is intended to qualify under Section
423(b) of the Code. Participants contribute 95% of the purchase price of the
Class A Common Stock and the Company contributes the remaining five percent. All
shares purchased pursuant to the Stock Purchase Plan will be distributed within
90 days after the end of the plan year in which they were purchased and,
pursuant to the Certificate of Incorporation, will be subject to the Company's
right of first refusal and the Company's right of repurchase upon termination of
employment or affiliation. The Stock Purchase Plan will expire on July 31, 1995.
See "Employee Benefit Plans -- 1993 Employee Stock Purchase Plan" and
"Description of Capital Stock -- Common Stock -- Restrictions on Class A Common
Stock."
STOCK OPTION PLANS
Pursuant to the Company's 1992 Stock Option Plan, the Company grants stock
options to certain of its employees, consultants and directors. Although the
Company's 1982 Stock Option Plan terminated on June 10, 1992 and no additional
stock options can be granted under that Plan, certain stock options remain
outstanding. Stock options under the 1992 Stock Option Plan may be granted
contingent upon an employee or consultant obtaining a certain level of contract
awards for the Company within a specified period or upon other performance
criteria and, in many cases, a requirement that such individual also purchase a
specified number of shares of Class A Common Stock in the Limited Market at the
prevailing Formula Price. Pursuant to the Certificate of Incorporation, all
shares of Class A Common Stock issuable upon the exercise of such stock options
will be subject to the
6
<PAGE>
Company's right of first refusal and the Company's right of repurchase upon
termination of employment or affiliation. See "Employee Benefit Plans -- Stock
Option Plans" and "Description of Capital Stock -- Common Stock -- Restrictions
on Class A Common Stock."
CLASS A COMMON STOCK OFFERED BY THE SELLING STOCKHOLDERS
The Selling Stockholders may sell up to an aggregate of 209,000 shares of
the Class A Common Stock being offered hereby in the Limited Market or
otherwise. The Selling Stockholders will not be treated more favorably than
other stockholders participating in the Limited Market and, like all
stockholders selling shares in the Limited Market (other than the Company), will
pay the Company's wholly-owned subsidiary, Bull, Inc., a commission equal to two
percent of the proceeds from their sales. See "Market Information -- The Limited
Market." Pursuant to the Certificate of Incorporation, all of the shares of
Class A Common Stock purchased in the Limited Market from the Selling
Stockholders will be subject to the Company's right of first refusal and the
Company's right of repurchase upon termination of employment or affiliation. See
"Description of Capital Stock -- Common Stock -- Restrictions on Class A Common
Stock."
The following table sets forth information as of March 14, 1994 with respect
to the number of shares of Class A Common Stock owned by each Selling
Stockholder (including shares issuable upon the exercise of outstanding stock
options which are exercisable within 60 days of such date and shares allocated
to such person's accounts as of such date under the Company's employee benefit
plans) and as adjusted to reflect the sale of all shares of Class A Common Stock
being offered hereby by such Selling Stockholder. The table does not give effect
to the sale of any shares of Class A Common Stock being offered by the Company.
Each of the Selling Stockholders has been a director and/or officer of the
Company for the past three years. Except as indicated below, all the shares are
owned of record and beneficially.
7
<PAGE>
<TABLE>
<CAPTION>
OWNERSHIP
PRIOR OWNERSHIP
TO OFFERING AFTER OFFERING
-------------- NUMBER -------------------------
NUMBER OF SHARES NUMBER
NAME POSITION OF SHARES OFFERED OF SHARES PERCENT(1)
- - - - - - - ---------------- ---------------------------------------- -------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
J.R. Beyster Chairman of the Board and Chief 874,115(2) 40,000 834,115(2) 1.9%
Executive Officer
V.N. Cook Vice Chairman of the Board 46,190 20,000 26,190 *
S.J. Dalich Director and Executive Vice President 95,653 15,000 80,653 *
E.A. Frieman Director 36,706 10,000 26,706 *
D.A. Hicks Director 12,814 5,000 7,814 *
L.A. Kull Director, President and Chief Operating 259,754(2) 4,000 255,754(2) *
Officer
M.R. Laird Director 38,659 10,000 28,659 *
W.M. Layson Director and Senior Vice President 114,871(2) 10,000 104,871(2) *
J.W. McRary Vice Chairman of the Board and Executive 225,855 35,000 190,855 *
Vice President
B.J. Shillito Director 66,048(3) 5,000 61,048(3) *
E.A. Straker Director and Sector Vice President 111,561(2) 20,000 91,561(2) *
J.H. Warner, Jr. Director and Executive Vice President 138,153 25,000 113,153 *
J.A. Welch Director and part-time employee 25,472 10,000 15,472 *
-------------- --------- ------------ --
2,045,851 209,000 1,836,851 4.2%
<FN>
- - - - - - - ------------------------
(1) Based upon the total number of outstanding shares of Class A Common Stock
at March 14, 1994. Assuming that each outstanding share of Class B Common
Stock is converted into five shares of Class A Common Stock, Dr. Beyster
and all Selling Stockholders as a group would own 1.8% and 4.0%,
respectively, after the offering.
(2) Includes shares owned of record by family members and/or trusts.
(3) Excludes 85,810 shares owned of record by family members and/or trusts that
are not beneficially owned by Mr. Shillito.
* Represents less than one percent of the outstanding shares of Class A
Common Stock at March 14, 1994.
</TABLE>
The 209,000 shares of Class A Common Stock registered for sale by the
Selling Stockholders listed above represent only the maximum number of shares
that may be sold by such persons pursuant to this Prospectus. Of the 295,428
shares of Class A Common Stock offered by certain of the directors of the
Company pursuant to the Company's previous Prospectus dated April 26, 1993, only
34,890 shares were actually sold by such persons.
MARKET INFORMATION
THE LIMITED MARKET
Since its inception, the Company has followed a policy of remaining
essentially employee owned. As a result, there has never been a general public
market for any of the Company's securities. In order to provide liquidity for
its stockholders, however, the Company has maintained a limited secondary market
(the "Limited Market") through its wholly-owned subsidiary, Bull, Inc., which
was organized in 1973 for the purpose of maintaining the Limited Market.
The Limited Market generally permits existing stockholders to sell shares of
Class A Common Stock on four predetermined days each year (each a "Trade Date").
All shares of Class B Common
8
<PAGE>
Stock to be sold in the Limited Market must first be converted into five times
as many shares of Class A Common Stock. All sales are made at the prevailing
Formula Price to employees, consultants and directors of the Company who have
been approved by the Board of Directors or the Operating Committee as being
entitled to purchase up to a specified number of shares of Class A Common Stock.
In addition, the trustees of the Company's Profit Sharing Retirement Plan II,
Employee Stock Ownership Plan, CODA, 1993 Employee Stock Purchase Plan, Stock
Compensation Plans and certain retirement plans of the Company's subsidiaries
may also purchase shares of Class A Common Stock for their respective trusts in
the Limited Market. All sellers in the Limited Market (other than the Company)
pay Bull, Inc. a commission equal to two percent of the proceeds from such
sales. No commission is paid by purchasers in the Limited Market.
In the event that the aggregate number of shares offered for sale is greater
than the aggregate number of shares sought to be purchased by authorized buyers
and the Company, offers to sell 500 shares or less of Class A Common Stock or up
to the first 500 shares if more than 500 shares of Class A Common Stock are
offered by any seller will be accepted first. Offers to sell shares in excess of
500 shares of Class A Common Stock will be accepted on a pro-rata basis
determined by dividing the total number of shares remaining under purchase
orders by the total number of shares remaining under sell orders. If, however,
there are insufficient purchase orders to support the primary allocation of 500
shares of Class A Common Stock for each proposed seller, then the purchase
orders will be allocated equally among all of the proposed sellers up to the
total number of shares offered for sale. To the extent that the aggregate number
of shares sought to be purchased exceeds the aggregate number of shares offered
for sale, the Company may, but is not obligated to, sell authorized but unissued
shares of Class A Common Stock in the Limited Market.
The Company is currently authorized, but not obligated, to purchase up to
1,250,000 shares of Class A Common Stock in the Limited Market on any Trade
Date, but only if and to the extent that the number of shares offered for sale
by stockholders exceeds the number of shares sought to be purchased by
authorized buyers and the Company, in its discretion, determines to make such
purchases. The Company did not purchase shares in the Limited Market in fiscal
year 1994. In fiscal year 1993, the Company purchased 54,559 shares in the
Limited Market. The Company's purchases in fiscal year 1993 accounted for 2% of
the total shares purchased by all buyers in the Limited Market during that year.
During the 1994 and 1993 fiscal years, the trustees of the Company's Profit
Sharing Retirement Plan II, Employee Stock Ownership Plan, CODA and 1993
Employee Stock Purchase Plan purchased an aggregate of 1,824,077 shares and
1,808,961 shares, respectively, in the Limited Market. These purchases accounted
for approximately 81% and 79% of the total shares purchased by all buyers in the
Limited Market during fiscal years 1994 and 1993, respectively. Such purchases
may change in the future, depending on the levels of participation in and
contributions to such plans and the extent to which such contributions are
invested in Class A Common Stock. To the extent that purchases by the trustees
of the Company's employee benefit plans decrease and purchases by the Company do
not increase, the ability of stockholders to resell their shares in the Limited
Market will likely be adversely affected.
The Company received a no-action letter from the SEC (the "SEC Letter") that
authorizes the Company and the Employee Stock Ownership Plan to commence on an
annual basis, at the Company's discretion, a joint tender offer (a "Tender
Offer") to purchase all shares of the Company's Class A Common Stock held by
persons who are not directors, employees or consultants of the Company (or
family members of, or trustees for, such employees, directors or consultants of
the Company) as of the date the Tender Offer is commenced (the "Outside
Stockholders"). Under current federal income tax laws, the Tender Offer, as
structured, would allow Outside Stockholders who tender certain shares purchased
by the Employee Stock Ownership Plan to defer the payment of federal income tax
under Section 1042 of the Code on any capital gain derived from the sale,
provided certain conditions are met.
9
<PAGE>
The Company and the Employee Stock Ownership Plan have completed one Tender
Offer pursuant to which the Employee Stock Ownership Plan purchased on November
20, 1992 an aggregate of 700,444 shares of Class A Common Stock from 186 Outside
Stockholders. The Company has not yet determined whether it will commence a
Tender Offer during calendar year 1994. There can be no assurance that a Tender
Offer will be commenced in the future or, if commenced, that it will be
completed. If a Tender Offer is undertaken in the future, the Company will be
required to take certain actions to ensure that such Tender Offer does not
negatively affect the liquidity of the Limited Market on the Trade Date upon
which such Tender Offer is completed.
PRICE RANGE OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The Formula set forth on the cover page of this Prospectus is used to
determine the Formula Price at which the Class A Common Stock trades in the
Limited Market. The Formula Price is reviewed at least four times each year,
generally in conjunction with Board of Directors meetings which are currently
scheduled for April, July, October and January, and is subject to the limitation
that the price may not be less than 90% of the net book value per share of the
Class A Common Stock at the end of the quarter immediately preceding the date on
which the price revision is to occur. Pursuant to the Certificate of
Incorporation, the price applicable to shares of Class B Common Stock is equal
to five times the Formula Price.
The Formula Price is determined according to the following formula: the
price per share is equal to the sum of (i) a fraction, the numerator of which is
the stockholders' equity of the Company at the end of the fiscal quarter
immediately preceding the date on which a price revision is to occur ("E") and
the denominator of which is the number of outstanding common shares and common
share equivalents at the end of such fiscal quarter ("W(1)") and (ii) a
fraction, the numerator of which is 5.66 multiplied by the market factor ("M" or
"Market Factor"), multiplied by the earnings of the Company for the four fiscal
quarters immediately preceding the price revision ("P"), and the denominator of
which is the weighted average number of outstanding common shares and common
share equivalents for those four fiscal quarters, as used by the Company in
computing primary earnings per share ("W"). The number of outstanding common
shares and common share equivalents described above assumes the conversion of
each share of Class B Common Stock into five shares of Class A Common Stock. The
5.66 multiplier is a constant which was first included in the Formula in March
1976. The Market Factor is a numerical factor which is intended to reflect
existing securities market conditions relevant to the valuation of the Class A
Common Stock and the Class B Common Stock. The Market Factor is generally
reviewed quarterly by the Board of Directors in conjunction with an appraisal
which is prepared by an independent appraisal firm for the committee
administering the Company's qualified retirement plans (the "Committee") and
which is relied upon by the Committee and the Board of Directors. Subject to the
limitation set forth above, the Formula Price of the Class A Common Stock,
expressed as an equation, is as follows:
<TABLE>
<S> <C> <C> <C>
FORMULA PRICE = E + 5.66MP
-- -------
W(1) W
</TABLE>
The Formula was adopted in its present form by the Board of Directors on
March 23, 1984 and became effective with the March 30, 1984 price revision. The
Board of Directors has reviewed the Market Factor on a quarterly basis since
that time. The Market Factor, as determined by the Board of Directors, remains
in effect until subsequently changed by the Board of Directors.
10
<PAGE>
The following table sets forth information concerning the Formula Price for
the Class A Common Stock, the applicable price for the Class B Common Stock and
the Market Factor in effect for the periods beginning on the dates indicated.
There can be no assurance that the Class A Common Stock or the Class B Common
Stock will in the future provide returns comparable to historical rates.
<TABLE>
<CAPTION>
PRICE PRICE
PER SHARE PER SHARE
MARKET OF CLASS A OF CLASS B
DATE FACTOR COMMON STOCK COMMON STOCK
- - - - - - - ------------------------------------------------------ ------ ------------ ------------
<S> <C> <C> <C>
April 10, 1992........................................ 1.4 $11.17 $55.85
July 10, 1992......................................... 1.4 $11.66 $58.30
October 9, 1992....................................... 1.4 $11.83 $59.15
January 8, 1993....................................... 1.4 $12.01 $60.05
April 9, 1993......................................... 1.4 $12.63 $63.15
July 9, 1993.......................................... 1.4 $12.85 $64.25
October 8, 1993....................................... 1.4 $13.12 $65.60
January 14, 1994...................................... 1.5 $14.19 $70.95
April 9, 1994......................................... 1.5 $14.46 $72.30
</TABLE>
The Board of Directors believes that the Formula results in a fair market
value for the Class A Common Stock within a broad range of financial criteria.
Other than the quarterly review and possible modification of the Market Factor,
the Board of Directors will not change the Formula unless (i) in the good faith
exercise of its fiduciary duties and after consultation with the Company's
independent accountants as to whether the change would result in a charge to
earnings upon the sale of Class A Common Stock or Class B Common Stock, the
Board of Directors, including a majority of the directors who are not employees
of the Company, determines that the Formula no longer results in a fair market
value for the Class A Common Stock or (ii) a change in the Formula or the method
of valuing the Class A Common Stock is required under applicable laws.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and no cash dividends on the Class A Common Stock or Class B Common Stock
are contemplated in the foreseeable future. The Company's present intention is
to retain any future earnings for use in its business.
USE OF PROCEEDS
The shares of Class A Common Stock which may be offered by the Company are
principally being offered to permit the continued acquisition of shares by the
Company's employee benefit plans as described herein and to permit the Company
to offer shares of Class A Common Stock to present and future employees,
consultants and directors. The net proceeds to be received by the Company from
the sale of shares of Class A Common Stock offered by the Company, after
deducting expenses payable by the Company, which are estimated to be $126,151,
will be added to the general funds of the Company for working capital and
general corporate purposes. Currently, the Company has no specific plans for the
use of such proceeds. Approximately 2,000,000 of the shares registered hereby
are offered by stockholders (other than the Selling Stockholders) pursuant to
the Limited Market and such sales may be attributed to the Company for federal
securities law purposes. The Company will not receive any portion of the net
proceeds from the sale of such shares or from the sale of shares by the Selling
Stockholders.
EMPLOYEE BENEFIT PLANS
The Company maintains several employee benefit plans pursuant to which
certain of the shares of Class A Common Stock being offered hereby may be sold.
The primary purpose of these plans is to motivate the Company's employees,
consultants and directors to contribute to the growth and development of the
Company by encouraging them to achieve and surpass annual goals of the Company
and
11
<PAGE>
of the operations for which they are responsible. The following is a summary
description of each of these plans. All capitalized terms, unless otherwise
defined herein, have the meanings ascribed to them in the employee benefit plan
to which they relate.
PROFIT SHARING RETIREMENT PLAN II
The Profit Sharing Retirement Plan II represents a consolidation, effective
as of January 1, 1992, of the former TSC Profit Sharing Retirement Plan and the
SAIC COMSYSTEMS Profit Sharing Retirement Plan (together referred to as the
"Consolidated Plans" or Profit Sharing Retirement Plan II). The TSC Profit
Sharing Retirement Plan first became effective July 1, 1988 and the SAIC
COMSYSTEMS Profit Sharing Retirement Plan first became effective February 1,
1977. The following discussion includes, where applicable, a description of the
Consolidated Plans relating to periods prior to January 1, 1992.
ELIGIBILITY AND PARTICIPATION
Generally, all employees of eligible groups within the Company who have
attained the age of 21, completed 12 months of employment and completed 850
Hours of Service with the Company during one of the 12-month computational
periods are eligible to participate as of the next semi-annual entry date. As of
December 31, 1993, there were approximately 2,200 participants in the Profit
Sharing Retirement Plan II.
CONTRIBUTIONS, ALLOCATIONS AND FORFEITURES
For the Plan Year ended December 31, 1993, the Company contributed
approximately $1,990,000 to the accounts of participants in the Profit Sharing
Retirement Plan II. The amount of the Company's annual contribution to
participants' accounts in the Profit Sharing Retirement Plan II is determined
by, and within the discretion of, the Company's Board of Directors, subject to
certain limitations. See "General Provisions of the Profit Sharing Retirement
Plan II, Employee Stock Ownership Plan and CODA." The Company's contribution may
be paid in cash or such other property as the Board of Directors may determine.
The Company's contributions are made by the due date (including extensions) of
the Company's federal income tax return for the applicable year. The Company's
current practice has been to make pro-rata contributions quarterly.
Company contributions to the Profit Sharing Retirement Plan II for each Plan
Year are allocated to the accounts of participants who complete 850 Hours of
Service during the Plan Year. The amount of Company contributions allocated to a
participant's account for the Plan Year is determined in two steps. The first
allocation is based on the ratio which a participant's Eligible Excess
Compensation (i.e., compensation in excess of the Social Security Wage Base,
$60,600 for 1994) for the Plan Year bears to the total Eligible Excess
Compensation for such Plan Year of all participants in the Profit Sharing
Retirement Plan II. The amount to be allocated in the first allocation,
expressed as a percentage of Eligible Excess Compensation, shall not exceed the
lesser of (i) 5.7% or, if greater, the rate of tax applicable as of the
beginning of that Plan Year under Section 3111(a) of the Code attributable to
old age insurance or (ii) the percentage allocated in the second allocation
(described below) of the portion of compensation of participants which does not
exceed the Social Security Wage Base for such Plan Year. The second allocation
allocates contributions remaining after the first allocation to each participant
based on the ratio which each participant's total compensation for such Plan
Year bears to the total compensation paid to all participants for such year.
Forfeitures, if any, of the nonvested portion of participants' accounts are
allocated to the accounts of remaining participants who are entitled to receive
an allocation of the Company contribution for the year in the same manner as
Company contributions for the year.
Participants in the Profit Sharing Retirement Plan II are not permitted to
make voluntary contributions. Voluntary contributions made prior to January 1987
will continue to be held in the Profit Sharing Retirement Plan II until
withdrawn or distributed.
12
<PAGE>
INVESTMENT OF FUNDS
The Committee is authorized to establish a choice of investment alternatives
within the Trust Fund maintained for the Profit Sharing Retirement Plan II in
which Company contributions may be invested, provided that not more than 20% of
each Company contribution allocated to a participant's account may be invested
in securities of the Company. Participants may elect at such time, in such
manner and subject to such restrictions as the Committee may specify, to have
contributions allocated or apportioned among the different investment
alternatives. Separate accounts are established for each investment alternative
selected by a participant and each account is valued separately.
The Committee, in its sole discretion, may permit participants to transfer
amounts from one investment alternative to one or more other investment
alternatives at such time, in such manner and subject to such restrictions as
the Committee may specify. Investments in the Company Stock Fund may be
exchanged into other investment choices only on a Trade Date. However, balances
from the Vanguard Group of Investment Companies ("Vanguard") investments may not
be exchanged into the Company Stock Fund at any time. It is the current policy
of the Committee to keep all amounts related to the Company's Stock Fund
invested in Class A Common Stock, except for estimated cash reserves which are
primarily used to provide future benefit distributions, future investment
exchanges and other cash needs as determined by the Committee. Residual cash
remaining after accounting for estimated cash reserves generally will be used to
purchase Class A Common Stock. If at any given time cash reserves in the Company
Stock Fund are insufficient to provide benefit distributions and/or investment
exchanges, shares held by the Company Stock Fund will be offered to the Company
for purchase. If the Company declines to purchase the shares, the Committee
intends to offer the shares for sale in the Limited Market. Exchanges out of the
Company Stock Fund may be deferred until such time, if ever, that sufficient
cash is available to make required benefit distributions and provide for
investment exchanges. Accordingly, investment exchanges of participant's
investments held in the Company Stock Fund may be restricted. See "Market
Information -- The Limited Market."
The Committee has established a choice of investment alternatives for
participants. The alternatives consist of the Company Stock Fund and seven
Vanguard Mutual Funds managed by Vanguard, located in Valley Forge,
Pennsylvania, which are subject to the limitations described above.
The following table summarizes, as of the dates indicated, the investment
performance of the Company Stock Fund and of each of Vanguard's seven nationally
traded mutual funds for the last five years. The summary is based on an initial
investment of $100 in each investment alternative.
13
<PAGE>
COMPANY STOCK FUND
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 113.80 13.8
December 31, 1990....................................................... 117.44 3.2
December 31, 1991....................................................... 132.36 12.7
December 31, 1992....................................................... 144.53 9.2
December 31, 1993....................................................... 160.29 10.9
</TABLE>
GNMA PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 114.80 14.8
December 31, 1990....................................................... 126.62 10.3
December 31, 1991....................................................... 147.90 16.8
December 31, 1992....................................................... 158.10 6.9
December 31, 1993....................................................... 167.43 5.9
</TABLE>
INDEX TRUST -- 500 PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 131.40 31.4
December 31, 1990....................................................... 127.06 -3.3
December 31, 1991....................................................... 165.44 30.2
December 31, 1992....................................................... 177.68 7.4
December 31, 1993....................................................... 195.27 9.9
</TABLE>
PRIME PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 109.40 9.4
December 31, 1990....................................................... 118.48 8.3
December 31, 1991....................................................... 125.71 6.1
December 31, 1992....................................................... 130.36 3.7
December 31, 1993....................................................... 134.27 3.0
</TABLE>
14
<PAGE>
SHORT-TERM FEDERAL PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 111.30 11.3
December 31, 1990....................................................... 121.65 9.3
December 31, 1991....................................................... 136.49 12.2
December 31, 1992....................................................... 144.95 6.2
December 31, 1993....................................................... 155.10 7.0
</TABLE>
WELLESLEY INCOME FUND
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 120.90 20.9
December 31, 1990....................................................... 125.49 3.8
December 31, 1991....................................................... 152.60 21.6
December 31, 1992....................................................... 165.88 8.7
December 31, 1993....................................................... 190.26 14.7
</TABLE>
WINDSOR FUND
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 115.00 15.0
December 31, 1990....................................................... 97.18 -15.5
December 31, 1991....................................................... 124.97 28.6
December 31, 1992....................................................... 145.59 16.5
December 31, 1993....................................................... 173.83 19.4
</TABLE>
INTERNATIONAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE
VALUATION AS OF VALUE FOR YEAR
- - - - - - - ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
December 31, 1988....................................................... $ 100.00
December 31, 1989....................................................... 124.80 24.8
December 31, 1990....................................................... 109.70 -12.1
December 31, 1991....................................................... 114.86 4.7
December 31, 1992....................................................... 108.19 -5.8
December 31, 1993....................................................... 156.56 44.7
</TABLE>
No commissions are payable with respect to acquisitions or dispositions of
Vanguard fund shares.
VESTING
The Profit Sharing Retirement Plan II vesting schedule currently provides
that a participant's interest does not vest at all prior to the time such
participant is credited with three Years of Service, and thereafter vests at the
rate of 25% per Year of Service for years three through six, so that each
participant's interest becomes fully vested after the participant is credited
with six Years of Service. Any accounts as of August 1, 1987 in the former SAIC
COMSYSTEMS Money Accumulation Pension Plan ("MAPP Subaccounts") which remain in
the Profit Sharing Retirement Plan II are 100% vested.
A participant's interest also becomes fully vested, notwithstanding the fact
that he or she has not yet been credited with six Years of Service, at the time
of such participant's attainment of the age of 59 1/2, permanent disability,
judicial declaration of mental incompetence or death, while employed by the
Company.
15
<PAGE>
LOANS
Loans are available from the Profit Sharing Retirement Plan II to all
participants. Loans under all of the Company's and its subsidiaries' qualified
retirement plans have a combined maximum limit of $50,000 per participant
reduced by the excess of the participant's highest aggregate outstanding loan
balance(s) during the preceding 12-month period over the aggregate loan
balance(s) outstanding on the date of a new loan. Loans are further limited to
50% of a participant's vested interest in his or her accounts which are eligible
to receive a loan, in all of the Company's qualified retirement plans (loans
from the Profit Sharing Retirement Plan II may not exceed the vested value of
the assets in the Profit Sharing Retirement Plan II less vested amounts invested
in the Company Stock Fund). Loans must (i) bear a reasonable rate of interest,
(ii) be adequately secured, (iii) state the date upon which the loan must be
repaid, which in any event may not exceed five years from the date on which the
loan is made, unless the proceeds are used for the purchase of a principal
residence, in which case repayment may not exceed 25 years and (iv) be amortized
with level payments, made not less frequently than quarterly, over the term of
the loan. The Committee currently requires that loans be repaid through payroll
deductions. The loan documents provide that 50% of the participant's vested
account balances in all of the Company's qualified retirement plans are security
for the loan, and the Profit Sharing Retirement Plan II (as well as the other
Company retirement plans in which the participant has a loan) therefore has a
lien against such balances. A loan will result in the withdrawal of the borrowed
amounts from the participant's interest in the Funds against which the loan is
made (other than the Company Stock Fund). Principal and interest payments on the
loan are allocated to the account(s) of the borrowing participant in accordance
with the current investment choices of the participant.
DISTRIBUTIONS AND WITHDRAWALS
If a participant's employment with the Company terminates on or after the
date on which the participant attains the age of 59 1/2, the participant is
entitled to receive a single distribution of his or her entire interest in his
or her Profit Sharing Retirement Plan II account as soon as practicable
following the date of such termination. In the event a participant dies while
employed by the Company, the Committee will direct the Trustee to make a single
distribution of the participant's entire interest in his or her Profit Sharing
Retirement Plan II account to the participant's spouse, or if such spouse has
given proper consent or if the participant has no spouse, to the Beneficiary
designated by the participant. In the event the Committee determines that the
participant has suffered a permanent disability while employed by the Company,
the Committee will direct the Trustee to make a single distribution of the
participant's entire interest in his or her Profit Sharing Retirement Plan II
account to the disabled participant.
If a participant's employment with the Company terminates other than by
reason of permanent disability or death prior to the date on which the
participant attains the age of 59 1/2, the participant's vested interest in his
or her Profit Sharing Retirement Plan II account generally will be paid in a
single distribution. If the participant's vested interest in his or her account
is $3,500 or less, benefits are paid as soon as practicable after termination of
employment. If his or her vested interest in such account is more than $3,500,
the participant may elect to receive distribution of his or her account (i)
approximately 120 days after the end of the year in which his or her fifth
consecutive Break in Service occurs, (ii) any time following his or her
termination of employment and before five consecutive Breaks in Service or (iii)
at age 62.
If a participant who was only partially vested in his or her account is
reemployed before having five consecutive Breaks in Service, he or she may
reinstate his or her account, including the nonvested portion which was
previously forfeited, by repaying the amount distributed to him or her before
the earlier of (i) the date he or she incurs five consecutive Breaks in Service
following the date of distribution or (ii) five years following reemployment.
Distribution of MAPP Subaccounts are subject to certain requirements
regarding joint and survivor annuities set forth in the Profit Sharing
Retirement Plan II.
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All distributions, including withdrawals, from the Profit Sharing Retirement
Plan II will be made in cash, subject to certain requirements regarding joint
and survivor annuities applicable to MAPP Subaccounts.
A participant in the Profit Sharing Retirement Plan II is entitled to
withdraw amounts from his or her voluntary contribution account, subject to
reasonable Committee restrictions regarding frequency and amounts of such
withdrawals. All such withdrawals will be paid in a single distribution as soon
as administratively feasible.
In the absence of a qualified domestic relations order to the contrary, a
participant's interest in the Profit Sharing Retirement Plan II may not be
voluntarily or involuntarily assigned or hypothecated, except for the purpose of
qualified SAIC Retirement Program loans.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company's stock bonus retirement plan became effective on February 1,
1973 and was approved by the stockholders of the Company at the 1982 Annual
Meeting of Stockholders. Effective January 1, 1985, the plan was amended to
change its name to the Employee Stock Ownership Plan and to enable it to
purchase shares of Class A Common Stock with the proceeds of qualifying loans
made either to the Company or to the Employee Stock Ownership Plan. To date,
this loan feature has not been utilized. In February 1990, the Company Stock
Funds within the Company's Profit Sharing Retirement Plan and the CODA
(including the TRASOP Fund maintained within the CODA) were transferred to the
Employee Stock Ownership Plan to enable it to qualify as a "30% ESOP" and
further the Company's goal of employee stock ownership by increasing the
percentage of the Company's Common Stock beneficially owned by current
employees. In November 1992, the non-exchangeable Company Stock Fund within the
CODA was transferred to the Employee Stock Ownership Plan to enable it to
qualify as a "30% ESOP" in connection with an Offer to Purchase for Cash,
pursuant to which the Employee Stock Ownership Plan acquired 700,444 shares of
Class A Common Stock from stockholders who are not employees, directors,
consultants or members of their families in a transaction designed to increase
the beneficial ownership of current employees, directors and consultants. See
"Market Information--The Limited Market."
ELIGIBILITY AND PARTICIPATION
Generally, all employees who have attained the age of 21, completed 12
months of employment and completed 850 Hours of Service with the Company during
one of the applicable 12-month computational periods are eligible to participate
as of the next semi-annual entry date, except employees who are eligible for the
SAIC Profit Sharing Retirement Plan II and other groups or units designated as
ineligible. As of December 31, 1993, there were approximately 15,000
participants in the Employee Stock Ownership Plan.
CONTRIBUTIONS, ALLOCATIONS AND FORFEITURES
For the Plan Year ended December 31, 1993, the Company contributed
approximately $15,096,000 to the accounts of participants in the Employee Stock
Ownership Plan. The amount of the Company's annual contribution to participants'
accounts in the Employee Stock Ownership Plan is determined by, and within the
discretion of, the Board of Directors, subject to certain limitations. See
"General Provisions of the Profit Sharing Retirement Plan II, Employee Stock
Ownership Plan and CODA." Participants may not make voluntary contributions to
the Employee Stock Ownership Plan. The Company's contributions are made by the
due date (including extensions) of the Company's federal income tax return for
the applicable year. The Company's current practice has been to make pro-rata
contributions quarterly.
Company contributions to the Employee Stock Ownership Plan for each Plan
Year are allocated to the accounts of participants who complete 850 Hours of
Service during the Plan Year in the ratio which each such participant's eligible
compensation bears to the total eligible compensation of all such participants.
Forfeitures, if any, of the nonvested portion of terminated participants'
accounts are
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allocated to the accounts of remaining participants who are entitled to receive
an allocation of the Company contribution. Forfeitures are allocated in the
ratio which each such remaining participant's eligible compensation bears to the
total eligible compensation of all such remaining participants.
INVESTMENT OF FUNDS
Although it is generally intended that the assets of the Employee Stock
Ownership Plan will be held in a Company Stock Fund consisting primarily of
securities of the Company, the Employee Stock Ownership Plan and/or such Company
Stock Fund may hold other assets which may consist of cash, qualifying employer
real property or qualifying employer securities within the meaning of Sections
407(d)(4) and (5) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or other property. The exact number of shares of Class A
Common Stock, if any, which may be purchased by the Trustee of the Employee
Stock Ownership Plan in the future will depend on various factors, including any
modifications to the Employee Stock Ownership Plan adopted either in response to
changes or modifications in the laws and regulations governing the Employee
Stock Ownership Plan or at the discretion of the Company's management.
With respect to those Company Stock Funds transferred to the Employee Stock
Ownership Plan in February 1990 as to which participants had the right to
exchange into other investment choices under the Company's Profit Sharing
Retirement Plan or CODA, as applicable, the investment choices available under
the latter plans (see "Employee Benefit Plans--Profit Sharing Retirement Plan
II-- Investment of Funds") are made available within the Employee Stock
Ownership Plan. In addition, participants who have attained the age of 55 and
have ten or more years of participation are entitled, pursuant to the terms of
the Employee Stock Ownership Plan and Committee procedures, to exchange a
percentage of their balances in the Company Stock Fund into the same Vanguard
investment alternatives as are available under the Profit Sharing Retirement
Plan II.
The Committee, in its sole discretion, may permit participants to transfer
amounts from one investment alternative to one or more other investment
alternatives at such time, in such manner and subject to such restrictions as
the Committee may specify. Investments in the Company Stock Fund may be
exchanged into other investment choices only on a Trade Date. However, balances
from other Vanguard investments may not be exchanged into the Company Stock
Fund. Company contributions directed to the Company Stock Fund are initially
utilized as cash reserves to provide benefit distributions and/or investment
exchanges. It is the current policy of the Committee to keep all amounts related
to the Company's Stock Fund invested in Class A Common Stock, except for
estimated cash reserves which are primarily used to provide future benefit
distributions, future investment exchanges and other cash needs as determined by
the Committee. Residual cash remaining after accounting for estimated cash
reserves will generally be used to purchase Class A Common Stock. If at any
given time cash reserves in the Company Stock Fund are insufficient to provide
benefit distributions and/or investment exchanges, shares held by the Company
Stock Fund will be offered to the Company for purchase. If the Company declines
to purchase the shares, the Committee intends to offer the shares for sale in
the Limited Market. Exchanges out of the Company Stock Fund may be deferred
until such time, if ever, that sufficient cash is available to make required
benefit distributions and provide for investment exchanges. Accordingly,
investment exchanges of participant's investments held in the Company Stock Fund
may be restricted. See "Market Information--The Limited Market."
VESTING
The Employee Stock Ownership Plan vesting schedule currently provides that a
participant's interest does not vest at all prior to the time such participant
is credited with three Years of Service, and thereafter vests at the rate of 25%
per Year of Service for years three through six, so that each participant's
interest becomes fully vested after the participant is credited with six Years
of Service. A participant's interest also becomes fully vested, notwithstanding
the fact that the participant has not yet been credited with six Years of
Service, at the time of such participant's attainment of the age of
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59 1/2, permanent disability, judicial declaration of mental incompetence or
death, while employed by the Company. A participant's interest in the TRASOP
Fund or in funds transferred from the CODA are 100% vested at all times.
LOANS
Loans are available from the Employee Stock Ownership Plan to all
participants. Loans under all of the Company's and its subsidiaries' qualified
retirement plans have a combined maximum limit of $50,000 per participant
reduced by the excess of the participant's highest aggregate outstanding loan
balance(s) during the preceding 12-month period over the aggregate loan
balance(s) outstanding on the date of a new loan. Loans are further limited to
50% of a participant's vested interest in his or her accounts in all the
Company's qualified retirement plans (those loans from the Employee Stock
Ownership Plan may not exceed the vested value of the amounts in the Employee
Stock Ownership Plan less vested amounts invested in the Company Stock Fund
within the Plan). Loans must (i) bear a reasonable rate of interest, (ii) be
adequately secured, (iii) state the date upon which the loan must be repaid,
which in any event may not exceed five years, unless the proceeds are used for
the purchase of a principal residence, in which case repayment may not exceed 25
years and (iv) be amortized with level payments, made not less frequently than
quarterly, over the term of the loan. The Committee currently requires that
loans be repaid through payroll deductions. The loan documents provide that 50%
of the participant's vested account balances in all the Company's retirement
plans are security for the loan, and the Employee Stock Ownership Plan (as well
as the other Company retirement plans in which the participant has a loan),
therefore, has a lien against such balances. A loan will result in a withdrawal
of the borrowed amounts from the participant's interest in the Funds against
which the loan is made (other than the Company Stock Fund). Principal and
interest payments on the loan are allocated to the account(s) of the borrowing
participant in accordance with the current investment choices of the
participant.
DISTRIBUTIONS AND WITHDRAWALS
If a participant's employment with the Company terminates on or after the
date on which the participant attains the age of 59 1/2, the participant is
entitled to receive a single distribution of his or her entire interest in his
or her Employee Stock Ownership Plan account as soon as practicable following
the date of such termination. In the event a participant dies while employed by
the Company, the Committee will direct the Trustee to make a single distribution
of the participant's entire interest in his or her Employee Stock Ownership Plan
account to the participant's spouse or if such spouse has given proper consent
or if the participant has no spouse to the Beneficiary designated by the
participant. In the event the Committee determines that the participant has
suffered a permanent disability while employed by the Company, the Committee
will direct the Trustee to make a single distribution of the participant's
entire interest in his or her Employee Stock Ownership Plan account to the
disabled participant.
If a participant's employment with the Company terminates, other than by
reason of permanent disability or death, prior to the date on which the
participant attains the age of 59 1/2, the participant's vested interest in his
or her Employee Stock Ownership Plan account generally will be paid in cash in a
single distribution. If the participant's vested interest in his or her account
is $3,500 or less, benefits are paid as soon as practicable after termination of
employment. If his or her vested interest in the account is more than $3,500,
the participant may elect to receive a distribution of his or her account in
cash (i) approximately 120 days after the end of the year in which his or her
fifth consecutive Break in Service occurs, (ii) any time following his or her
termination of employment and before five consecutive Breaks in Service or (iii)
at age 62.
A participant may elect to receive a distribution in the form of Class A
Common Stock (and Class B Common Stock, where applicable) in lieu of the cash
distribution alternatives described above. Such distribution will be made within
120 days of the participant's normal retirement age (age 59 1/2) or date of
actual retirement, if later. However, for employees whose employment is
terminated after
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February 9, 1990, with respect to any Class A Common Stock purchased after
December 31, 1986, a participant electing to receive Common Stock shall receive
the payments in five annual installments commencing within one year after the
fifth Plan Year following termination of employment.
If a participant who was only partially vested in his or her account is
reemployed before having five consecutive Breaks in Service, he or she may
reinstate his or her account, including the nonvested portion which was
previously forfeited, by repaying the amount distributed to him or her before
the earlier of (i) the date he or she incurs five consecutive Breaks in Service
following the date of distribution or (ii) five years following reemployment.
All distributions from the Employee Stock Ownership Plan will be made in
cash, except as noted above. In those instances in which Class A Common Stock or
Class B Common Stock is distributed to participants in lieu of cash,
participants cannot be assured that they will be able to sell their shares in
any one quarterly Trade Date or over any specific period of time or at the
Formula Price at the time of such sale. Accordingly, a participant's ability to
sell shares of Class A Common Stock or Class B Common Stock distributed out of
the Employee Stock Ownership Plan could be adversely affected by any lack of
liquidity in the Limited Market. See "Market Information--The Limited Market."
All distributions of shares of Class A Common Stock (and Class B Common
Stock where applicable) out of the Employee Stock Ownership Plan will be subject
to the following conditions imposed by the Employee Stock Ownership Plan and/or
the Company's Certificate of Incorporation:
(a) Such shares will be subject to a right of first refusal by the
Company and the Employee Stock Ownership Plan, but will not be subject to
the Company's right of repurchase upon termination of employment or
affiliation. See "Description of Capital Stock--Common Stock-- Restrictions
on Class A Common Stock."
(b) In the event that such shares, at the time they are distributed out
of the Employee Stock Ownership Plan, are not "Readily Tradeable Stock" (as
that term is defined under Treasury Regulation Section 54.4975-7(b)(1)(iv))
or are subject to a "Trading Limitation" (as that term is defined under
Treasury Regulation Section 54.4975-7(b)(10)), then they will be subject to
a "put option" which gives the holder of such shares the right to require
the Company to purchase all or a portion of such shares at their fair market
value during two limited time periods. The first of these periods is the
60-day period following the date on which the shares are distributed out of
the Employee Stock Ownership Plan and the second of these periods is the
60-day period following notification by the Company of the valuation of the
Class A Common Stock and Class B Common Stock as soon as practicable after
the beginning of the Plan Year commencing after such distribution.
Accounts transferred from the CODA or Profit Sharing Retirement Plan retain
the distribution options available under the terms of the plan from which they
were transferred.
Participants are not permitted to make withdrawals under the Employee Stock
Ownership Plan prior to termination of employment except for hardship
withdrawals from the account transferred to the Employee Stock Ownership Plan
from the CODA. See "Employee Benefit Plans--CODA--Distributions and
Withdrawals." In the absence of a qualified domestic relations order to the
contrary, a participant's interest in the Employee Stock Ownership Plan may not
be voluntarily or involuntarily assigned or hypothecated, except for the purpose
of qualified SAIC retirement program loans.
CODA
The CODA became effective on January 1, 1983 and was approved by the
stockholders of the Company at the 1983 Annual Meeting of Stockholders.
ELIGIBILITY AND PARTICIPATION
Generally, all employees (as defined in the CODA) are eligible to
participate in the CODA upon commencing employment, except for employees in
groups or units designated as ineligible. As of December 31, 1993, there were
approximately 17,400 participants in the CODA.
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CONTRIBUTIONS AND ALLOCATIONS
The CODA permits a participant to elect to defer a portion of such
participant's compensation for the Plan Year and to have such deferred amount
contributed directly by the Company to the participant's CODA account. Amounts
deferred by participants, including rollovers from qualified plans, totalled
approximately $39,462,000 for the Plan Year ended December 31, 1993. Under the
terms of the CODA, deferred amounts are treated as contributions made by the
Company. The maximum amount of compensation that a participant may elect to
defer is determined by the Committee, but in no event may the deferral exceed
$7,000 per year (adjusted for cost-of-living under rules prescribed by the
Secretary of the Treasury). For 1994, the limitation is $9,240. In addition to
amounts deferred by participants, the Company may, but is not obligated to, make
a matching contribution to the CODA accounts of those participants who have
elected to defer a portion of their compensation equal to a percentage or
percentages of the amounts which such participants have elected to defer. This
Company matching contribution is allocated to the CODA accounts of those
participants who are not employees of a group or unit designated as ineligible
to receive a matching contribution and who have elected to defer a portion of
their compensation. For the Plan Year ended December 31, 1993, the Company
contributed 30% of the first $2,000 of a participant's compensation deferred
under the CODA and 15% of such deferred compensation above $2,000. The Company
provides no matching contribution on amounts deferred in excess of 10% of
compensation. The aggregate amount of matching contributions contributed to the
CODA on behalf of all participants for the Plan Year ended December 31, 1993 was
approximately $7,674,000. The Company may also make additional contributions to
the CODA in order to comply with Section 401(k) of the Code. For the Plan Year
ended December 31, 1993, the Company was not required to make any additional
Company contributions to the Deferred Fund to enable the plan to meet the
Section 401(k) discrimination test. The Company's contribution to the CODA is
paid in cash unless the Board of Directors determines to make the contribution
in shares of Class A Common Stock or another form.
Company contributions to the CODA are made by the due date (including
extensions) for the Company's federal income tax return for the applicable year
except contributions resulting from amounts deferred by participants, which must
be made within 30 days of deferral. The Company's practice has been to make
matching contributions quarterly based on current participant bi-weekly
deferrals. Any additional Company contribution, if required, is made after the
end of the Plan Year.
A participant's elective deferrals to CODA will reduce his or her
compensation, on a dollar-for-dollar basis, for purposes of receiving
allocations under the Company's Profit Sharing Retirement Plan, the Profit
Sharing Retirement Plan II and the Employee Stock Ownership Plan, as applicable.
An Eligible Employee may transfer to the trust fund maintained for the CODA
a rollover contribution from another qualified retirement plan pursuant to
applicable regulations and Committee procedures. A participant in the CODA who
has made a deferral election may terminate or alter the rate of his or her
deferrals at any time under the terms of the CODA.
INVESTMENT OF FUNDS
The Committee is authorized to establish a choice of investment alternatives
including securities of the Company, in which Company contributions to the CODA
(including that portion of compensation which participants elect to defer) may
be invested. The investment alternatives currently available to participants in
the CODA are the same as those available to participants in the Profit Sharing
Retirement Plan II, except that under the terms of the CODA a participant's
entire interest in his or her CODA account may be invested in the Company Stock
Fund. See "Employee Benefit Plans-- Profit Sharing Retirement Plan
II--Investment of Funds." The Company's matching contributions for the Plan Year
ended December 31, 1993 were (and the matching contributions for the Plan Year
ending December 31, 1994 are currently intended to be) invested in the Company's
Stock Fund, which contributions may not be exchanged for another investment
alternative. Participants may elect at such time, in such manner and subject to
such restrictions as the Committee may specify, to have contributions allocated
or apportioned among the different investment alternatives. Separate CODA
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accounts are established for each investment alternative selected by a
participant and each such account is valued separately. The Committee, in its
sole discretion, may permit participants to transfer amounts from one investment
alternative to one or more other investment alternatives at such time, in such
manner and subject to such restrictions as the Committee may specify.
Investments in the Company Stock Fund (other than the non-exchangeable
contribution described in the preceding paragraph) may be exchanged into other
investment choices only on a Trade Date. Balances from Vanguard investments may
not be exchanged into the Company Stock Fund. It is the current policy of the
Committee to keep all amounts related to the Company's Stock Fund invested in
Class A Common Stock, except for estimated cash reserves which are primarily
used to provide future benefit distributions, future investment exchanges and
other cash needs as determined by the Committee. Residual cash remaining after
accounting for estimated cash reserves generally will be used to purchase Class
A Common Stock. If cash reserves in the Company Stock Fund are insufficient at
any given time to provide benefit distributions and/or investment exchanges,
shares held by the Company Stock Fund will be offered to the Company for
purchase. If the Company declines to purchase the shares, the Committee intends
to offer the shares for sale in the Limited Market. Exchanges out of the Company
Stock Fund may be deferred until such time, if ever, that sufficient cash is
available to make required benefit distributions and provide for investment
exchanges. Accordingly, investment exchanges of participants' investments held
in the Company Stock Fund may be restricted. See "Market Information--The
Limited Market."
VESTING
Under the CODA as currently in effect, each participant is, at all times,
100% vested in his or her CODA account.
LOANS
Loans are available from the CODA account to all participants. Loans under
all of the Company's and its subsidiaries' qualified retirement plans have a
combined maximum limit of $50,000 per participant reduced by the excess of the
participant's highest aggregate outstanding loan balance(s) during the preceding
12-month period over the aggregate loan balance(s) outstanding on the date of a
new loan. Loans are further limited to 50% of a participant's vested interest in
his or her accounts which are eligible to receive a loan in all of the Company's
qualified retirement plans (these loans from CODA may not exceed the vested
value in the CODA less vested amounts invested in the Company Stock Fund). Loans
must (i) bear a reasonable rate of interest, (ii) be adequately secured, (iii)
state the date upon which the loan must be repaid, which in any event may not
exceed five years from the date on which the loan is made, unless the proceeds
are used for the purchase of a principal residence, in which case repayment may
not exceed 25 years and (iv) be amortized with level payments, made not less
frequently than quarterly, over the term of the loan. The Committee currently
requires that loans be repaid through payroll deductions. The loan documents
provide that 50% of the participant's vested account balances in all of the
Company's qualified retirement plans are security for the loan and the CODA (as
well as the other Company retirement plans in which the participant has a loan),
therefore, has a lien against such balances. A loan will result in a withdrawal
of the borrowed amounts from the participant's interest in the Funds against
which the loan is made. Principal and interest payments on the loan are
allocated to the account(s) of the borrowing participant in accordance with the
current investment choices of the participant.
DISTRIBUTIONS AND WITHDRAWALS
If a participant's employment with the Company terminates on or after the
date on which the participant attains the age of 59 1/2, the participant is
entitled to receive a single distribution of his or her entire interest in his
or her CODA account as soon as practicable following the date of such
termination. In the event a participant dies while employed by the Company, the
Committee will direct the Trustee to make a single distribution of the
participant's entire interest in his or her CODA account to the participant's
spouse. Alternatively, if such spouse has given proper consent or if the
participant has no spouse, the Committee will direct the Trustee to make a
single distribution of the
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deceased participant's entire interest to the Beneficiary designated by the
participant. In the event the Committee determines that the participant has
suffered a permanent disability while employed by the Company, the Committee
will direct the Trustee to make a single distribution of the participant's
entire interest in his or her CODA account to the disabled participant.
If a participant's employment with the Company terminates, other than by
reason of permanent disability or death, prior to the date on which the
participant attains the age of 59 1/2, the participant's vested interest in his
or her CODA account generally will be paid in a single distribution as soon as
practicable following the date of such termination. If his or her vested
interest is more than $3,500, the participant may elect to receive distribution
of his or her account (i) approximately 120 days after the end of the year in
which his or her fifth consecutive Break in Service occurs, (ii) any time
following his or her termination of employment and before five consecutive
Breaks in Service or (iii) at age 62.
Except in the case of qualifying hardship, no withdrawals may be made from a
participant's CODA account prior to his or her termination of employment unless
and until he or she attains the age of 59 1/2. Any withdrawals made thereafter
may be made only once in each Plan Year. In the absence of a qualified domestic
relations order to the contrary, a participant's interest in the CODA may not be
voluntarily or involuntarily assigned or hypothecated, except for the purpose of
qualified SAIC retirement program loans. The Committee has established
procedures for hardship withdrawals including (i) definition of qualifying
hardships, (ii) requirements for having first withdrawn all voluntary after-tax
contributions from any other Company retirement plans and having received the
maximum loans available under such plans and (iii) requirement for a 12-month
suspension from making elective deferrals into CODA following the hardship
withdrawal.
All distributions, including withdrawals, from the CODA are paid in cash.
GENERAL PROVISIONS OF THE PROFIT SHARING RETIREMENT PLAN II, EMPLOYEE STOCK
OWNERSHIP PLAN AND CODA
The Profit Sharing Retirement Plan II, Employee Stock Ownership Plan and
CODA (collectively, the "Plans") each contain the following provisions:
CONTRIBUTION LIMITATIONS
The maximum contribution for any Plan Year which the Company may make to all
Plans for the benefit of a participant (including contributions to the CODA as a
result of salary deferral elections by participants), plus forfeitures, may not
exceed the lesser of (i) $30,000 or (ii) 25% of the participant's compensation.
ADMINISTRATION
The Plans are administered by the Committee, whose members are appointed by
and serve at the discretion of the Company's Board of Directors. The members of
the Committee receive no compensation from the Plans for services rendered in
connection therewith. The current members of the Committee are R.E. Bernstein,
S.J. Dalich (Ex-Officio), J. Collymore, W.M. Layson, L.O. Louden, A.H. Park,
J.M. Preimesberger, W. Reed, W.A. Roper, Jr., M.W. Tobriner (Chairman) and J.P.
Walkush. The address of each such person is Science Applications International
Corporation, 10260 Campus Point Drive, San Diego, CA 92121, except for Messrs.
Layson and Tobriner each of whom's address is Science Applications International
Corporation, 1710 Goodridge Drive, McLean, VA 22102 and Ms. Collymore whose
address is Science Applications International Corporation, 10770 Wateridge
Circle, San Diego, CA 92121.
The Committee has the power to supervise administration and control of each
Plan's operations, including the power and authority to (i) allocate fiduciary
responsibilities, other than trustee responsibilities, among the Named
Fiduciaries, (ii) designate agents to carry out responsibilities relating to the
Plan, other than fiduciary responsibilities, (iii) employ legal, actuarial,
medical, accounting, programming and other assistance as the Committee may deem
appropriate in carrying out the Plan, (iv) establish rules and regulations for
the conduct of the Committee's business and the administration of the Plan, (v)
administer, interpret, construe and apply the Plan and determine questions
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relating to eligibility, the amount of any participant's service and the amount
of benefits to which any participant or beneficiary is entitled, (vi) determine
the manner in which Plan assets are disbursed and (vii) direct the Trustee
regarding investment of Plan assets, subject to the directions of participants
when provided in the Plans.
PASS-THROUGH VOTING AND TENDERING OF CLASS A COMMON STOCK AND CLASS B COMMON
STOCK
Each participant in the Plans has the right to instruct the Trustee on a
confidential basis as to how to vote his or her proportionate interest in all
shares of Class A Common Stock and/or Class B Common Stock held in the various
Plans. The Plan documents provide that the Trustee will vote all allocated
shares held in the Plans as to which no voting instructions are received (except
for shares held in the TRASOP Fund accounts of participants in the Employee
Stock Ownership Plan), together with all unallocated shares held in the Plans,
in the same proportion, on a Plan-by-Plan basis, as the allocated shares for
which voting instructions have been received are voted. Shares held in the
TRASOP Fund accounts, as to which no voting instructions from participants are
received, will not be voted by the Trustee. The Committee is required to notify
participants of their pass through voting rights prior to each meeting of
stockholders.
In the event of a tender or exchange offer for the Company's securities,
each participant in the Plans has the right, under current Plan procedures, to
instruct the Trustee on a confidential basis as to whether or not to tender or
exchange his or her proportionate interest in all shares of Class A Common Stock
and/or Class B Common Stock held in the various Plans. The Plan documents
provide that the Trustee will not tender or exchange any allocated shares with
respect to which no instructions are received from participants. Shares held in
the Plans which have not yet been allocated to the accounts of participants will
be tendered or exchanged by the Trustee, on a Plan-by-Plan basis, in the same
proportion as the allocated shares held in each Plan are tendered or exchanged.
The Trustee's duties with respect to voting and tendering of Class A and
Class B Common Stock are governed by the fiduciary provisions of ERISA. These
fiduciary provisions of ERISA may require, in certain limited circumstances,
that the Trustee override the votes, or decisions whether or not to tender, of
participants with respect to Class A or Class B Common Stock and to determine,
in the Trustee's best judgment, how to vote the shares or whether or not to
tender the shares.
TRUSTEE
State Street Bank and Trust Company of North Quincy, Massachusetts is the
Trustee under each of the Plans.
Generally, the Trustee has all the rights afforded a trustee under
applicable law, although the Trustee generally may exercise those rights only at
the direction of the Committee. Subject to this limitation and those set forth
in the Plans and master trust agreement, the Trustee's rights include, but are
not limited to, the right to (i) invest and reinvest the funds held in the
Plans' trust in any investment of any kind, including qualifying employer
securities and qualifying employer real property as such investments are defined
in Section 407(d) of ERISA, and contracts issued by insurance companies,
including contracts under which the insurance company holds Plan assets in a
separate account or commingles separate accounts managed by the insurance
company, (ii) retain or sell the securities and other property held in the
Plans' trust, (iii) consent or participate in any reorganization or merger in
regard to any corporation whose securities are held in the Plans' trust (subject
in the case of the Company's securities, generally, to the participants'
pass-through voting rights and right to instruct the Trustee in the event of a
tender or exchange offer) and to pay calls or assessments imposed on the holder
thereof and to consent to any contract, lease, mortgage or purchase or sale of
any property between such corporation and any other parties, (iv) exercise all
the rights of the holder of any security held in the Plans' trust, including the
right to vote such securities (subject, in the case of the Company's securities,
generally, to the participants' pass-through voting rights), convert such
securities into other securities, acquire additional securities and exchange
such securities, (v) vote
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proxies and exercise any other similar rights of ownership, subject to the
Committee's right to instruct the Trustee as to how (or the method of
determining how) the proxies should be voted or such rights should be exercised
and (vi) lend to participants in the Plans such amounts as the Committee
directs.
The Trustee's compensation and all other expenses incurred in the
establishment, administration and operation of the Plans are borne by the
respective Plans unless the Company elects to pay such expenses. Costs or
expenses which are particular to a specific asset or group of assets (such as
interest and normal brokerage and other similar charges incurred in connection
with the purchase of securities by the Plans' trust) are chargeable and
allocable to the participants' accounts to which such securities are allocated
in a manner determined by the Committee.
ADMINISTRATIVE AND CUSTODIAL SERVICES
The Company has entered into an administrative services agreement with
Vanguard, pursuant to which Vanguard performs specified administrative services
for the Plans, principally related to accounting and recordkeeping. Vanguard's
fees for these administrative services are borne by the respective Plans.
ACCOUNT STATEMENTS
Each participant is furnished with a statement of his or her accounts in the
respective Plans, as of the end of each calendar quarter.
AMENDMENT AND TERMINATION
The Company has reserved the right to amend each of the Plans at any time
and for any reason, except that no such amendment may have the effect of (i)
generally causing any assets of the Plans' trusts to be used for or diverted to
any purpose other than providing benefits to participants and their
beneficiaries and defraying expenses of the Plans, except as permitted by
applicable law, (ii) depriving any participant or beneficiary, on a retroactive
basis, of any benefit to which they would otherwise be entitled had the
participant's employment with the Company terminated immediately prior to the
amendment or (iii) increasing the liabilities or responsibilities of a Trustee
or an Investment Manager without its written consent.
The Company has also retained the right to terminate any of the Plans at any
time and for any reason and, specifically, in the event the Company merges into
or with any other corporation and, as the result of which, the Company ceases to
exist as an entity. In addition, the Company may discontinue contributions to
the Plans; provided, however, that any such discontinuation of contributions
shall not automatically terminate the Plans as to funds and assets then held by
the Trustee.
ERISA
Each of the Plans is subject to the provisions of ERISA, including reporting
and disclosure obligations, fiduciary standards, and the prohibited transaction
rules of Title I thereof. Since each of the Plans is an individual account plan
under ERISA, none of the Plans are subject to the jurisdiction of the Pension
Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA and none of the
Plans' benefits are guaranteed by the PBGC.
FEDERAL INCOME TAX CONSEQUENCES
Each of the Plans is qualified under Section 401(a) of the Code.
Qualification of the Plans under Section 401(a) of the Code has the following
federal income tax consequences:
(a) A participant will not be subject to federal income tax on Company
contributions to the Plans at the time such contributions are made.
(b) A participant will not be subject to federal income tax on any
income or appreciation with respect to such participant's accounts under the
Plans until distributions are made (or deemed to be made) to such
participant.
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(c) A participant and the Company will not be subject to federal
employment taxes on Company contributions to the Plans, except as set forth
below with respect to certain Company contributions to the CODA.
(d) The Plans will not be subject to federal income tax on the
contributions to them by the Company and will not be subject to federal
income tax on any of their income or realized gains, assuming that the Plans
do not realize any unrelated business taxable income.
(e) Participation in the Plans will preclude or restrict an employee
from making deductible contributions to an Individual Retirement Account
("IRA"), depending on the employee's marital status and adjusted gross
income ("AGI") for the year. If an employee or his or her spouse is covered
by an employer-maintained retirement plan (such as any of the Plans), an IRA
deduction is available only if the participant's AGI does not exceed a
phase-out level. For married couples, the phase-out of the IRA deduction
begins at $40,000 of AGI and there is no deduction if the participant's AGI
exceeds $50,000. The phase-out for single employees is $25,000/$35,000 of
AGI. For AGI in the phase-out range, the IRA deduction limit is reduced by
the ratio of AGI in excess of $40,000 or $25,000, whichever is applicable,
to $10,000. AGI is determined before any IRA deduction, but after any
elective deferrals to the CODA. To the extent that the IRA deduction is
limited under these provisions, a non-deductible IRA contribution is
permitted (in an amount equivalent to the reduction in the deductible IRA
amount).
(f) Subject to the contribution limitations contained in the Plans, the
Company will be able to deduct the amounts that it contributes under the
Plans, with the amount of such deduction generally equaling the amount of
the contributions.
(g) Distributions from the Plans will be subject to federal income tax
under special, complex rules that apply generally to distributions from
tax-qualified retirement plans. In general, a single distribution from any
of the Plans will be taxable in the year of receipt at regular ordinary
income rates (on the full amount of the distribution, exclusive of the
amount of the participant's voluntary, non-deductible contributions made to
those Plans which previously permitted such contributions) unless the
distributee is eligible for and elects (i) to make a qualifying "rollover"
of the amount distributed to an IRA or another qualified plan or (ii) to
utilize 10-year averaging, 5-year averaging or partial capital gains
taxation of the distribution. However, the tax on any portion of a
qualifying lump sum distribution represented by "net unrealized
appreciation" in Class A or Class B Common Stock distributed shall be
deferred until a subsequent sale or taxable disposition of the shares,
unless the distributee elects not to have this deferral apply.
A "lump sum distribution," for purposes of eligibility for deferral of
tax on net unrealized appreciation, is defined as a distribution of the
employee's entire vested interest under the Plan within one taxable year (i)
on account of the participant's death or other separation from service or
(ii) after the participant has attained age 59 1/2. For purposes of this
definition, distributions from the CODA, the Profit Sharing Retirement Plan
and the Profit Sharing Retirement Plan II must be aggregated. For a lump sum
distribution to be eligible for 5-year averaging, the participant also must
have been a participant in the Plan from which the distribution is made for
at least five years prior to the year of distribution and must have attained
age 59 1/2when the distribution is received. Under a special transition
rule, an individual who had attained age 50 on January 1, 1986 and who would
otherwise be entitled to elect 5-year averaging (without regard to the age
59 1/2 requirement) may instead make a one-time election of 10-year
averaging (at 1986 rates) and may elect to have the pre-1974 portion of the
distribution taxed at 1986 capital gains rates. The special 5-year or
10-year averaging treatment, as well as partial capital gains treatment, of
lump sum distributions is applicable to a lump sum distribution from a Plan
only if all other lump sum distributions (whether or not from the same Plan
or Plans of a similar type) received during the same taxable year by the
participant are treated in the same manner. Hence, for example, if a
participant receives a lump sum distribution from the CODA, the Profit
Sharing Retirement Plan
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and the Employee Stock Ownership Plan in the same taxable year, he or she
could not elect to use 5-year or 10-year averaging on the CODA and Profit
Sharing Retirement Plan distributions while electing a rollover to an IRA of
the distribution from the Employee Stock Ownership Plan.
"Early" distributions from the Plans will result in an additional 10%
tax on the taxable portion of the distribution, except to the extent the
distribution (i) is rolled over to an IRA or other qualified plan or (ii) is
used for deductible medical expenses. "Early" distributions are in-service
distributions (i.e., prior to termination of employment) prior to the date
the participant attains age 59 1/2 unless due to the permanent disability of
the participant, and distributions made following termination of service
unless due to the death of the participant or made to a participant who
terminated employment during or after the calendar year the participant
attained the age of 55.
(h) A participant (or his or her spouse in the event of the
participant's death) who (i) receives a distribution from the Plans (other
than certain mandatory distributions after age 70 1/2) and (ii) wishes to
defer immediate tax upon receipt of such distribution, may transfer (i.e.,
"rollover") all or a portion thereof, exclusive of the amount of the
participant's voluntary nondeductible contributions (made to those Plans
which previously permitted the participant to make voluntary nondeductible
contributions) received in the distribution, to either an IRA or, in the
case of a participant, another qualified retirement plan. To be effective,
the "rollover" must be completed within 60 days of receipt of the
distribution. Alternatively, the participant or spouse may request a direct
rollover from the Plans to an IRA or, in the case of a participant, to
another qualified retirement plan.
A participant (or his or her spouse) who does not arrange a direct
rollover to an IRA or another qualified plan will be subject to mandatory
federal income tax withholding at a rate of 20% of the taxable distribution,
even if the participant or spouse later makes a rollover within the 60-day
period.
A participant (or his or her spouse) who makes a valid "rollover" to an
IRA will defer payment of federal income tax until such time as such
participant (or his or her spouse) actually begins to receive distributions
from the IRA. IRA earnings accumulate on a tax-deferred basis until actually
distributed; however, IRA funds may not be withdrawn without penalty until a
participant (or his or her spouse) (i) attains the age of 59 1/2, (ii)
becomes disabled or (iii) dies. The Code requires that distributions from an
IRA or a qualified retirement plan begin not later than April 1 of the
taxable year following the year in which an individual attains the age of
70 1/2, at which time periodic distributions may continue for the
participant's lifetime or for the lifetime of the participant and the
participant's spouse.
(i) The Code imposes a 15% excise tax on "excess distributions" to an
individual from all qualified retirement plans and IRAs (whether or not
plans of the same employer). In general, an "excess distribution" is a
distribution or distributions in excess of $112,500 in any calendar year
(adjusted for cost-of-living increases). For 1994, the limit is $148,500.
This limit is increased to $562,500 (also adjusted for cost-of-living) in
the case of a lump sum distribution as to which a qualified recipient elects
5-year or 10-year averaging treatment. For 1994, the limit is $742,500.
Also, an individual was entitled to elect on his or her 1988 federal income
tax return to exclude benefits accrued as of August 1, 1986, but these
benefits are considered in determining whether additional accrued benefits
are subject to the tax. For those individuals who did not elect this special
rule, the $112,500/$562,500 limit is increased to $150,000/$750,000.
In addition to the federal income tax consequences applicable to all of the
Plans, the Deferred Fund of the CODA is intended to be a qualified "cash or
deferred arrangement" under Section 401(k) of the Code. A participant in the
CODA who elects to defer a portion of his or her compensation and have the
Company contribute it to the CODA will not be subject to federal income tax on
the amounts contributed at the time the contributions are made. However, these
contributions will be subject to social security taxes and certain federal
unemployment taxes. Elective deferrals by a participant to his
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or her CODA account is limited to $7,000 annually (adjusted for cost-of-living).
This annual limit applies on an employee-by-employee basis to all 401(k) plans
(including plans of other employers) in which the employee participates. For
calendar year 1994, the adjusted limit is $9,240.
Generally, the Company will be able to deduct the amounts that it
contributes to the CODA pursuant to employee elections to defer a portion of
their compensation, as well as any matching or additional Company contributions
it makes to the Deferred Fund. The deduction will be equal to the amount of
contributions made.
With respect to loans from the CODA commencing after December 31, 1986, any
interest paid by the participant will not be deductible, regardless of the
purpose of the loan or use of the loan proceeds. Moreover, interest paid on any
loan from any of the Plans by a "key employee," as defined in Section 416(i) of
the Code, will not be deductible.
The foregoing discussion is intended only as a summary of certain relevant
federal income tax consequences and does not purport to be a complete discussion
of all of the tax consequences of participation in the Plans. Accordingly,
participants should consult their own tax advisors with respect to all federal,
state and local tax effects of participation in the Plans. Moreover, the Company
does not represent that the foregoing tax consequences will apply to any
particular participant's specific circumstances or will continue to apply in the
future and makes no undertaking to maintain the tax-qualified status of the
Plans.
BONUS COMPENSATION PLAN
GENERAL
The Company's Bonus Compensation Plan became effective on February 1, 1984
and was approved by the stockholders of the Company at the 1984 Annual Meeting
of Stockholders. The Plan provides for the distribution of bonuses in cash or
shares of Class A Common Stock or both. The Bonus Compensation Plan was
originally adopted in 1974 by the Board of Directors of the Company and then
provided only for the payment of cash bonuses. The Bonus Compensation Plan was
amended in 1976 to provide, among other things, for the payment of bonuses in
securities of the Company or cash or a combination of securities and cash and
was amended and restated in its current form on April 2, 1991. The Bonus
Compensation Plan is not subject to ERISA and is not intended to be qualified
under Section 401(a) of the Code.
ELIGIBILITY AND PARTICIPATION
All officers, directors and employees of the Company are eligible to
participate in and receive bonuses under the Bonus Compensation Plan.
AWARDS
Each year the Company establishes a bonus pool which is currently limited to
seven percent of aggregate compensation paid or accrued by the Company for all
persons eligible to receive bonuses under the Bonus Compensation Plan. Awards
under the Bonus Compensation Plan are generally made based upon the employee
obtaining or achieving performance criteria and, in some cases, contingent upon
a requirement that the employee purchase a specified number of shares of Class A
Common Stock in the Limited Market at the prevailing Formula Price. Awards of
bonuses may be made in cash or shares of Class A Common Stock or a combination
of cash and shares and are made upon the recommendation of group managers or the
Chief Executive Officer of the Company, at the discretion of the committee
administering the Bonus Compensation Plan (the "Bonus Compensation Committee").
Awards of bonuses pursuant to the Bonus Compensation Plan are generally
distributed after the end of the fiscal year to which the bonus relates.
Pursuant to the Certificate of Incorporation, all shares of Class A Common Stock
awarded under the Bonus Compensation Plan are subject to the Company's right of
first refusal and the Company's right of repurchase upon termination of
employment or affiliation. See "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock." Awards of shares of Class A Common Stock
may also be subject to forfeiture, in
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whole or in part, in the event of the termination of the recipient's employment
or affiliation with the Company prior to the expiration of certain vesting
periods, as determined by the Bonus Compensation Committee.
The Bonus Compensation Plan also provides for the award of special bonuses
("Spot Bonuses") to reward extraordinary effort or special achievement. Spot
Bonuses may be awarded and distributed to eligible persons at any time, in cash,
up to a maximum of $1,000, by a group manager or by the President of the
Company. Individual awards, other than Spot Bonuses, generally range in an
amount from one week's salary to 25% of a recipient's annual salary, based upon
the recipient's position with the Company; however, the Bonus Compensation Plan
does not provide for a maximum or minimum number of shares of Class A Common
Stock or an amount of cash which may be awarded to any recipient.
Pursuant to the Bonus Compensation Plan, bonuses to members of the Bonus
Compensation Committee (other than the Chief Executive Officer of the Company)
must be approved by the Chief Executive Officer and bonuses to the Chief
Executive Officer must be approved by the Board of Directors. Members of the
Bonus Compensation Committee are ineligible to receive awards of Class A Common
Stock while serving on the Bonus Compensation Committee. For services rendered
during the fiscal year ended January 31, 1993, a total of 7,776 individuals
received an aggregate of approximately $11,760,000 in cash bonuses and 681,500
shares of Class A Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
Awards under the Bonus Compensation Plan of cash bonuses and shares of Class
A Common Stock that are not subject to forfeiture are taxable as ordinary income
to the recipient in the year received. Awards of shares of Class A Common Stock
that are subject to forfeiture will not be recognized for federal income tax
purposes by recipients at the time such awards are made, unless the recipient
makes an election, as discussed below, to recognize the award as income at the
time received.
The recipient of shares of Class A Common Stock that are subject to
forfeiture will recognize income at the time all or a portion of the award
becomes nonforfeitable to the extent of the value of such nonforfeitable shares
at such time. Such recipient may, however, elect to recognize, for federal
income tax purposes, the value of an award of shares of Class A Common Stock on
the date such shares are received, even though the shares remain subject to
forfeiture at that time. The election must be made within 30 days after the
award of shares.
If such an election is made, future appreciation in the value of the shares
of Class A Common Stock will not be treated as taxable compensation. However, if
the shares are forfeited after the taxable year in which such election is made,
no deduction will be allowed to the recipient. The Company is entitled to a
deduction at the time the recipient recognizes the award (or a portion thereof)
as taxable income in an amount equal to the amount recognized by the recipient
as taxable income.
The foregoing discussion is intended only as a summary of certain federal
income tax consequences and does not purport to be a complete discussion of all
of the tax consequences of participation in the Bonus Compensation Plan.
Accordingly, recipients of awards under the Bonus Compensation Plan should
consult their own tax advisors with respect to all federal, state and local tax
effects of participation in the Bonus Compensation Plan. Moreover, the Company
does not represent that the foregoing tax consequences will apply to any
particular participant's specific circumstances.
AMENDMENT AND TERMINATION
The Bonus Compensation Plan may at any time be amended or terminated, either
by the Company's stockholders or by the Board of Directors, except that no
amendment or termination of the Bonus Compensation Plan may, without a
participant's consent, affect any bonus award previously made to such
participant.
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ADMINISTRATION
The Bonus Compensation Plan is administered by the Bonus Compensation
Committee, whose members consist of three or more directors. The members of the
Bonus Compensation Committee are appointed by and serve at the discretion of the
Company's Board of Directors. Members of the Bonus Compensation Committee
receive no compensation from the Bonus Compensation Plan for services rendered
in connection therewith. The current members of the Bonus Compensation Committee
are J.R. Beyster (Chairman), J.B. Wiesler and W.E. Zisch. The address of each
such person is Science Applications International Corporation, 10260 Campus
Point Drive, San Diego, CA 92121.
STOCK COMPENSATION PLANS
GENERAL
On April 9, 1994, the Company adopted the Stock Compensation Plan and the
Management Stock Compensation Plan. In connection with the Stock Compensation
Plans, the Company will enter into a trust agreement ("Trust Agreement") with
State Street Bank and Trust Company, as Trustee, establishing a trust ("Trust")
which will hold the accounts of participants under the Stock Compensation Plans.
ELIGIBILITY, PARTICIPATION AND AWARDS
All officers and employees of the Company (including directors who are
employees of the Company) are eligible to receive awards under the Stock
Compensation Plans. However, only a select group of management and highly
compensated senior employees are eligible to receive awards under the Management
Stock Compensation Plan. It is intended that the participants of the Management
Stock Compensation Plan be limited to individuals that would permit the plan to
be treated as a "top hat" plan under applicable Internal Revenue Service and
Department of Labor regulations.
Each year the Company will establish a discretionary stock compensation
award pool. Awards under the Stock Compensation Plans will generally be made
upon the employee attaining or achieving performance criteria. Awards under the
Stock Compensation Plans will be determined by the Awarding Authority, which is
an individual or individuals to be appointed by the Board of Directors of the
Company. J.R. Beyster is the current Awarding Authority. The address of J.R.
Beyster is Science Applications International Corporation, 10260 Campus Point
Drive, San Diego, CA 92121.
Awards will be made in Share Units, as defined in the Stock Compensation
Plans. Each Share Unit generally corresponds to one share of Class A Common
Stock of the Company, but the employee receiving an award of Share Units will
not have a direct ownership interest in the shares of Class A Common Stock
represented by the Share Units. The Company will contribute to the Trust either
shares of Class A Common Stock, or cash with which the Trustee will purchase
Class A Common Stock, corresponding to the Share Units awarded under the Plan.
Each employee receiving an award of Share Units will have an account established
on his or her behalf in the Trust credited with the shares of Class A Common
Stock allocated to the account based on the award of Share Units.
Each account established in the Trust under the Stock Compensation Plans
will be subject to a vesting schedule not to exceed seven (7) years, established
by the Awarding Authority. It is contemplated that the vesting schedule will
generally provide for vesting at the rate of one-third at the end of each of the
fifth, sixth and seventh years following the date of the award. Unvested
portions of the account will be forfeited in the event of termination of
employment for whatever reason (other than death) prior to full vesting of the
account. Any forfeited account balances may be returned to the Company or
reallocated to other participants as determined by the Company.
Distribution of vested account balances will occur at the end of the seven
(7)-year vesting period (or upon termination of employment, if earlier).
However, employees may elect, within 90 days of the date of the award, to
receive distribution of the account as it becomes vested or, alternatively, in
the case of the Management Stock Compensation Plan, to defer distribution until
termination of employment.
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PROVISIONS RELATING TO THE TRUST
Although administered under a single Trust Agreement, each of the Stock
Compensation Plans is a separate plan, and the accounts of each of the Stock
Compensation Plans are maintained under a separate sub-trust with the Trustee.
The assets of the sub-trust established for each of the Stock Compensation Plans
are not available to pay benefits or satisfy liabilities of the other Plan.
The Trust is a so-called "grantor" trust or "rabbi" trust. The assets of the
Trust are available to satisfy the creditors of the Company in the event of the
bankruptcy or insolvency of the Company. Accordingly, participants in the Stock
Compensation Plans have no direct right to obtain shares of Class A Common Stock
or other assets held in the Trust in the event of such insolvency or bankruptcy
and also have no direct rights against the Company for their benefits. Rather,
participants have the limited rights of a general creditor whose only recourse
is against the assets of the Trust (along with other general creditors of the
Company). The assets of the Trust are not guaranteed or insured by any party,
including the Company.
FEDERAL INCOME TAX CONSEQUENCES
Because awards under the Stock Compensation Plans are represented only by an
interest in the Trust, and because the Trust is intended to be a so-called
"grantor" trust within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Code (by virtue of the fact that the assets of the Trust
are available to satisfy the creditors of the Company in the event of the
Company's bankruptcy or insolvency), the participants in the Stock Compensation
Plans should not be considered to have taxable income until their accounts are
distributed or made available to them under the terms of the Stock Compensation
Plans. This tax treatment is consistent with a series of private letter rulings
issued by the Internal Revenue Service with respect to so-called "rabbi" trusts,
including a private letter ruling issued in 1992 with respect to a rabbi trust
designed to invest primarily or exclusively in employer stock. Although the
Company believes that the analysis contained in these private letter rulings
applies to the Stock Compensation Plans, the Stock Compensation Plans are not
identical to the plans considered in the rulings, and, moreover, private letter
rulings apply only to the taxpayer who requests and receives the ruling. Because
the Company is not applying for a ruling on behalf of the Stock Compensation
Plans, there can be no definite assurance that the above-described tax treatment
will apply. The foregoing discussion is intended only as a summary of certain
relevant federal income tax consequences and does not purport to be a complete
discussion of all of the tax consequences of participation in the Stock
Compensation Plans. Accordingly, participants should consult their own tax
advisors with respect to all federal, state and local tax effects of
participation in the Stock Compensation Plans. Moreover, the Company does not
represent that the foregoing tax consequences will apply to any particular
participant's specific circumstances or will continue to apply in the future.
ERISA
It is intended that the Management Stock Compensation Plan be exempt from
the reporting and disclosure, participation and vesting, funding and fiduciary
responsibility provisions of ERISA as a plan "which is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
(a so-called "top hat" plan). The Department of Labor issued an opinion letter
in 1992 indicating that a rabbi trust established to be invested primarily in
stock of the employer would not cause the related plan to be "funded." Hence,
the related plan was entitled to rely on the top-hat exemption.
It is intended that the Stock Compensation Plan be exempt from ERISA because
it is not a plan which is designed to provide retirement income to employees or
which results in the deferral of income by employees for periods extending to
the termination of employment or beyond. Although the Company believes these
ERISA exemptions are available to the Stock Compensation Plans, no Department of
Labor opinion is being sought and no assurances can be made that the ERISA
exemptions will definitely apply.
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AMENDMENTS AND TERMINATION
The Board of Directors may amend or terminate the Stock Compensation Plans
for any reason, including, but not limited to, adverse changes in accounting
rules or tax laws or the bankruptcy, receivership or dissolution of the Company.
In the event of amendment or termination, benefits will either be paid out when
due under the terms of the Stock Compensation Plans or paid out as soon as
practicable as determined by the Stock Compensation Plans Committee in its sole
discretion.
ADMINISTRATION
The day-to-day administration of the Stock Compensation Plans is provided by
the Stock Compensation Plans Committee appointed by the Board of Directors of
the Company. D.W. Baldwin, S.P. Fisher, H.T. Hicks and W. Reed are the current
members of the Stock Compensation Plans Committee. The address of each such
person is Science Applications International Corporation, 10260 Campus Point
Drive, San Diego, CA 92121. Members of the Committee are eligible to receive
awards under the Stock Compensation Plans.
1993 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The 1993 Employee Stock Purchase Plan (the "Stock Purchase Plan") was
approved by the stockholders of the Company at the 1993 Annual Meeting of
Stockholders and became effective on July 9, 1993. The Stock Purchase Plan is
intended to qualify under Section 423(b) of the Code. The Stock Purchase Plan
provides for the purchase of Class A Common Stock by participating employees
through voluntary payroll deductions. At each Trade Date, the Trustee purchases
for the account of each participant that whole number of shares of Class A
Common Stock which may be acquired from the funds available in the participant's
stock purchase account, together with the Company's five percent contribution
described below. The Stock Purchase Plan is not subject to ERISA.
ELIGIBILITY
Generally, all of the Company's employees are eligible to participate in the
Stock Purchase Plan except for employees in non-participating subsidiaries. No
employee, however, who owns capital stock of the Company having more than five
percent of the voting power or value of such capital stock will be able to
participate. An employee's eligibility to participate in the Stock Purchase Plan
will terminate immediately upon termination of employment with the Company.
Employees may participate in the Stock Purchase Plan by completing a payroll
deduction authorization form and providing it to the designated officials of the
Company. The minimum payroll deduction allowed is three percent of compensation
and the maximum allowable deduction is 10% of compensation. Further, no employee
is entitled to purchase an amount of Class A Common Stock having a fair market
value (measured as of its purchase date) in excess of $25,000 in any calendar
year pursuant to the Stock Purchase Plan and any other employee stock purchase
plan that may be adopted by the Company.
PURCHASE OF SHARES
Shares of Class A Common Stock purchased under the Stock Purchase Plan may
be acquired in the Limited Market or purchased from the Company out of its
authorized but unissued shares. See "Market Information -- The Limited Market."
A maximum of 650,000 shares of Class A Common Stock (subject to adjustment in
the event of a change in the capitalization of the Company effected without
receipt of consideration by the Company) have been authorized for issuance by
the Company as newly issued shares under the Stock Purchase Plan. For the fiscal
year ended January 31, 1994, 248,077 shares of Class A Common Stock were
purchased for the accounts of 1,341 participants in the Company's Stock Purchase
Plan.
The purchase price to be paid for the shares of Class A Common Stock
acquired for the accounts of participants will be the prevailing Formula Price.
Of this amount, 95% will be paid out of the funds contributed by the participant
and five percent will be paid by the Company.
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DISTRIBUTION AND WITHDRAWALS
Shares of Class A Common Stock acquired under the Stock Purchase Plan will
be distributed to each participant no later than 90 days after the end of the
Plan Year in which the acquisition occurred and in the interim will be held by
the Trustee for the account of such participant.
Pursuant to the Certificate of Incorporation, all shares of Class A Common
Stock purchased pursuant to the Stock Purchase Plan will be subject to the
Company's right of repurchase upon the participant's termination of employment
or affiliation with the Company at the then prevailing Formula Price in the case
of shares held by the participant directly, and at the Formula Price in effect
at the time of the annual distribution of shares out of the Stock Purchase Plan
in the case of shares held by the Trustee for the benefit of the participant.
All such shares will also be subject to the Company's right of first refusal in
the event that the participant desires to sell such shares other than in the
Limited Market. See "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock."
Participants may withdraw the money held in their stock purchase accounts at
any time prior to the acquisition of shares of Class A Common Stock therewith,
although upon doing so the participant will not be eligible to participate in
the Stock Purchase Plan until the following Plan Year after such withdrawal. No
interest will be paid on the money held in the stock purchase accounts of the
participants.
AMENDMENT AND TERMINATION
The Board of Directors of the Company may suspend or amend the Stock
Purchase Plan in any respect, except that no amendment may (i) increase the
maximum number of shares authorized to be issued by the Company under the Plan,
(ii) increase the Company's contribution for each share purchased above five
percent of the applicable purchase price for such share, (iii) cause the Stock
Purchase Plan to fail to qualify under Section 423(b) of the Code or (iv) deny
to participating employees the right at any time to withdraw from the Stock
Purchase Plan and thereupon obtain all amounts then due to their credit in their
Stock Purchase Accounts. The Stock Purchase Plan will terminate on July 31,
1995.
ADMINISTRATION
The Stock Purchase Plan is administered by the Company's Stock Purchase Plan
Committee (the "Stock Purchase Committee"), whose members are appointed by and
serve at the discretion of the Company's Board of Directors. Members of the
Stock Purchase Committee receive no compensation from the Stock Purchase Plan
for services rendered in connection therewith. The current members of the Stock
Purchase Committee are A. Maharry, W. Reed and W.A. Roper, Jr. The address of
each such person is Science Applications International Corporation, 10260 Campus
Point Drive, San Diego, CA 92121.
TRUSTEE
The Trustee of the Stock Purchase Plan is the Company.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, no taxable income will be recognized by a
participant in the Stock Purchase Plan until the taxable year of sale or other
disposition of the shares of Class A Common Stock acquired under the Plan. When
the shares are disposed of by a participant two years or more from the date such
shares were purchased for the participant's account by the Trustee, the
participant must recognize ordinary income for the taxable year of disposition
to the extent of the lesser of (i) the excess of the fair market value of the
shares on the purchase date over the amount of the purchase price paid by the
participant (the "Discount") or (ii) the amount by which the fair market value
of the shares at disposition or death exceeds the purchase price, with any gain
in excess of such ordinary income amount being treated as a long-term capital
gain, assuming that the shares are a capital asset in the hands of the
participant. In the event of a participant's death while owning shares acquired
under the Stock Purchase Plan, ordinary income must be recognized in the year of
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<PAGE>
death in the amount specified in the foregoing sentence. When the shares are
disposed of prior to the expiration of the two-year holding period (a
"disqualifying disposition"), the participant must recognize ordinary income in
the amount of the Discount, even if the disposition is by gift or is at a loss.
In the cases discussed above (other than death), the amount of ordinary
income recognized by a participant is added to the purchase price paid by the
participant and this amount becomes the tax basis for determining the amount of
the capital gain or loss from the disposition of the shares.
Net capital gains are presently taxed at a maximum federal income tax rate
of 28%, compared to a maximum rate of 39.6% for ordinary income. However,
limitations on itemized deductions and the phaseout of personal exemptions may
result in effective marginal tax rates higher than 28% for net capital gains and
39.6% for ordinary income.
The Company will not be entitled to a deduction at any time for the shares
issued pursuant to the Stock Purchase Plan if a participant holding such shares
continues to hold his or her shares or disposes of his or her shares after the
required two-year holding period or dies while holding such shares. If, however,
a participant disposes of such shares prior to the expiration of the two-year
holding period, the Company is allowed a deduction to the extent of the amount
of ordinary income includable in gross income by such participant for the
taxable year as a result of the premature disposition of the shares.
The foregoing discussion is intended only as a summary of certain relevant
federal income tax consequences and does not purport to be a complete discussion
of all of the tax consequences of participation in the Stock Purchase Plan.
Accordingly, participants should consult their own tax advisors with respect to
all federal, state and local tax effects of participation in the Stock Purchase
Plan. Moreover, the Company does not represent that the foregoing tax
consequences will apply to any participant's specific circumstances or will
continue to apply in the future and makes no undertaking to maintain the
tax-qualified status of the Stock Purchase Plan.
STOCK OPTION PLANS
1982 STOCK OPTION PLAN
GENERAL
The 1982 Stock Option Plan was approved by the Company's Board of Directors
in March 1982 and by the stockholders of the Company at the 1982 Annual Meeting
of Stockholders, and was amended by the Board of Directors in April 1987, which
amendments were approved by the stockholders in June 1987 (as so amended, the
"1982 Option Plan"). The 1982 Option Plan authorized the granting of both
incentive stock options ("ISO's") and non-qualified stock options with respect
to an aggregate of 22,500,000 shares of capital stock. Commencing in September
1987, it has been the practice of the Company to grant only non-qualified
options due primarily to the favorable tax benefits received by the Company upon
the exercise of such options. See "General Provisions of the Option Plans --
Federal Income Tax Consequences." As of March 14, 1994, the Company had
7,313,629 shares of Class A Common Stock reserved for issuance upon exercise of
non-qualified options previously granted under the 1982 Option Plan; no ISO's
are outstanding. The 1982 Option Plan terminated on, and no option may be
granted after, June 10, 1992. The 1982 Option Plan is not subject to ERISA and
is not intended to be qualified under Section 401(a) of the Code.
The exercise price of options granted under the 1982 Option Plan is
determined by the Stock Option Committee and may not be less than 100% of the
fair market value of the capital stock on the date of grant. Upon the exercise
of an option, the exercise price is fully payable, in whole or in part, in cash
or in shares of capital stock valued at the Formula Price on the date of
exercise. Any withholding required as a result of the exercise of a
non-qualified option may, at the discretion of the Stock Option Committee, be
satisfied by withholding in shares of capital stock of the Company valued at the
Formula Price on the date of exercise. All options granted pursuant to the 1982
Option Plan are non-transferable except by will or the laws of intestate
succession.
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<PAGE>
Options granted under the 1982 Option Plan may be exercised over a period
specified in the stock option agreement (which period may not exceed 10 years),
except for options granted to persons owning shares possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company
or any of its subsidiaries, which may not be exercisable for more than five
years from the date of grant. If an optionee's employment terminates as a result
of retirement or permanent disability, all options may be exercised, to the
extent exercisable at the date of termination, for three additional months, but
in no event beyond their respective expiration dates. If an optionee dies while
employed by the Company, all options, to the extent exercisable at the date of
death, may, for up to one additional year (but in no event later than their
respective expiration dates), be exercised by the optionee's estate or by the
person to whom the optionee's rights pass. Upon termination of employment for
any other reason, all options will terminate as of the date of such termination
of employment, unless otherwise provided by the Stock Option Committee at the
date of grant (but in no event shall the option be exercisable for a period
extending beyond 90 days following such termination). Currently, the practice of
the Stock Option Committee is to provide in the grant that the optionee may
exercise the option within 30 days following termination of employment, but only
to the extent that the option was exercisable as of the date of such
termination.
ELIGIBILITY AND PARTICIPATION
The 1982 Option Plan terminated on, and no options may be granted after,
June 10, 1992. As of March 14, 1994, there were 11,178 separate option
agreements with optionees outstanding under the 1982 Option Plan.
1992 STOCK OPTION PLAN
GENERAL
The 1992 Stock Option Plan (the "1992 Option Plan") was approved by the
Board of Directors on April 10, 1992 and by the stockholders of the Company at
the 1992 Annual Meeting of Stockholders. The 1992 Option Plan provides for the
granting of non-qualified options to purchase a maximum of 12,000,000 shares of
Class A Common Stock to key employees, consultants, directors and others
expected to contribute to the success of the Company. As of March 14, 1994, the
Company had 11,996,371 shares of Class A Common Stock reserved for issuance upon
the exercise of options granted or to be granted under the 1992 Option Plan. The
1992 Option Plan is not subject to ERISA and is not intended to be qualified
under Section 401(a) of the Code.
The exercise price of options granted under the 1992 Option Plan is 100% of
the fair market value of the Class A Common Stock on the date of grant. Upon the
exercise of an option, the exercise price must be paid in full in cash or in
shares of Class A Common Stock valued at the Formula Price on the date of
exercise. Any withholding required as a result of the exercise of an option may,
at the discretion of the Stock Option Committee, be satisfied by withholding in
shares of Class A Common Stock valued at the Formula Price on the date of
exercise. All options granted under the 1992 Option Plan are non-transferable
except by will or the laws of intestate succession.
Options granted under the 1992 Option Plan may be exercised over a period
specified in the Option Agreement (which period may not exceed 10 years). If an
optionee's employment terminates as a result of retirement or permanent total
disability, all options may be exercised, to the extent exercisable at the date
of termination, for 90 additional days, but in no event beyond their respective
expiration dates. If an optionee dies while employed by or affiliated with the
Company, all unexercised options, to the extent exercisable at the date of
death, may, for up to one additional year, or such shorter period as may be
specified in the Option Agreement (but not beyond their respective expiration
dates), be exercised by the optionee's estate or the person to whom the
optionee's rights pass by will or the laws of descent and distribution. Upon
termination of employment for any other reason, all options will terminate as of
the date of termination of employment or affiliation, unless such date is
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<PAGE>
extended by the Stock Option Committee (but not beyond their respective
expiration dates). Currently, the practice of the Stock Option Committee is to
provide in the grant that the optionee may exercise the option within 30 days
following termination of employment or affiliation, but only to the extent that
the option was exercisable as of the date of such termination.
ELIGIBILITY AND PARTICIPATION
The persons eligible to receive options under the 1992 Option Plan are key
employees, directors and consultants. No option may be granted to any individual
who, at the time the option is granted, owns more than 10% of the total combined
voting power of all classes of capital stock of the Company. As of March 14,
1994, there were 7,187 separate option agreements with optionees outstanding
under the 1992 Option Plan. Other than the foregoing, the 1992 Option Plan does
not provide any limit as to the number of shares that may be subject to options
granted to any one individual.
AMENDMENT AND TERMINATION
The 1992 Option Plan may be amended, suspended or terminated by the Board of
Directors, except that no such amendment may, without the approval of the
holders of outstanding shares of the Company having a majority of the general
voting power, (i) increase the maximum number of shares for which options may be
granted (other than by reason of changes in capitalization and similar
adjustments), (ii) change the provisions of the 1992 Option Plan relating to the
establishment of the exercise price (other than the provisions relating to the
manner of determination of fair market value of the Company's capital stock to
conform to any applicable requirements of the Code or regulations issued
thereunder) or (iii) permit the granting of options to members of the Stock
Option Committee. The 1992 Option Plan by its terms will terminate on, and no
option may be granted after, July 31, 1995.
GENERAL PROVISIONS OF THE OPTION PLANS
GENERAL
All shares issued upon exercise of options granted under the 1982 Option
Plan or the 1992 Option Plan (collectively, the "Option Plans") are subject to
(i) the Company's right of first refusal in the event that the optionee desires
to sell his or her shares other than in the Limited Market and (ii) the
Company's right of repurchase upon termination of the optionee's employment or
affiliation. See "Description of Capital Stock -- Common Stock -- Restrictions
on Class A Common Stock." Only shares of Class A Common Stock will be issued
upon exercise of options. See "Description of Capital Stock -- Common Stock --
General."
The Company follows the practice of granting stock options to employees,
contingent upon the employee attaining a certain level of contract awards for
the Company during a specified period or satisfying other performance criteria
and, in some cases, also contingent upon a requirement that such individuals
purchase a specified number of shares of Class A Common Stock in the Limited
Market at the prevailing Formula Price. Options generally become exercisable on
a cumulative basis over a four-year period.
If the outstanding shares of the capital stock of the Company are changed
into, or exchanged for a different number or kind of shares or securities of the
Company through reorganization, merger, recapitalization, reclassification or
similar transaction, or if the number of outstanding shares is changed through a
stock split, stock dividend, stock consolidation or similar transaction, an
appropriate adjustment (determined by the Board of Directors in its sole
discretion) will be made in the number and kind of shares and the exercise price
per share of options which are outstanding or which may be granted thereafter.
No adjustment to the number of shares reserved for issuance by the Company under
the 1982 Option Plan was made as a result of the reorganization of the Company
in 1984. As of March 14, 1994, there were 7,313,629 shares of Class A Common
Stock reserved for issuance under the 1982 Option Plan and 11,996,371 shares of
Class A Common Stock reserved for issuance under the 1992 Option Plan.
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<PAGE>
Under the 1982 Option Plan, the Stock Option Committee may accelerate the
exercisability of options in the case of an optionee whose employment is
terminated by reason of a sale or other disposition by the Company of assets in
respect of which the optionee was employed; and options will become fully
exercisable in the case of (i) approval of the Board of Directors of (a) a
consolidation or merger in which the Company is not the surviving corporation or
pursuant to which shares of capital stock would be converted into cash,
securities or other property, other than a merger in which stockholders of the
Company immediately prior thereto will have the same proportionate ownership of
capital stock of the surviving corporation immediately thereafter, or (b) a
sale, lease, exchange or other transfer of all or substantially all of the
assets of the Company or (ii) any person (other than the Company or any
subsidiary or employee benefit plan thereof) becoming the beneficial owner of
more than 25% of the outstanding Common Stock without the prior approval of the
Board of Directors.
Under the 1992 Option Plan, the options will become fully exercisable upon
any person (other than the Company or any subsidiary or employee benefit plan
thereof) becoming the beneficial owner of more than 25% of the outstanding
capital stock without the prior approval of the Board of Directors. The Stock
Option Committee is also given the discretion to accelerate or defer the
exercise of options in other circumstances, at the Committee's discretion.
ADMINISTRATION
The Option Plans are administered by the Stock Option Committee whose
members consist of three or more directors or other individuals appointed by and
serve at the discretion of the Company's Board of Directors. The members of the
Stock Option Committee are not eligible to receive options while serving on the
Stock Option Committee. The Stock Option Committee is appointed annually by the
Board of Directors, which may also fill vacancies or replace members of the
Stock Option Committee. Subject to the express provisions of the Option Plans,
the Stock Option Committee has the authority to (i) interpret the Option Plans,
(ii) prescribe, amend and rescind rules and regulations relating to the Option
Plans, (iii) determine the individuals to whom and the time or times at which
options may be granted and the number of shares to be subject to each option
granted under the Option Plans, (iv) determine the terms and conditions of the
option agreements under the Option Plans (which need not be identical) and (v)
make all other determinations necessary or advisable for the administration of
the Option Plans. In addition, the Stock Option Committee may, with the consent
of the affected optionees and subject to the general limitations of the Option
Plans, make any adjustment in the exercise price, the number of shares subject
to, or the term of, any outstanding option by cancellation of such option and a
subsequent regranting of such option, or by amendment or substitution of such
option. Options which have been so amended, regranted or substituted may have
higher or lower exercise prices, cover a greater or lesser number of shares of
capital stock, or have longer or shorter terms, than the prior options. The
members of the Stock Option Committee receive no compensation from the Option
Plans for services rendered in connection therewith. The current members of the
Stock Option Committee are J.R. Beyster (Chairman), J.B. Wiesler and W.E. Zisch.
The address of each such person is Science Applications International
Corporation, 10260 Campus Point Drive, San Diego, CA 92121.
FEDERAL INCOME TAX CONSEQUENCES
NON-QUALIFIED OPTIONS. All outstanding options under the 1982 Option Plan
and all options granted or to be granted under the 1992 Option Plan are
non-qualified options. Generally, the optionee will not be taxed upon grant of
any non-qualified option but rather, at the time of exercise of such option, the
optionee will recognize ordinary income for federal income tax purposes in an
amount equal to the excess of the fair market value at the time of exercise of
the capital stock purchased over the exercise price. The Company will generally
be entitled to a tax deduction at such time and in the same amount that the
optionee realizes ordinary income.
If capital stock acquired upon the exercise of a non-qualified option is
later sold or exchanged, then the difference between the sale price and the fair
market value of such capital stock on the date which governs the determination
of ordinary income is generally taxable (provided the stock is a
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capital asset in the holder's hands) as long-term or short-term capital gain or
loss depending upon whether the holding period for such capital stock at the
time of disposition is more or less than one year.
EXERCISE WITH SHARES OF CAPITAL STOCK
If payment of the exercise price of a non-qualified option is made by
surrendering previously owned shares of capital stock, the following rules
apply:
(a) No gain or loss will be recognized as a result of the surrender of
shares in exchange for an equal number of shares subject to the
non-qualified option, and the surrender of shares will not be treated as a
disqualifying disposition of any stock acquired through exercise of an ISO.
(b) The number of shares received equal to the shares surrendered will
have a basis equal to the shares surrendered and a holding period that
includes the holding period of the shares surrendered.
(c) Any additional shares received (i) will be taxed as ordinary income
in an amount equal to the fair market value of the shares at the time of
exercise, (ii) will have a basis equal to the amount included in taxable
income by the optionee and (iii) will have a holding period that begins on
the date of the exercise.
The foregoing discussion is intended only as a summary of certain federal
income tax consequences and does not purport to be a complete discussion of all
of the tax consequences of participation in the Option Plans. Accordingly,
holders of options granted under the Option Plans should consult their own tax
advisors for specific advice with respect to all federal, state or local tax
effects before exercising any options and before disposing of any shares of
capital stock acquired upon the exercise of an option. Moreover, the Company
does not represent that the foregoing tax consequences apply to any particular
option holder's specific circumstances or will continue to apply in the future.
OUTSTANDING OPTIONS
The following table presents information as of March 14, 1994 with respect
to shares of Class A Common Stock subject to outstanding stock options granted
under each of the Option Plans. There are 11,178 and 7,187 separate option
agreements which evidence the options outstanding under the 1982 Option Plan and
1992 Option Plan, respectively.
1982 OPTION PLAN
<TABLE>
<CAPTION>
SHARES OF AVERAGE
CLASS A COMMON EXERCISE
STOCK PRICE EXPIRATION DATES
- - - - - - - -------------- ------------- ------------------------------------------
<C> <C> <S>
1,255,909 $ 8.79 March 1994 through February 1995
1,294,396 $ 9.60 March 1995 through February 1996
3,081,968 $ 10.38 March 1996 through February 1997
1,681,356 $ 11.16 March 1997 through June 1997
</TABLE>
1992 OPTION PLAN
<TABLE>
<CAPTION>
SHARES OF AVERAGE
CLASS A COMMON EXERCISE
SHARES PRICE EXPIRATION DATES
- - - - - - - -------------- --------- -------------------------------------------
<C> <C> <S>
975,490 $ 11.79 August 1997 through February 1998
2,615,154 $ 12.96 March 1998 through March 1999
</TABLE>
On April 9, 1994, the Formula Price of the Class A Common Stock was $14.46.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 100,000,000 shares of Class A Common
Stock, par value $.01 per share, 5,000,000 shares of Class B Common Stock, par
value $.05 per share, and 3,000,000 shares of Preferred Stock, par value $.05
per share (the "Preferred Stock"). As of March 14, 1994, there were 44,125,061
shares of Class A Common Stock, 360,880 shares of Class B Common Stock and no
shares of Preferred Stock issued and outstanding. The Class A Common Stock and
Class B Common Stock are sometimes collectively or individually referred to as
the "Common Stock."
COMMON STOCK
GENERAL
Except as otherwise provided by law, the holders of shares of Class A Common
Stock and Class B Common Stock vote together as a single class in all matters,
with each holder of Class A Common Stock having one vote per share and each
holder of Class B Common Stock having five votes per share. The holders of
shares of Class A Common Stock and Class B Common Stock are entitled to cumulate
their votes for the election of directors. Cumulative voting entitles each
stockholder to cast the number of votes that equals the number of shares of
Class A Common Stock or five times the number of shares of Class B Common Stock
held by such stockholder multiplied by the number of directors to be elected.
Each stockholder may cast all of such votes for a single nominee or may
distribute them among any two or more nominees as such stockholder sees fit. The
Certificate of Incorporation provides for a classified Board of Directors
consisting of three classes of directors, as nearly as equal in number as
practicable. The number of authorized directors is currently fixed at 22
directors of which 8 are Class I and the remaining positions are evenly divided
between Class II and Class III directors. Each year the stockholders elect a
different class of directors to serve a three-year term. As a result of the
classification of the Board of Directors, the votes of a greater number of
shares would be required to ensure the election of a director than would be
required without such classification.
Subject to the prior rights of the holders of any Preferred Stock then
outstanding, the holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends, out of funds legally available therefor, when and
as declared by the Board of Directors and to participate equally and ratably in
the net assets of the Company available for distribution in the event of
liquidation, dissolution or winding up, after payment of any amounts due to
creditors; provided, however, that any dividend or distribution with respect to
a share of Class B Common Stock must be five times the dividend or distribution,
as the case may be, with respect to a share of Class A Common Stock.
Holders of Class A Common Stock have no conversion rights and holders of
Class A Common Stock and Class B Common Stock have no preemptive or subscription
rights. Neither class of Common Stock may be subdivided, consolidated,
reclassified or otherwise changed unless the relative powers, preferences,
rights, qualifications, limitations and restrictions applicable to the other
class of Common Stock are maintained. In any merger, consolidation or business
combination to which the Company is a party (other than a merger, consolidation
or business combination in which the Company is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
shares of Common Stock), the consideration to be received with respect to each
share of Class B Common Stock must be equal to five times the consideration to
be received with respect to each share of Class A Common Stock, except that if
capital stock is distributed in any such transaction, such shares may differ as
to the rights of the holders thereof only to the extent that such rights differ
pursuant to Article FOURTH of the Certificate of Incorporation. All shares of
Class A Common Stock and Class B Common Stock presently outstanding are, and the
shares offered hereby upon full payment therefor will be, fully paid and
nonassessable.
Pursuant to the terms of the Certificate of Incorporation, the Company is
prohibited from issuing any additional shares of Class B Common Stock. Each
share of Class B Common Stock is convertible at
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<PAGE>
any time, at the option of the holder thereof, into five shares of Class A
Common Stock, and all shares of Class B Common Stock reacquired by the Company
will be retired and will not be available for reissuance.
Article FOURTEENTH of the Certificate of Incorporation generally requires
that mergers and certain other business combinations ("Business Combinations")
between the Company and any holder of five percent or more of the Company's
outstanding voting power (a "Related Person") must be approved by the holders of
securities having 80% of the Company's outstanding voting power, as well as by
the holders of a majority of such securities that are not owned by the Related
Person. Under Delaware law, unless the Certificate of Incorporation provides
otherwise, only a majority of the Company's outstanding voting power is required
to approve certain of these transactions, such as mergers and consolidations,
while certain other of these transactions would not require stockholder
approval.
The 80% and majority of independent voting power requirements of Article
FOURTEENTH (the "Supermajority Vote Requirements") will not apply, however, to a
Business Combination with a Related Person, if (i) the transaction is approved
by the Board of Directors prior to the time the Related Person becomes a Related
Person (i.e., prior to the time the Related Person acquired beneficial ownership
of five percent or more of the Company's outstanding voting power), (ii) the
transaction is approved by at least a majority of the members of the Board of
Directors who are unaffiliated with the Related Person and who were directors
before the Related Person became a Related Person or (iii) the Business
Combination involves only the Company and one or more of its subsidiaries and
certain other conditions are satisfied.
Article FOURTEENTH also provides that in the event a Business Combination
with a Related Person subject to the Supermajority Vote Requirements is
consummated, stockholders of the Company who voted against the Business
Combination, at their option, will have the right to receive a price which is
equal to (i) the price offered by the Related Person in the Business Combination
or (ii) the greater of (a) the highest price per share paid by the Related
Person in acquiring shares of capital stock of the Company or (b) a price which
bears the same percentage relationship to the market price of the Company's
capital stock immediately preceding the announcement of the Business Combination
as the highest price paid by the Related Person for any of the Company's capital
stock bears to the market price of the Company's capital stock immediately
before the Related Person initially acquired any shares of the Company's capital
stock.
Article FOURTEENTH was adopted by the stockholders of the Company at the
1983 Annual Meeting of Stockholders and the full text of such Article appeared
as Exhibit B to the Company's Proxy Statement for that meeting. Additional
copies of Article FOURTEENTH may be obtained, upon request, by writing the
Company at 10260 Campus Point Drive, San Diego, California 92121, Attention:
Corporate Secretary.
The Company acts as its own transfer agent for the Class A Common Stock and
Class B Common Stock.
As of March 14, 1994, there were 10,038 record holders of Class A Common
Stock and 135 record holders of Class B Common Stock.
RESTRICTIONS ON CLASS A COMMON STOCK
All the shares of Class A Common Stock presently outstanding are, and all
shares of Class A Common Stock offered hereby will be, subject to certain
restrictions (including restrictions on their transferability) set forth in
Article FOURTH of the Certificate of Incorporation, which restrictions provide
substantially as follows:
RIGHT OF REPURCHASE UPON TERMINATION OF EMPLOYMENT OR AFFILIATION
All shares of Class A Common Stock owned by a person who is an employee or
director of, or a consultant to, the Company (except for shares of Class A
Common Stock that are held by a stockholder
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<PAGE>
who received such shares (i) in connection with the reorganization of the
Company in 1984 in exchange for shares of the Company which immediately prior
thereto were not subject to a right of repurchase upon termination of employment
or affiliation on the part of the Company, (ii) upon exercise of a non-qualified
stock option granted prior to October 1, 1981 under the Company's 1979 Stock
Option Plan which were not converted into ISO's, (iii) in exchange for shares of
Class B Common Stock that were not subject to a right of repurchase upon
termination of employment or affiliation on the part of the Company or (iv)
pursuant to a stock dividend or a stock split on the outstanding shares of Class
A Common Stock which have been theretofore issued under any of the circumstances
described in clauses (i), (ii), (iii) or this clause (iv)) will be subject to
the Company's right of repurchase upon the termination of such holder's
employment or affiliation with the Company. Such right of repurchase will also
be applicable to all shares of Class A Common Stock which such person has the
right to acquire after his or her termination of employment or affiliation
pursuant to any of the Company's employee benefit plans (other than the
Company's Profit Sharing Retirement Plan, Profit Sharing Retirement Plan II,
Employee Stock Ownership Plan or CODA, or any other retirement or pension plan
adopted by the Company or any of its subsidiaries which by its terms does not
provide for the Company's right to repurchase shares issued thereunder upon
termination of employment or affiliation) or pursuant to any option or other
contractual right to acquire shares of Class A Common Stock which was
outstanding at the date of such termination of employment or affiliation.
The Company's right of repurchase is exercised by mailing a written notice
to such holder within 60 days following termination of employment or
affiliation. If the Company repurchases the shares, the price will be the
Formula Price per share (i) on the date of such termination of employment or
affiliation, in the case of shares owned by the holder at that date and shares
issuable to the holder after that date pursuant to any option or other
contractual right to acquire shares of Class A Common Stock which were
outstanding at that date or (ii) on the date such shares are distributed to the
holder, in the case of shares distributable to the holder after his or her
termination of employment or affiliation pursuant to any of the Company's
employee benefit plans. The Company will, in the event it exercises its right of
repurchase upon termination of employment or affiliation, pay for such shares in
cash within 90 days after the date referred to in (i) or (ii) above, as the case
may be.
RIGHT OF FIRST REFUSAL
In the event that a holder of Class A Common Stock desires to sell any of
his or her shares to a third party other than in the Limited Market, such person
must first give notice to the Corporate Secretary of the Company consisting of:
(i) a signed statement setting forth such holder's desire to sell his or her
shares of Class A Common Stock and that he or she has received a bona fide offer
to purchase such shares; (ii) a statement signed by the intended purchaser
containing (a) the intended purchaser's full name, address and taxpayer
identification number, (b) the number of shares to be purchased, (c) the price
per share to be paid, (d) the other terms under which the purchase is intended
to be made and (e) a representation that the offer, under the terms specified,
is bona fide and (iii) if the purchase price is payable in cash, in whole or in
part, a copy of a certified check, cashier's check or money order payable to
such holder from the purchaser in the amount of the purchase price to be paid in
cash.
Upon receiving such notice, the Company will have the right, exercisable
within 14 days, to purchase all of the shares specified in the notice at the
offer price and upon the same terms as set forth in the notice. In the event the
Company does not exercise such right, the holder may sell the shares specified
in the notice within 30 days thereafter to the person specified in the notice at
the price and upon the terms and conditions set forth therein. The holder may
not sell such shares to any other person or at any different price or on any
different terms without first re-offering the shares to the Company.
TRANSFERS OTHER THAN BY SALE
Except for sales in the Limited Market and as described above, no holder of
Class A Common Stock may sell, assign, pledge, transfer or otherwise dispose of
or encumber any shares of Class A
41
<PAGE>
Common Stock without the prior written approval of the Company, and any attempt
to do so without such prior approval will be null and void. The Company may
condition its approval of a transfer of any shares of Class A Common Stock,
other than by sale by an employee or director of, or a consultant to the Company
or by a person who acquired such shares other than by purchase, directly or
indirectly, from an employee or director of, or a consultant to the Company,
upon the transferee's agreement to hold such shares subject to the Company's
right to repurchase such shares upon the termination of employment or
affiliation of the employee, director or consultant.
LAPSE OR WAIVER OF RESTRICTIONS
All restrictions upon the shares of Class A Common Stock will automatically
terminate (i) if the Company makes an underwritten offering of either class of
its Common Stock, or securities convertible into any class of its Common Stock,
to the general public or (ii) if the Company applies to have any class of its
Common Stock, or securities convertible into any class of its Common Stock,
listed on a national securities exchange. In addition, the Board of Directors
may waive any or all of the restrictions on shares of Class A Common Stock in
such other circumstances as the Board deems appropriate.
RESTRICTIONS ON CLASS B COMMON STOCK
Substantially all of the presently outstanding shares of Class B Common
Stock are subject to a right of first refusal on the part of the Company in the
event a stockholder desires to sell his or her shares of Class B Common Stock
other than in the Limited Market. Such right is exercisable by the Company at
the third-party offer price. In addition, all of the presently outstanding
shares of Class B Common Stock that were issued subsequent to October 1, 1981
(other than shares issued subsequent to that date which were distributed out of,
or are presently held in, the Profit Sharing Retirement Plan, Profit Sharing
Retirement Plan II, Employee Stock Ownership Plan and CODA or that were issued
upon the exercise of stock options granted prior to that date) are subject to a
right of repurchase on the part of the Company upon termination of the
stockholder's employment or affiliation with the Company. This right is
generally exercisable by the Company at a price equal to five times the Formula
Price for Class A Common Stock prevailing at the time of such termination. By
their terms, all such restrictions will terminate in the event that either class
of the Common Stock is listed on any national securities exchange or is traded
on a regular basis, as determined by the Company, in the over-the-counter
market.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Board of Directors may,
from time to time, authorize the issuance of one or more series of Preferred
Stock and fix by resolution or resolutions adopted at the time of issuance the
designations, preferences and relative rights, qualifications and limitations of
each series. Each series of Preferred Stock could, as determined by the Board of
Directors at the time of issuance, rank senior to the Class A Common Stock and
Class B Common Stock with respect to dividends and redemption and liquidation
rights.
The Certificate of Incorporation authorizes the Board of Directors to
determine, among other things, with respect to each series of Preferred Stock
which may be issued: (i) the dividend rates, conditions and preferences, if any,
in respect of the Class A Common Stock and Class B Common Stock and among the
series of Preferred Stock, (ii) whether dividends would be cumulative and, if
so, the date from which dividends on the series would accumulate, (iii) whether,
and to what extent, the holders of the series would have voting rights in
addition to those prescribed by law, (iv) whether, and upon what terms, the
series would be convertible into or exchangeable for other securities, (v)
whether, and upon what terms, the series would be redeemable, (vi) the
preference, if any, to which the series would be entitled in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company
and (vii) whether or not a sinking fund would be provided for the redemption of
the series and, if so, the terms and conditions thereof. With regard to
dividends and redemption and liquidation rights, the Board of Directors may
determine that any particular series of Preferred Stock may rank junior to, on a
parity with or senior to any other series of Preferred Stock.
42
<PAGE>
Holders of shares of Preferred Stock will have no preferential right to
purchase any shares of the Company's capital stock. The Company has no present
intention or plan to issue any shares of Preferred Stock.
LEGAL OPINION
The legality of the Class A Common Stock offered hereby has been passed upon
for the Company and the Selling Stockholders by Douglas E. Scott, Esquire,
Corporate Vice President and General Counsel of the Company. As of April 11,
1994, Mr. Scott owned of record 10,168 shares of Class A Common Stock, had the
right to acquire an additional 20,700 shares pursuant to previously granted
stock options and beneficially owned a total of 3,537 shares through the
Company's retirement plans.
EXPERTS
The consolidated financial statements incorporated into this Prospectus by
reference to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1994 have been so incorporated in reliance on the report of Price
Waterhouse, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
43
<PAGE>
- - - - - - - --------------------------------------------------------------------------------
- - - - - - - --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information.......................... 2
Information Incorporated by Reference.......... 2
The Company.................................... 2
Government Contracts........................... 3
Securities Offered by the Prospectus........... 4
Market Information............................. 8
Dividend Policy................................ 11
Use of Proceeds................................ 11
Employee Benefit Plans......................... 11
Description of Capital Stock................... 39
Legal Opinion.................................. 43
Experts........................................ 43
</TABLE>
28,360,000 SHARES
CLASS A COMMON STOCK
[LOGO]
--------------------
P R O S P E C T U S
--------------------
APRIL , 1994
- - - - - - - --------------------------------------------------------------------------------
- - - - - - - --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimated statement of all expenses
incurred in connection with the registration and distribution of the securities
being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 31,651*
Legal Fees and Expenses.......................................... 14,500
Printing Fees and Expenses....................................... 26,000
Accounting Fees and Expenses..................................... 17,000
Blue Sky Qualification Fees...................................... 36,000
Miscellaneous.................................................... 1,000
---------
Total........................................................ $ 126,151
---------
---------
<FN>
- - - - - - - ------------------------
* The Selling Stockholders have each agreed to pay their pro-rata portion of
the registration fee.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware grants each
corporation organized thereunder, such as the Registrant, the power to indemnify
its directors and officers against certain circumstances. Article FIFTEENTH of
the Registrant's Restated Certificate of Incorporation provides for
indemnification of directors and officers to the fullest extent permitted by
law.
The Company also has directors and officers liability insurance, with policy
limits of $25 million, under which directors and officers of the Company are
insured against certain liabilities which they may incur in such capacities.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- - - - - - - ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(a) Article FOURTH of the Registrant's Restated Exhibit 3 to the Registrant's Post-Effective
Certificate of Incorporation, as amended on Amendment No. 1 to Form S-2 as filed on August
August 21, 1987. 21, 1987 with the SEC.
4(b) Form of Non-Qualified Stock Option Agreement of Exhibit 4(c) to the Registrant's Annual Report on
the Registrant's 1992 Stock Option Plan (form Form 10-K for the fiscal year ended January 31,
dated August 1992). 1993 (the "1993 10-K").
4(c) Form of Non-Qualified Stock Option Agreement of Exhibit 4(p) to the Registrant's Annual Report on
the Registrant (Employee, Director and Form 10-K for the fiscal year ended January 31,
Consultant of the Registrant's 1982 Stock Option 1991 (the "1991 10-K").
Plan (form dated October 1990).
4(d) Form of Stock Restriction Agreement of the Exhibit 4(e) to the Registrant's Annual Report on
Registrant's Employee Stock Ownership Plan (form Form 10-K for the fiscal year ended January 31,
dated March 1, 1985). 1985 (the "1985 10-K").
4(e) Form of Stock Restriction Agreement of the Exhibit 4(b) to the 1991 10-K.
Registrant's Bonus Compensation Plan (form dated
October 1990).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- - - - - - - ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(f) Form of Stock Restriction Agreement of the Exhibit 4(g) to the 1985 10-K.
Registrant's Cash or Deferred Arrangement
(TRASOP Account) (form dated March 1, 1985).
4(g) Registrant's Bonus Compensation Plan, as amended Exhibit 4(l) to the 1991 10-K.
through April 2, 1991.
4(h) Registrant's 1982 Stock Option Plan, as amended Exhibit 4(n) to the Registrant's Annual Report on
through June 9, 1989. Form 10-K for the fiscal year ended January 31,
1990.
4(i) Form of Stock Restriction Agreement of the Exhibit 4(r) to the 1991 10-K.
Registrant's Employee Stock Ownership Plan
(TRASOP Account) (form dated April 1, 1991).
4(j) Registrant's 1992 Stock Option Plan. Exhibit 4(o) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31,
1992.
4(k) Registrant's 1993 Employee Stock Purchase Plan. Annex I to the Proxy Statement for the 1993
Annual Meeting of Stockholders.
4(l) Form of Stock Restriction Agreement of the Exhibit 4(v) to the 1993 10-K.
Registrant's Bonus Compensation Plan (form dated
July 1992).
4(m) Registrant's Stock Compensation Plan. Exhibit 4(l) to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31,
1994 (the "1994 10-K").
4(n) Registrant's Management Stock Compensation Plan. Exhibit 10(m) to the 1994 10-K.
5(a) Opinion of Douglas E. Scott, Esq. **
5(b) Internal Revenue Service determination letter **
dated December 3, 1993, relating to the
Company's Employee Stock Ownership Plan.
5(c) Internal Revenue Service determination letter **
dated December 3, 1993, relating to the
Company's Profit Sharing Retirement Plan II.
5(d) Internal Revenue Service determination letter **
dated December 3, 1993, relating to the
Company's Cash or Deferred Arrangement.
23(a) Consent of Douglas E. Scott, Esq. (contained in **
Exhibit 5 to this Registration Statement).
23(b) Consent of Price Waterhouse. **
<FN>
- - - - - - - ------------------------
** Filed herewith.
</TABLE>
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Rule 415 Offering
Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the Registration Statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Security and Exchange Commission Policy Regarding Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the provisions of Section 145 of the General Corporation
Law of Delaware and Article FIFTEENTH of Registrant's Certificate of
Incorporation, or otherwise, Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Registrant of the expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
(d) Deregistration of Certain Previously Registered Shares
Pursuant to Registrant's undertaking to remove from registration any of its
registered securities which remain unsold at the termination of the offering,
Registrant hereby deregisters the number of shares from the registration
statements and for the purposes indicated in the table below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO
REGISTRATION BE
NO. NAME OF PLAN OR INDIVIDUAL DEREGISTERED
- - - - - - - --------------- --------------------------------------------------------------------------- -----------
<S> <C> <C>
33-47244 J.R. Beyster 10,000
33-61022 D.R. Heebner 4,505
33-47244 D.R. Heebner 17,645
33-61022 A.K. Jones 5,428
33-47244 M.R. Laird 5,000
33-28185 W.M. Layson 5,960
33-34375 J.W. McRary 10,453
33-28185 J.W. McRary 26,902
33-5155 J.W. McRary 14,645
33-34375 J.A. Welch 1,000
33-40079 J.A. Welch 2,000
33-47244 J.A. Welch 2,000
33-40079 Registrant (including its retirement and employee benefit plans) 12,088
33-61022 Registrant (including its retirement and employee benefit plans) 4,858
33-21145 Registrant (including its retirement and employee benefit plans) 365,798
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Diego, State of California on April 13, 1994.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
By ________/s/_J.R. BEYSTER___________
J.R. Beyster
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints J.D. Heipt, L.A. Kull and D.E. Scott, or
any one of them jointly and severally, such person's attorneys-in-fact, each
with the power of substitution, for such person in any and all capacities, to
execute any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-3 and to file the same, with all exhibits
thereto, and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, and hereby ratifies
and confirms all that each of said attorneys-in-fact, or each of their
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - - - - - ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/s/ J.R. BEYSTER
------------------------------------------- Chairman of the Board and April 13, 1994
J.R. Beyster Chief Executive Officer
/s/ W.A. ROPER, JR.
------------------------------------------- Principal Financial Officer April 13, 1994
W.A. Roper, Jr.
/s/ P.N. PAVLICS
------------------------------------------- Principal Accounting Officer April 13, 1994
P.N. Pavlics
/s/ A.L. ALM
------------------------------------------- Director April 13, 1994
A.L. Alm
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - - - - - ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
------------------------------------------- Director April , 1994
V.N. Cook
/s/ S.J. DALICH
------------------------------------------- Director April 13, 1994
S.J. Dalich
/s/ C.K. DAVIS
------------------------------------------- Director April 13, 1994
C.K. Davis
------------------------------------------- Director April , 1994
E.A. Frieman
/s/ D.A. HICKS
------------------------------------------- Director April 13, 1994
D.A. Hicks
/s/ B.R. INMAN
------------------------------------------- Director April 13, 1994
B.R. Inman
/s/ D.M. KERR
------------------------------------------- Director April 13, 1994
D.M. Kerr
/s/ L.A. KULL
------------------------------------------- Director April 13, 1994
L.A. Kull
/s/ M.R. LAIRD
------------------------------------------- Director April 13, 1994
M.R. Laird
/s/ W.M. LAYSON
------------------------------------------- Director April 13, 1994
W.M. Layson
/s/ C.B. MALONE
------------------------------------------- Director April 13, 1994
C.B. Malone
/s/ B.J. SHILLITO
------------------------------------------- Director April 13, 1994
B.J. Shillito
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - - - - - ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/s/ E.A. STRAKER
------------------------------------------- Director April 13, 1994
E.A. Straker
/s/ M.R. THURMAN
------------------------------------------- Director April 13, 1994
M.R. Thurman
/s/ J.H. WARNER, JR.
------------------------------------------- Director April 13, 1994
J.H. Warner, Jr.
/s/ J.A. WELCH
------------------------------------------- Director April 13, 1994
J.A. Welch
/s/ J.B. WIESLER
------------------------------------------- Director April 13, 1994
J.B. Wiesler
/s/ W.E. ZISCH
------------------------------------------- Director April 13, 1994
W.E. Zisch
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- - - - - - - ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(a) Article FOURTH of the Registrant's Restated Exhibit 3 to the Registrant's Post-Effective
Certificate of Incorporation, as amended on Amendment No. 1 to Form S-2 as filed on August
August 21, 1987. 21, 1987 with the SEC.
4(b) Form of Non-Qualified Stock Option Agreement of Exhibit 4(c) to the Registrant's Annual Report on
the Registrant's 1992 Stock Option Plan (form Form 10-K for the fiscal year ended January 31,
dated August 1992). 1993 (the "1993 10-K").
4(c) Form of Non-Qualified Stock Option Agreement of Exhibit 4(p) to the Registrant's Annual Report on
the Registrant (Employee, Director and Form 10-K for the fiscal year ended January 31,
Consultant of the Registrant's 1982 Stock Option 1991 (the "1991 10-K").
Plan (form dated October 1990).
4(d) Form of Stock Restriction Agreement of the Exhibit 4(e) to the Registrant's Annual Report on
Registrant's Employee Stock Ownership Plan (form Form 10-K for the fiscal year ended January 31,
dated March 1, 1985). 1985 (the "1985 10-K").
4(e) Form of Stock Restriction Agreement of the Exhibit 4(b) to the 1991 10-K.
Registrant's Bonus Compensation Plan (form dated
October 1990).
4(f) Form of Stock Restriction Agreement of the Exhibit 4(g) to the 1985 10-K.
Registrant's Cash or Deferred Arrangement
(TRASOP Account) (form dated March 1, 1985).
4(g) Registrant's Bonus Compensation Plan, as amended Exhibit 4(l) to the 1991 10-K.
through April 2, 1991.
4(h) Registrant's 1982 Stock Option Plan, as amended Exhibit 4(n) to the Registrant's Annual Report on
through June 9, 1989. Form 10-K for the fiscal year ended January 31,
1990.
4(i) Form of Stock Restriction Agreement of the Exhibit 4(r) to the 1991 10-K.
Registrant's Employee Stock Ownership Plan
(TRASOP Account) (form dated April 1, 1991).
4(j) Registrant's 1992 Stock Option Plan. Exhibit 4(o) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31,
1992.
4(k) Registrant's 1993 Employee Stock Purchase Plan. Annex I to the Proxy Statement for the 1993
Annual Meeting of Stockholders.
4(l) Form of Stock Restriction Agreement of the Exhibit 4(v) to the 1993 10-K.
Registrant's Bonus Compensation Plan (form dated
July 1992).
4(m) Registrant's Stock Compensation Plan. Exhibit 4(l) to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31,
1994 (the "1994 10-K").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- - - - - - - ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(n) Registrant's Management Stock Exhibit 10(m) to the 1994 10-K.
Compensation Plan.
5(a) Opinion of Douglas E. Scott, Esq. **
5(b) Internal Revenue Service determination **
letter dated December 3, 1993,
relating to the Company's Employee
Stock Ownership Plan.
5(c) Internal Revenue Service determination **
letter dated December 3, 1993,
relating to the Company's Profit
Sharing Retirement Plan II.
5(d) Internal Revenue Service determination **
letter dated December 3, 1993,
relating to the Company's Cash or
Deferred Arrangement.
23(a) Consent of Douglas E. Scott, Esq. **
(contained in Exhibit 5 to this
Registration Statement).
23(b) Consent of Price Waterhouse. **
<FN>
- - - - - - - ------------------------
** Filed herewith.
</TABLE>
<PAGE>
EXHIBIT 5(A)
April 13, 1994
Science Applications
International Corporation
10260 Campus Point Drive
San Diego, CA 92121
Gentlemen:
I am the Corporate Vice President and General Counsel of Science
Applications International Corporation (the "Company"). As such, I have acted as
your counsel in connection with the Prospectus of the Company covering the offer
and sale by (i) the Company of up to 28,151,000 shares of its Class A Common
Stock, par value $.01 per share (the "Class A Common Stock") (the shares of
Class A Common Stock being offered by the Company are hereinafter referred to as
the "Company Shares"), which may be offered and sold directly by the Company,
sold by stockholders through the limited market maintained by Bull, Inc. (the
sale of which may be attributed to the Company), or issued pursuant to the
Company's existing stock option plans and the Company's or its subsidiaries'
other employee benefits plans (such plans are hereinafter referred to
collectively as the "Employee Plans") and (ii) the Selling Stockholders (as
defined in the Prospectus) of up to an aggregate of 209,000 shares of Class A
Common Stock (the "Selling Stockholder Shares"). The Company Shares and the
Selling Stockholder Shares are being offered pursuant to a Prospectus which
constitutes a part of the Registration Statement on Form S-3 (the "Registration
Statement") to be filed with the Securities and Exchange Commission (the
"Commission") on April 14, 1994 under the Securities Act of 1933, as amended
(the "Securities Act").
I am generally familiar with the affairs of the Company. In addition, I have
examined and am familiar with originals or copies, certified or otherwise
identified to my satisfaction, of (i) the Registration Statement, (ii) the
Restated Certificate of Incorporation and Bylaws of the Company as currently in
effect, (iii) resolutions adopted by the Board of Directors and the Operating
Committee thereof relating to the filing of the Registration Statement and the
issuance of the Company Shares thereunder, (iv) the Employee Plans and (v) such
other documents as I have deemed necessary or appropriate as a basis for the
opinions set forth below. In my examination, I have assumed the genuineness of
all signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to me as originals, the conformity to original documents of
all documents submitted to me as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based upon and subject to the foregoing, I am of the opinion that:
1. The Company Shares that are being offered and sold directly by the
Company have been duly authorized for issuance and when certificates therefor
have been duly executed, delivered and paid for, will be legally issued, fully
paid and nonassessable.
2. Any shares of Class A Common Stock sold by stockholders through the
limited market maintained by Bull, Inc. which are attributed to the Company have
been duly authorized for issuance and legally issued and are fully paid and
nonassessable.
3. The Company Shares that are being issued pursuant to the Employee Plans
have been duly authorized for issuance, and when certificates therefor have been
duly executed, delivered and paid for in accordance with the terms of the
Employee Plans, will be legally issued, fully paid and nonassessable.
4. The Selling Stockholder Shares have been duly authorized and are legally
issued, fully paid and nonassessable.
<PAGE>
I hereby consent to the use of my name in the Registration Statement under
the caption "Legal Opinion" and to the filing of this opinion as an exhibit to
the Registration Statement. In giving such consent, I do not thereby admit that
I come within the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
Douglas E. Scott
Corporate Vice President
and General Counsel
<PAGE>
EXHIBIT 5(b)
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
DISTRICT DIRECTOR
2 CUPANIA CIRCLE
MONTEREY PARK, CA 91755
Employer Identification Number:
Date: Dec. 3, 1993 95-3630868
File Folder Number:
331001288
SCIENCE APPLICATIONS Person to Contact:
INTERNATIONAL CORPORATION DOUGLAS WEST
10260 CAMPUS POINT DRIVE Contact Telephone Number:
SAN DIEGO, CA 92121-0000 (213) 725-0164
Plan Name:
SCIENCE APPLICATIONS INTERNL CORP
Employee Stock Ownership Plan
Plan Number: 002
Dear Applicant:
We have made a favorable determination on your plan, identified above,
based on the information supplied. Please keep this letter in your permanent
records.
Continued qualification of the plan under its present form will depend
on its effect in operation. (See section 1.401-1(b)(3) of the Income Tax
Regulations.) We will review the status of the plan in operation periodically.
The enclosed document explains the significance of this favorable
determination letter, points out some features that may affect the qualified
status of your employee retirement plan, and provides information on the
reporting requirements for your plan. It also describes some events that
automatically nullify it. It is very important that you read the publication.
This letter relates only to the status of your plan under the Internal
Revenue Code. It is not a determination regarding the effect of other federal
or local statutes.
This determination is subject to your adoption of the proposed amendments
submitted in your letter dated August 26, 1993. The proposed amendments
should be adopted on or before the date prescribed by the regulations under
Code section 401(b).
This determination letter is applicable for the amendment(s) adopted on
Oct. 27, 1992.
This determination letter is applicable for the plan adopted on
Feb. 1, 1973.
This letter is based upon the certification and demonstration you sub-
mitted pursuant to Revenue Procedure 91-66. Therefore, the certification and
demonstrations are considered an integral part of this letter. Accordingly,
YOU MUST KEEP A COPY OF THESE DOCUMENTS AS A PERMANENT RECORD OR YOU WILL NOT
BE ABLE TO RELY ON THE ISSUES DESCRIBED IN REVENUE PROCEDURE 91-66.
The information on the enclose addendum is an integral part of this
determination. Please be sure to read and keep it with this letter.
We have sent a copy of this letter to your representative as indicated in
the power of attorney.
Letter 835 (DO/CG)
<PAGE>
-2-
SCIENCE APPLICATIONS
If you have questions concerning this matter, please contact the person
whose name and telephone number are shown above.
Sincerely yours,
[SIGNATURE]
Richard R. Orosco
District Director
Enclosures:
Publication 794
Letter 835 (DO/CG)
<PAGE>
-3-
SCIENCE APPLICATIONS
This determination letter expresses the opinion that the plan meets the
requirements of Internal Revenue Code Section 4975(e)(7) regarding Employee
Stock Ownership Plans.
<PAGE>
EXHIBIT 5(c)
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
DISTRICT DIRECTOR
2 CUPANIA CIRCLE
MONTEREY PARK, CA 91755
Employer Identification Number:
Date: Dec. 3, 1993 95-3630868
File Folder Number:
331001288
SCIENCE APPLICATIONS Person to Contact:
INTERNATIONAL CORPORATION DOUGLAS WEST
10260 CAMPUS POINT DRIVE Contact Telephone Number:
SAN DIEGO, CA 92121-0000 (213) 725-0164
Plan Name:
SCIENCE APPLICATIONS INTERNL CORP
Profit Sharing Retirement Plan II
Plan Number: 003
Dear Applicant:
We have made a favorable determination on your plan, identified above,
based on the information supplied. Please keep this letter in your permanent
records.
Continued qualification of the plan under its present form will depend
on its effect in operation. (See section 1.401-1(b)(3) of the Income Tax
Regulations.) We will review the status of the plan in operation periodically.
The enclosed document explains the significance of this favorable
determination letter, points out some features that may affect the qualified
status of your employee retirement plan, and provides information on the
reporting requirements for your plan. It also describes some events that
automatically nullify it. It is very important that you read the publication.
This letter relates only to the status of your plan under the Internal
Revenue Code. It is not a determination regarding the effect of other federal
or local statutes.
This determination is subject to your adoption of the proposed amendments
submitted in your letter dated August 26, 1993. The proposed amendments
should be adopted on or before the date prescribed by the regulations under
Code section 401(b).
Your plan does not consider total compensation for purposes of
figuring benefits. In operation, the provision may discriminate in favor of
employees who are highly compensated. If this occurs, your plan will not
remain qualified.
This determination letter is applicable for the amendment(s) adopted on
Oct. 27, 1992.
This determination letter is applicable for the plan adopted on
Feb. 1, 1977.
This letter is based upon the certification and demonstration you sub-
mitted pursuant to Revenue Procedure 91-66. Therefore, the certification and
demonstrations are considered an integral part of this letter. Accordingly,
YOU MUST KEEP A COPY OF THESE DOCUMENTS AS A PERMANENT RECORD OR YOU WILL NOT
BE ABLE TO RELY ON THE ISSUES DESCRIBED IN REVENUE PROCEDURE 91-66.
We have sent a copy of this letter to your representative as indicated in
the power of attorney.
Letter 835 (DO/CG)
<PAGE>
-2-
SCIENCE APPLICATIONS
If you have questions concerning this matter, please contact the person
whose name and telephone number are shown above.
Sincerely yours,
[SIGNATURE]
Richard R. Orosco
District Director
Enclosures:
Publication 794
Letter 835 (DO/CG)
<PAGE>
EXHIBIT 5(d)
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
DISTRICT DIRECTOR
2 CUPANIA CIRCLE
MONTEREY PARK, CA 91755
Employer Identification Number:
Date: Dec. 3, 1993 95-3630868
File Folder Number:
331001288
SCIENCE APPLICATIONS Person to Contact:
INTERNATIONAL CORPORATION DOUGLAS WEST
10260 CAMPUS POINT DRIVE Contact Telephone Number:
SAN DIEGO, CA 92121-0000 (213) 725-0164
Plan Name:
SCIENCE APPLICATIONS INTERNL CORP
Cash or Deferred Arrangement
Plan Number: 004
Dear Applicant:
We have made a favorable determination on your plan, identified above,
based on the information supplied. Please keep this letter in your permanent
records.
Continued qualification of the plan under its present form will depend
on its effect in operation. (See section 1.401-1(b)(3) of the Income Tax
Regulations.) We will review the status of the plan in operation periodically.
The enclosed document explains the significance of this favorable
determination letter, points out some features that may affect the qualified
status of your employee retirement plan, and provides information on the
reporting requirements for your plan. It also describes some events that
automatically nullify it. It is very important that you read the publication.
This letter relates only to the status of your plan under the Internal
Revenue Code. It is not a determination regarding the effect of other federal
or local statutes.
This determination is subject to your adoption of the proposed amendments
submitted in your letter dated August 26, 1993. The proposed amendments
should be adopted on or before the date prescribed by the regulations under
Code section 401(b).
This determination letter is applicable for the amendment(s) adopted on
Oct. 27, 1992.
This determination letter is applicable for the plan adopted on
Jan. 1, 1983.
This letter is based upon the certification and demonstration you sub-
mitted pursuant to Revenue Procedure 91-66. Therefore, the certification and
demonstrations are considered an integral part of this letter. Accordingly,
YOU MUST KEEP A COPY OF THESE DOCUMENTS AS A PERMANENT RECORD OR YOU WILL NOT
BE ABLE TO RELY ON THE ISSUES DESCRIBED IN REVENUE PROCEDURE 91-66.
The information on the enclosed addendum is an integral part of this
determination. Please be sure to read and keep it with this letter.
We have sent a copy of this letter to your representative as indicated in
the power of attorney.
Letter 835 (DO/CG)
<PAGE>
-2-
SCIENCE APPLICATIONS
If you have questions concerning this matter, please contact the person
whose name and telephone number are shown above.
Sincerely yours,
[SIGNATURE]
Richard R. Orosco
District Director
Enclosures:
Publication 794
Addendum
Letter 835 (DO/CG)
<PAGE>
-3-
SCIENCE APPLICATIONS
This plan also satisfies the requirements of Code section 401(k).
This plan does not provide for contributions on behalf of participants
with less than one thousand hours of services during the plan year and/or
does not provide for contributions on behalf of participants not employed on
the last day of the plan year. The provision(s) may, in operation, cause
this plan to fail the coverage requirements of IRC 410(b) and/or the
participation requirements of IRC 401(a)(26). If this discrimination occurs,
this plan will not remain qualified.
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
April 7, 1994 appearing on page F-2 of Science Applications International
Corporation's Annual Report on Form 10-K for the year ended January 31, 1994. We
also consent to the incorporation by reference in such Prospectus of our report
dated March 11, 1994 appearing on page F-2 of the Annual Report of the Science
Applications International Corporation 1993 Employee Stock Purchase Plan for the
year ended January 31, 1994 appearing in the Science Applications International
Corporation Annual Report on Form 10-K. In addition, we hereby consent to the
incorporation by reference in such Prospectus of our report dated March 25, 1994
appearing on page F-2 of the Annual Report of the Science Applications
International Corporation Cash or Deferred Arrangement for the year ended
December 31, 1993 appearing in the Science Applications International
Corporation Annual Report on Form 10-K. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE
San Diego, California
April 14, 1994
