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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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[LOGO]
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
10260 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 14, 1995
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Science
Applications International Corporation, a Delaware corporation (the "Company"),
will be held in the Grand Ballroom of the Ritz-Carlton Hotel, 1700 Tysons
Boulevard, McLean, Virginia, on Friday, July 14, 1995, at 10:00 A.M. (local
time), for the following purposes:
1. To elect eight Class II Directors, each for a term of three years.
2. To approve the 1995 Stock Option Plan.
3. To approve the 1995 Employee Stock Purchase Plan.
4. To approve the appointment of Price Waterhouse LLP as the Company's
independent accountants for the Company's fiscal year ending January 31,
1996.
5. To transact such other business as may properly come before the meeting
or any adjournments, postponements or continuations thereof.
Only stockholders of record at the close of business on May 19, 1995, are
entitled to notice of and to vote at the Annual Meeting and at any and all
adjournments, postponements or continuations thereof. A list of stockholders
entitled to vote at the meeting will be available for inspection at the offices
of the Corporate Secretary of the Company at 10010 Campus Point Drive, San
Diego, California, and at 1710 Goodridge Drive, McLean, Virginia, for at least
10 days prior to the meeting and will also be available for inspection at the
meeting.
By Order of the Board of Directors
[Sig]
J. DENNIS HEIPT
Corporate Secretary
San Diego, California
June 14, 1995
YOUR VOTE IS IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, TO ASSURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND PROMPTLY MAIL YOUR PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. RETURNING A SIGNED PROXY WILL NOT
PREVENT YOU FROM ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON, IF YOU SO
DESIRE, BUT WILL HELP THE COMPANY SECURE A QUORUM AND REDUCE THE EXPENSE OF
ADDITIONAL PROXY SOLICITATIONS.
<PAGE>
[LOGO]
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
10260 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 14, 1995
------------------------
PROXY STATEMENT
------------------
This Proxy Statement is being furnished to the stockholders of Science
Applications International Corporation, a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held in the Grand Ballroom of the Ritz-Carlton Hotel,
1700 Tysons Boulevard, McLean, Virginia, on Friday, July 14, 1995, at 10:00 A.M.
(local time), and at any and all adjournments, postponements or continuations
thereof. At the Annual Meeting, the stockholders of the Company are being asked
to consider and vote upon: (i) the election of eight Class II Directors, each
for a term of three years, (ii) the approval of the 1995 Stock Option Plan,
(iii) the approval of the 1995 Employee Stock Purchase Plan, and (iv) the
approval of the appointment of Price Waterhouse LLP as the Company's independent
accountants for its fiscal year ending January 31, 1996.
This Proxy Statement and the enclosed form of proxy are first being mailed
to the stockholders of the Company on or about June 14, 1995.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only stockholders of record of the Company's Class A Common Stock, par value
$.01 per share (the "Class A Common Stock"), and/or Class B Common Stock, par
value $.05 per share (the "Class B Common Stock"), as of the close of business
on May 19, 1995 (the "Record Date"), are entitled to notice of and to vote at
the Annual Meeting. As of the Record Date, the Company had 46,082,607 shares of
Class A Common Stock and 340,900 shares of Class B Common Stock outstanding. The
Company has no other class of capital stock outstanding.
The Class A Common Stock and the Class B Common Stock are collectively
referred to herein as the "Common Stock." The presence, either in person or by
proxy, of the holders of a majority of the total voting power of the shares of
Common Stock outstanding on the Record Date is necessary to constitute a quorum
and to conduct business at the Annual Meeting. Although abstentions may be
specified on all proposals (other than on the election of directors),
abstentions will only be counted as present for purposes of determining the
presence of a quorum but will not be voted.
Each holder of Class A Common Stock will be entitled to one vote per share,
and each holder of Class B Common Stock will be entitled to five votes per
share, in person or by proxy, for each share of Common Stock held in such
stockholder's name as of the Record Date on any matter submitted to a vote of
stockholders at the Annual Meeting, except that in the election of Directors all
shares are entitled to be voted cumulatively. Accordingly, in voting for
Directors: (i) each share of Class A Common Stock is entitled to as many votes
as there are Directors to be elected, (ii) each share of Class B Common Stock is
entitled to
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five times as many votes as there are Directors to be elected and (iii) each
stockholder may cast all of such votes for a single nominee or distribute them
among any two or more nominees as such stockholder chooses. Unless otherwise
directed, shares represented by properly executed proxies will be voted at the
discretion of the proxy holders so as to elect the maximum number of the Board
of Directors' nominees that may be elected by cumulative voting.
On the Record Date, State Street Bank & Trust Company, as Trustee of the
Employee Stock Ownership Plan ("ESOP"), Cash or Deferred Arrangement ("CODA")
and Profit Sharing Retirement Plan ("Profit Sharing Plan") of the Company, the
Retirement Savings Plan ("Syntonic Retirement Plan") of Syntonic Technology,
Inc., a wholly-owned subsidiary of the Company (collectively, the "Retirement
Plans"), and the Company's Stock Compensation Plan and Management Stock
Compensation Plan (collectively, the "Stock Compensation Plans") held 21,997,082
shares of Class A Common Stock and 32,707 shares of Class B Common Stock. Each
participant in the Retirement Plans has the right to instruct the Trustee on a
confidential basis how to vote his or her proportionate interests in all
allocated shares of Common Stock held in the Retirement Plans. The Trustee will
vote all allocated shares held in the Retirement Plans as to which no voting
instructions are received (except for shares held in the Tax Credit Employee
Stock Ownership Plan ("TRASOP") fund accounts of participants in the ESOP),
together with all unallocated shares held in the Retirement Plans, in the same
proportion, on a plan by plan basis, as the allocated shares for which voting
instructions have been received. 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 Trustee's duties with respect to voting the Common Stock in the
Retirement Plans are governed by the fiduciary provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). These fiduciary
provisions of ERISA may require, in certain limited circumstances, that the
Trustee override the votes of participants with respect to the Common Stock held
by the Trustee and to determine, in the Trustee's best judgment, how to vote the
shares. The Trustee has the power to vote the shares of Common Stock held by the
Trustee in the Stock Compensation Plans. The Trustee will vote all such shares
of Common Stock in the same proportion that the other stockholders of the
Company vote their shares of Class A Common Stock.
Shares of Common Stock represented by properly executed proxies received in
time for voting at the Annual Meeting will, unless such proxies have previously
been revoked, be voted in accordance with the instructions indicated thereon. In
the absence of specific instructions, the shares represented by properly
executed proxies will be voted: (i) FOR the election of each nominee of the
Board of Directors as a Class II Director, (ii) FOR the approval of the 1995
Stock Option Plan, (iii) FOR the approval of the 1995 Employee Stock Purchase
Plan, and (iv) FOR the approval of Price Waterhouse LLP as the Company's
independent accountants for its fiscal year ending January 31, 1996. No business
other than that set forth in the accompanying Notice of Annual Meeting is
expected to come before the Annual Meeting; however, should any other matter
requiring a vote of stockholders properly come before the Annual Meeting, it is
the intention of the proxy holders to vote such shares in accordance with their
best judgment on such matter. For information with respect to advance notice
requirements applicable to stockholders who wish to propose any matter for
consideration at an Annual Meeting, see "Stockholder Proposals for the 1996
Annual Meeting."
Execution of the enclosed proxy will not prevent a stockholder from
attending the Annual Meeting and voting in person. Any proxy may be revoked at
any time prior to the exercise thereof by delivering in a timely manner a
written revocation or a new proxy bearing a later date to the Corporate
Secretary of the Company, 10260 Campus Point Drive, San Diego, California 92121,
or by attending the Annual Meeting and voting in person. Attendance at the
Annual Meeting will not, however, in and of itself constitute a revocation of a
proxy.
The cost of soliciting proxies will be borne by the Company, including the
charges and expenses of persons holding shares in their name as nominee for
forwarding proxy materials to the beneficial owners of such shares. In addition
to the use of the mails, proxies may be solicited by officers, Directors and
employees of the Company in person, by telephone or by telegram. Such
individuals will not be additionally compensated but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.
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ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a "classified" Board
of Directors consisting of three classes which shall be as equal in number as
possible. The number of authorized Directors is currently fixed at 22 Directors
of which 8 are Class II Directors and the remaining are evenly divided between
Class I and Class III Directors.
At the Annual Meeting, eight Class II Directors are to be elected to serve
three-year terms ending in 1997 or until their successors are elected and
qualified or their earlier death, resignation or removal. Currently, A.L. Alm,
B.R. Inman, M.R. Laird, W.M. Layson, E.A. Straker, M.E. Trout, J.H. Warner, Jr.
and J.B. Wiesler serve as Class II Directors. M.R. Laird will be retiring from
the Board of Directors and will not be standing for reelection. A.T. Young has
been nominated by the Board of Directors to fill this vacancy on the Board of
Directors. The eight nominees who receive the most votes will be elected as
Class II Directors. It is intended that, unless otherwise indicated, the persons
named in the enclosed form of proxy will vote FOR the election of Directors so
as to elect the maximum number of the Board of Directors' nominees that may be
elected by cumulative voting. To the best knowledge of the Board of Directors,
all of the nominees are, and will be, able to serve. In the event that any of
the eight nominees listed below should become unavailable to stand for election
at the Annual Meeting, the proxy holders intend to vote for such other person,
if any, as may be designated by the Board of Directors, in the place and stead
of any nominee unable to serve. Alternatively, the Board of Directors may elect,
pursuant to Section 3.02 of the Company's Bylaws, to fix the authorized number
of Directors at a lower number so as to give the Nominating Committee of the
Board of Directors additional time to evaluate candidates.
Set forth below is a brief biography of each nominee for election as a Class
II Director and of all other members of the Board of Directors who will continue
in office:
NOMINEES FOR ELECTION AS CLASS II DIRECTORS
TERM ENDING 1998
A.L. Alm, age 58 Director since 1989
Sector Vice President and Director
Mr. Alm joined the Company in 1989 as a Director and Senior Vice President
and was elected as a Sector Vice President in April 1993. Prior to joining the
Company and since 1987, Mr. Alm was the Chief Executive Officer and President of
Alliance Technologies Corporation, an environmental consulting and engineering
firm. Prior thereto and since 1985, Mr. Alm served as Chairman of the Board and
Chief Executive Officer of Thermo Analytical Corporation, a company in the
environmental laboratory business. Prior thereto and since 1983, Mr. Alm was
Deputy Administrator of the Environmental Protection Agency.
B.R. Inman, age 64 Director since 1982
Director
Admiral Inman, USN (Ret.) joined the Company in April 1990 as a part-time
employee and, in that capacity, advises the Company on a wide variety of
strategic planning issues. Admiral Inman was the Chairman of the Board,
President and Chief Executive Officer of Westmark Systems, Inc., an electronics
industry holding company, from 1986 through 1989. From 1983 to 1986, Admiral
Inman served as Chairman, President and Chief Executive Officer of
Microelectronics and Computer Technology Corporation. Admiral Inman retired from
the United States Navy in 1982. During his career as a United States Naval
Officer, Admiral Inman served in a number of high-level positions in the U.S.
Government, including Director of the National Security Agency from 1977 to
1981. For the last year and one-half of his active naval service, he served as
Deputy Director of Central Intelligence. Admiral Inman is also a member of the
Board of Directors of Fluor Corporation, Southwestern Bell Corporation,
Temple-Inland, Inc. and Xerox Corporation.
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W.M. Layson, age 60 Director since 1970
Senior Vice President and Director
Dr. Layson joined the Company in 1970 as a Director and Vice President. He
was elected as a Senior Vice President in 1975.
E.A. Straker, age 57 Director since 1992
Executive Vice President and Director
Dr. Straker joined the Company in 1971 and has served in various capacities
since that time. He was elected as an Executive Vice President in 1994.
M.E. Trout, age 64 Director since January 1995
Director
Dr. Trout was associated with American Healthcare Systems, Inc. from 1986
until his retirement in 1995. Prior to his retirement, Dr. Trout served as
Chairman, President and Chief Executive Officer and is currently serving as
Chairman Emeritus of American Healthcare Systems, Inc. He is also a member of
the Board of Directors of Baxter International, Gensia, Inc., West Co. and the
UCSD Foundation.
J.H. Warner, Jr., age 54 Director since 1988
Executive Vice President and Director
Dr. Warner joined the Company in 1973 and has served in various capacities
since that time. He was elected as an Executive Vice President in 1989.
J.B. Wiesler, age 67 Director since 1989
Director
Mr. Wiesler was associated with the Bank of America National Trust and
Savings Association from 1949 until his retirement in 1987. For more than five
years prior to his retirement, Mr. Wiesler served in a number of executive
capacities, including Vice Chairman, Head of Retail Banking and Executive Vice
President, Head of North American Division. Mr. Wiesler is also a member of the
Board of Directors of Wahlco Environmental Systems, Inc.
A.T. Young, age 57 Nominee for Director
Mr. Young has served as an Executive Vice President of Lockheed Martin Corp.
since March 1995. Prior to its merger with Lockheed Corporation, Mr. Young
served as the President and Chief Operating Officer of Martin Marietta Corp.
from 1990 to March 1995. Mr. Young is also on the Board of Directors of Cooper
Industries, the Dial Corporation, the B.F. Goodrich Company and Potomac Electric
Power Company.
CLASS III DIRECTORS
TERM ENDING 1996
S.J. Dalich, age 51 Director since 1990
Executive Vice President and Director
Dr. Dalich joined the Company in 1972 and has served in various capacities
since that time. He was elected as an Executive Vice President in April 1992.
C.K. Davis, age 63 Director since 1993
Director
Dr. Davis has been an International Health Care Consultant to Ernst & Young
since 1985. From 1981 to 1985, Dr. Davis served as the Administrator of the
Health Care Financing Agency. Dr. Davis is a member of the Board of Directors of
Beckman Instruments, Merck & Co., Inc., Pharmaceutical Marketing Services, Inc.
and The Prudential Insurance Company of America, Inc.
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E.A. Frieman, age 69 Director since 1987
Director
Dr. Frieman has served as the Director of Scripps Institution of
Oceanography and Vice Chancellor of Marine Sciences for the University of
California, San Diego since 1986. Prior thereto and since 1981, Dr. Frieman was
an Executive Vice President and Group Manager of the Company. Dr. Frieman is
also a member of the Board of Directors of The Charles Stark Draper Laboratory,
Inc.
D.M. Kerr, age 56 Director since 1993
Corporate Executive Vice President and Director
Dr. Kerr joined the Company in January 1993 and has served in various
capacities since that time. He was elected as a Corporate Executive Vice
President in January 1994. From 1989 through 1992, Dr. Kerr was the President
and a member of the Board of Directors of EG&G, Inc., a NYSE-listed company
providing diversified technical services and products to the U.S. Government and
commercial markets. From 1985 through 1989, Dr. Kerr held various executive
positions with EG&G, Inc.
L.A. Kull, age 57 Director since 1970(1)
President, Chief Operating Officer and Director
Dr. Kull joined the Company in 1970 and has served in various capacities
since that time. He was elected Chief Operating Officer in 1983 and President of
the Company in 1988.
J.W. McRary, age 55 Director since 1972(2)
Director
Since July 1994, Dr. McRary has served as the President and Chief Executive
Officer of Microelectronics and Computer Technology Corporation, a corporation
involved in research and development of advanced computer architecture, software
technology, component packaging and computer-aided design and manufacturing. Dr.
McRary was an employee of the Company from 1971 to 1994 and served in various
capacities, including serving as an Executive Vice President from 1979 to July
1994.
M.R. Thurman, age 64 Director since 1993
Director
General Thurman, USA (Ret.) retired from the United States Army in 1991
after having served for 37 years. During his career, General Thurman served as
the Vice Chief of Staff of the United States Army and as the Commander-in-Chief
of the United States Southern Command. General Thurman is a member of the Board
of Directors of Burdeshaw Associates, Ltd. and Military Professional Resources,
Inc., and is also a member of the Board of Visitors of North Carolina State
University.
CLASS I DIRECTORS
TERM ENDING 1997
J.R. Beyster, age 70 Director since 1969
Chairman of the Board and Chief Executive Officer
Dr. Beyster founded the Company in 1969 and has served as Chairman of the
Board and Chief Executive Officer since that time. Dr. Beyster also served as
President of the Company until 1988.
V.N. Cook, age 60 Director since 1990
Director
Mr. Cook joined the Company in July 1991 and served as a Vice Chairman of
the Board from 1992 to 1994. Mr. Cook was associated with IBM for 26 years until
his retirement in 1989. Mr. Cook held several
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(1) Dr. Kull did not serve as a Director in 1974 and 1975.
(2) Dr. McRary did not serve as a Director in 1973.
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executive positions at IBM, including Vice President of IBM's Asia Pacific
Corporation and President of IBM Federal System Division. He is also the
Chairman of Visions International, Inc., an industry consulting firm.
W.H. Demisch, age 50 Director since 1990
Director
Mr. Demisch is a Managing Director of BT Securities Corp., a position he has
held since August 1993. From 1988 to 1993, he was Managing Director of UBS
Securities, Inc.
J.E. Glancy, age 49 Director since 1994
Corporate Executive Vice President and Director
Dr. Glancy joined the Company in 1976 and has served in various capacities
since that time. He was elected as a Corporate Executive Vice President in
January 1994.
D.A. Hicks, age 70 Director since 1984(1)
Chairman of the Board of Hicks & Associates, Inc. and Director
Dr. Hicks has served as Chairman of the Board of Hicks & Associates, Inc.
("HAI"), a government and industry consulting company, since 1986. In July 1991,
the Company acquired HAI and HAI has been a wholly-owned subsidiary of the
Company since that time. Dr. Hicks was the Under Secretary of Defense for
Research and Engineering from 1985 to 1986. Prior thereto, he was a Senior Vice
President of Northrop Corporation, an aerospace company, with which he was
associated from 1961 through 1985. Dr. Hicks is also a member of the Board of
Directors of Pilkington Aerospace, Inc.
C.B. Malone, age 59 Director since 1993
Director
Ms. Malone has served as the President of Financial & Management Consulting,
Inc., a consulting company, since 1982. Ms. Malone is also a member of the Board
of Directors of Dell Computer Corporation, Hannaford Bros. Co., Hasbro, Inc.,
Houghton Mifflin Company, The Limited Inc., Lafarge Corporation, Mallinckrodt
Group and Union Pacific Corporation.
J.A. Welch, age 64 Director since 1984
Director
Dr. Welch became an employee of the Company in July 1990 and is involved in
a number of scientific endeavors and strategic planning issues. Dr. Welch also
serves as President of Jasper Welch Associates, a consulting firm which he
founded in 1983. Prior thereto, Dr. Welch was a Major General in the United
States Air Force, from which he retired in 1983 after serving for 31 years. Dr.
Welch is also a member of the Board of Directors of Millitech Corp.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the year ended January 31, 1995 ("Fiscal 1995"), the Board of
Directors held four meetings. Average attendance at such meetings of the Board
of Directors was 96%. During Fiscal 1995, all Directors attended at least 75% of
the aggregate of the meetings of the Board of Directors and committees of the
Board of Directors on which they served, with the exception of E.A. Frieman,
J.E. Glancy and M.R. Thurman, who each attended 73% of the aggregate of the
meetings of the Board of Directors and committees of the Board of Directors on
which they served.
The Board of Directors has various standing committees, including an Audit
Committee, a Compensation Committee, an Executive Committee, a Nominating
Committee and an Operating Committee.
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(1) Dr. Hicks did not serve as a Director from July 1985 through December
1986.
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AUDIT COMMITTEE
The Audit Committee is primarily concerned with the Company's financial
condition and its responsibilities include: (i) reviewing and evaluating the
work and performance of the Company's independent accountants and making
recommendations to the Board of Directors regarding the selection of such
independent accountants; (ii) conferring with the Company's independent
accountants and its financial and accounting officers to evaluate the Company's
internal accounting methods and procedures and the recommended changes therein;
(iii) reviewing the Company's financial projections and plans and the
arrangements for the Company's financing and credit; (iv) reviewing the status
of litigation to which the Company is a party; (v) reviewing circumstances which
may have a major impact on the Company's future profitability and (vi)
overseeing the activities of the Company's Employee Ethics and Risk Committees.
The Audit Committee held four meetings during Fiscal 1995. The current members
of the Audit Committee are J.B. Wiesler (Chairman), J.R. Beyster (ex-officio),
S.J. Dalich (ex-officio), D.A. Hicks, D.M. Kerr (ex-officio), L.A. Kull
(ex-officio) and C.B. Malone.
COMPENSATION COMMITTEE
The Compensation Committee is responsible for approving the salaries of the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company and recommending to the Bonus Compensation Committee of
the Board of Directors the amount of awards to be made to the Chief Executive
Officer and the four other most highly compensated executive officers under the
Company's Bonus Compensation Plan. The Compensation Committee is also
responsible for issuing reports required by the Securities and Exchange
Commission regarding the Company's compensation policies applicable to the Chief
Executive Officer and the four other most highly compensated executive officers.
The Compensation Committee held one meeting during Fiscal 1995. The Compensation
Committee consists of all Directors who are not also employees of the Company.
The current members of the Compensation Committee are E.A. Frieman (Chairman),
C.K. Davis, W.H. Demisch, M.R. Laird, C.B. Malone, J.W. McRary, M.R. Thurman,
M.E. Trout and J.B. Wiesler.
EXECUTIVE COMMITTEE
The Executive Committee's charter provides that it shall have and may
exercise, to the extent permitted by Delaware law, all powers and authorities of
the Board of Directors with respect to the following: (i) taking action on
behalf of the Board of Directors during intervals between regularly scheduled
meetings of the Board of Directors if it is impractical to delay action on a
matter until the next regularly scheduled meeting of the Board of Directors and
(ii) overseeing and assisting in the formulation and implementation of human
resource management, scientific research policies and financial matters. The
Executive Committee held eight meetings during Fiscal 1995. The current members
of the Executive Committee are B.R. Inman (Chairman), J.R. Beyster, E.A.
Frieman, J.E. Glancy, D.M. Kerr and L.A. Kull. All other Directors are ex-
officio members of the Executive Committee.
NOMINATING COMMITTEE
The Nominating Committee's responsibilities include: (i) establishing a
procedure for identifying nominees for election as Directors to the Board of
Directors; (ii) reviewing and recommending to the Board of Directors criteria
for membership on the Board and (iii) proposing nominees to fill vacancies on
the Board of Directors as they occur. The Nominating Committee held three
meetings during Fiscal 1995. The current members of the Nominating Committee are
J.R. Beyster (Chairman), D.A. Hicks, B.R. Inman, M.R. Laird, J.W. McRary and
J.A. Welch.
Any stockholder may nominate a person for election as a Director of the
Company by complying with the procedure set forth in the Company's Bylaws.
Pursuant to Section 3.03 of the Company's Bylaws, in order for a stockholder to
nominate a person for election as a Director, such stockholder must give timely
notice to the Corporate Secretary of the Company prior to the meeting at which
Directors are to be elected. To be timely, notice must be received by the
Corporate Secretary not less than 50 days nor more than 75 days prior to the
meeting (or if fewer than 65 days' notice or prior public disclosure of the
meeting date is given or made to stockholders, not later than the 15th day
following the day on which the notice of the date of the meeting was mailed or
such public disclosure was made). Such notice must contain certain information
about the
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nominee, including his or her age, business and residence addresses and
principal occupation during the past five years, the class and number of shares
of Common Stock beneficially owned by such nominee and such other information as
would be required to be included in a proxy statement soliciting proxies for the
election of the proposed nominee. The notice must also contain certain
information about the stockholder proposing to nominate that person. Pursuant to
Section 3.03 of the Company's Bylaws, the Company may also require any proposed
nominee to furnish other information reasonably required by the Company to
determine the proposed nominee's eligibility to serve as a Director.
OPERATING COMMITTEE
The Operating Committee has the authority to (i) approve offers by the
Company to sell shares of Class A Common Stock; (ii) authorize the establishment
of various relationships with banking institutions, including depositing funds
and obtaining loans; (iii) approve contracts to be entered into by the Company
for the purchase or lease of goods, services and facilities; (iv) approve the
amendment of the Company's employee benefit plans, the Company's contributions
to any such plan and the participation by the Company's subsidiaries in any such
plan; (v) authorize the filing of registration statements, reports and other
documents with the Securities and Exchange Commission and state securities
commissions; (vi) call the annual meeting of stockholders, fix the purposes,
place, time and record date for such meeting and approve the proxy materials to
be used in connection therewith; (vii) grant special powers of attorney on
behalf of the Company; (viii) review preliminary agendas for meetings of the
Board of Directors; (ix) adopt supplemental resolutions which modify or amend
resolutions theretofore adopted by the Board of Directors which, in the opinion
of the Company's counsel, do not materially change the purpose and intent of the
underlying resolutions and (x) authorize the merger between the Company and one
or more of its subsidiaries. The Operating Committee held eight meetings during
Fiscal 1995. The current members of the Operating Committee are L.A. Kull
(Chairman), J.R. Beyster, S.J. Dalich, J.E. Glancy, D.M. Kerr and J.H. Warner,
Jr.
DIRECTORS' COMPENSATION
Except as otherwise described below, during Fiscal 1995, all Directors,
other than those who are employees of the Company, were paid an annual retainer
of $15,000 and received $1,000 for each day on which they attended meetings of
the Board of Directors or of the committees on which they served; provided,
however, if a committee meeting was held on the same day as a Board of Directors
or other committee meeting, the fee for the each additional meeting was $500.
Directors are also reimbursed for expenses incurred by them while attending
meetings or otherwise performing services for the Company. Directors are also
entitled to receive certain other incidental benefits which in the aggregate do
not exceed $1,200 per Director annually. Directors are eligible to receive
bonuses under the Company's Bonus Compensation Plan, pursuant to which, for
services rendered during Fiscal 1995, M.E. Trout and J.B. Wiesler each received
$25,000 in cash, M.R. Laird received $15,000 in cash and C.K. Davis, W.H.
Demisch, C.B. Malone and M.R. Thurman each received 954 restricted shares of
Class A Common Stock which had a market value (as reflected by the formula price
for Class A Common Stock determined by the Company's Board of Directors (the
"Formula Price")) on the date of grant of $14,997. Directors are also eligible
to receive stock options under the Company's 1992 Stock Option Plan, pursuant to
which, for services rendered during Fiscal 1995, C.K. Davis, W.H. Demisch, E.A.
Frieman, C.B. Malone and M.R. Thurman each received stock options to acquire
5,000 shares of Class A Common Stock at $15.72 per share, which was the market
value of the Class A Common Stock (as reflected by the Formula Price) on the
date of grant. All such options become exercisable one year after the date of
grant and vest as to 20%, 20%, 20% and 40% on the first, second, third and
fourth year anniversaries of the date of grant, respectively.
The Company has also entered into agreements with certain Directors whereby
such Directors perform consulting and other services for the Company. In Fiscal
1995, C.K. Davis received $7,800 for consulting services under a consulting
arrangement which provides for remuneration of $150 per hour. The amount payable
to Dr. Davis was in addition to the annual retainer and meeting fees. In Fiscal
1995, E.A. Frieman received $60,000 for consulting services and services as a
Director under a consulting arrangement which provides for remuneration of
$5,000 per month. The amount payable to Dr. Frieman under such consulting
arrangement was in lieu of the annual retainer and meeting fees. In Fiscal 1995,
B.J. Shillito, a Director of the Company until July 1994, received $25,268 for
consulting services and services as a Director under a
8
<PAGE>
consulting arrangement which provides for remuneration of $2,917 per month, the
reimbursement of certain agreed upon expenses for participation in special
projects and the use of a company car. The amount payable to Mr. Shillito under
such consulting arrangement was in lieu of the annual retainer and meeting fees.
In Fiscal 1995, M.E. Trout, a Director of the Company since January 14, 1995,
received $2,083 for consulting services and services as a Director under a
consulting arrangement which provides for remuneration of $4,167 per month. The
amount payable to Dr. Trout was in lieu of the annual retainer and meeting fees.
In Fiscal 1995, W.E. Zisch, a Director of the Company until July 1994, received
$12,012 under a consulting arrangement which provides for remuneration of $1,500
per month plus the use of a company car. The amount payable to Mr. Zisch under
such consulting arrangement was in addition to the annual retainer and meeting
fees.
See "Compensation Committee Interlocks and Insider Participation" and
"Certain Relationships and Related Transactions" for information with respect to
transactions between the Company and certain entities in which certain Directors
of the Company may be deemed to have an interest.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table (the "Summary Compensation Table") sets forth
information regarding the annual and long-term compensation for services in all
capacities to the Company for the fiscal years ended January 31, 1995, 1994 and
1993, of those persons who were, at January 31, 1995 (i) the chief executive
officer and (ii) the other four most highly compensated executive officers of
the Company (collectively, the "Named Executive Officers"). The Summary
Compensation Table sets forth the annual and long-term compensation earned by
the Named Executive Officers for the relevant fiscal year whether or not paid in
such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------
FISCAL ------------------------- RESTRICTED OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK(1) (SHARES) COMPENSATION(2)
- ---------------------------------------- ------ ----------- ----------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J.R. Beyster 1995 $356,731 $225,000 $ 0 0 $14,684
Chairman of the Board and 1994 $323,409 $180,000 $ 0 0 $24,821
Chief Executive Officer 1993 $305,772 $200,000 $ 0 0 $24,569
L.A. Kull 1995 $294,423 $200,000 $ 0 0 $18,531
President and Chief Operating Officer 1994 $285,801 $165,000 $ 0 0 $24,821
1993 $268,504 $195,000 $ 0 10,000 $24,569
D.M. Kerr 1995 $304,423 $180,000 $20,138(3) 10,015 $18,530
Corporate Executive Vice President 1994 $296,030 $179,999(4) $ 0 10,000 $85,068(5)
1993 $ 15,385(6) $ 0 $24,997(7) 20,000 $ 0
E.A. Straker 1995 $220,231 $169,997(8) $ 0 8,000 $18,541
Executive Vice President 1994 $207,898 $150,004(9) $ 0 5,000 $21,665
1993 $196,780 $140,000 $19,997(10) 5,000 $20,839
J.H. Warner, Jr. 1995 $234,423 $139,998(11) $ 9,998(12) 2,000 $18,525
Executive Vice President 1994 $229,239 $124,995(13) $ 0 2,000 $24,091
1993 $225,664 $120,000 $40,005(14) 3,000 $23,485
<FN>
- ------------------------------
(1) The amount reported represents the market value on the date of grant
(calculated by multiplying the Formula Price of the Company's Class A
Common Stock on the date of grant by the number of shares awarded), without
giving effect to the diminution in value attributable to the restrictions
on such stock. As of January 31, 1995, the aggregate restricted stock
holdings for the Named Executive Officers and for all other employees were
as follows: J.R. Beyster -- none; L.A. Kull -- none; D.M. Kerr -- 1,278
shares, with a market value as of such date of $20,090; E.A. Straker --
4,446 shares, with a market value as of such date of $69,891; J.H. Warner,
Jr. -- 6,611 shares, with a market value as of such date of $103,925; and
all other employees -- 595,377 shares, with a market value as of such date
of $9,359,326. Dividends are payable on such restricted stock if and when
declared. However, the Company has never declared or paid a cash dividend
on its capital stock and no cash dividends on its capital stock are
contemplated in the foreseeable future.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
(2) Amounts of All Other Compensation are amounts contributed or accrued by the
Company for the Named Executive Officers under the Company's Profit Sharing
Plan, ESOP and CODA.
(3) Represents 1,282 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(4) Includes the award of 1,057 shares of Class A Common Stock which had a
market value on the date of grant (calculated by multiplying the Formula
Price of the Class A Common Stock on the date of grant by the number of
shares awarded) of $14,999.
(5) Also includes $70,771 for the reimbursement of relocation expenses.
(6) D.M. Kerr joined the Company in January 1993. Such salary amount represents
the salary paid to D.M. Kerr for services rendered during such partial
fiscal year.
(7) Represents 2,113 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(8) Includes the award of 954 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $14,997.
(9) Includes the award of 705 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $10,004.
(10) Represents 1,665 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(11) Includes the award of 636 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $9,998.
(12) Represents 636 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(13) Includes the award of 352 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $4,995.
(14) Represents 3,331 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
</TABLE>
OPTION GRANTS
The following table sets forth information regarding grants of options to
purchase shares of Class A Common Stock pursuant to the Company's 1992 Stock
Option Plan made during Fiscal 1995 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED(1) EMPLOYEES PRICE EXPIRATION ----------------
NAME (SHARES) IN FISCAL 1995 (PER SHARE) DATE 5% 10%
- ---------------------------------------- ---------- -------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
J.R. Beyster............................ 0 N/A N/A N/A N/A N/A
L.A. Kull............................... 0 N/A N/A N/A N/A N/A
D.M. Kerr............................... 10,000 0.32% $14.48 8/25/99 $40,006 $88,402
10,000 0.32% $14.19 4/3/99 $39,204 $86,631
15 * $14.19 3/10/99 $ 59 $ 130
E.A. Straker............................ 5,000 0.16% $14.19 4/3/99 $19,602 $43,316
J.H. Warner, Jr......................... 2,000 0.07% $14.19 4/3/99 $ 7,841 $17,326
<FN>
- ------------------------
* Less than 0.01% of the total options granted to employees in Fiscal 1995.
(1) Although the following grants of options were made during Fiscal 1995, such
grants relate to the individual's service during the fiscal year 1994. All
such options become exercisable one year after the date of grant and vest
as to 20%, 20%, 20% and 40% on the first, second, third and fourth year
anniversaries of the date of grant, respectively.
(2) The potential realizable value is based on an assumption that the stock
price of the Class A Common Stock will appreciate at the annual rate shown
(compounded annually) from the date of grant until the end of the 5-year
option term. These values are calculated based on the regulations
promulgated by the Securities and Exchange Commission and should not be
viewed in any way as an estimate or forecast of the future performance of
the Class A Common Stock. There can be no assurance that the values
realized upon the exercise of the stock options will be at or near the
potential realizable values listed in this table.
</TABLE>
10
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information regarding the exercise of options
during Fiscal 1995 and unexercised options to purchase Class A Common Stock
granted during Fiscal 1995 and prior years under the Company's 1982 Stock Option
Plan and 1992 Stock Option Plan to the Named Executive Officers and held by them
at January 31, 1995.
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JANUARY 31, 1995 AT JANUARY 31, 1995(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.R. Beyster............................ 0 N/A 0 0 N/A N/A
L.A. Kull............................... 0 N/A 12,000 8,000 $67,220 $29,680
D.M. Kerr............................... 0 N/A 4,000 36,015 $14,840 $87,083
E.A. Straker............................ 0 N/A 9,700 12,300 $54,431 $39,239
J.H. Warner, Jr......................... 0 N/A 9,300 7,700 $52,947 $28,713
<FN>
- ------------------------
(1) Calculated by multiplying the difference between the Formula Price of the
Class A Common Stock underlying the option as of the date of exercise and
the exercise price of the option by the number of shares of Class A Common
Stock acquired on exercise of the option.
(2) Based on the Formula Price of the Class A Common Stock as of such date less
the exercise price of such options.
</TABLE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Since its inception, the Company has been an employee-owned corporation
based upon the philosophy that those who contribute to the success of the
Company should share in its rewards. The Company's compensation policies, plans,
and programs seek to implement this employee ownership philosophy by closely
aligning the financial interest of the Company's employees, including senior
managers, with those of its stockholders.
As members of the Compensation Committee, it is our responsibility to
approve the salaries paid to the Company's Chief Executive Officer and the four
other most highly paid executive officers of the Company and to recommend to the
Bonus Compensation Committee of the Board of Directors the amount of grants to
be made to the Chief Executive Officer and the four other most highly
compensated executive officers under the Company's Bonus Compensation Plan.
These determinations are made in light of individual, corporate, and business
unit performance, the performance of our competitors and other similar
businesses, and relevant market compensation data. To assist the Compensation
Committee in carrying out these responsibilities, Towers Perrin, an
internationally recognized executive compensation consulting firm, was retained
by the Compensation Committee to review the compensation paid to the Company's
Chief Executive Officer and the four other highest paid executive officers of
the Company during the fiscal year ended January 31, 1995, and to provide a
competitive assessment of the various components of such compensation.
The compensation policy of the Company, which is endorsed by the
Compensation Committee, is that a substantial portion of the total compensation
of each executive officer be related to and contingent upon their individual
contribution and performance, the performance of business units under their
management, and the performance of the Company as a whole. In this way, the
Company seeks to encourage continuing focus on increasing the Company's revenue,
profitability, and stockholder value, while at the same time motivating its
executive officers to perform to the fullest extent of their abilities.
11
<PAGE>
The Company has continued to set the annual base salaries of its executive
officers at or below competitive levels and continues to cause a significant
portion of an executive officer's compensation to consist of annual and
longer-term incentive compensation which are variable and closely tied to
corporate, business unit, and individual performance. For the fiscal year ended
January 31, 1995, the annual and long-term incentive compensation averaged
approximately 33% of the total compensation (salary and bonus) of executive
officers of the Company. As a result, much of an executive officer's total
compensation was "at risk" and dependent on performance during the prior fiscal
year.
An executive officer's incentive compensation may consist of cash,
fully-vested stock, vesting stock, options, or a combination of these
components. Generally, an annual bonus is given after the end of the fiscal year
based on individual, corporate, and business unit performance for such fiscal
year and an executive officer's respective responsibilities, strategic and
operational goals, and levels of historic and anticipated performance. By
awarding bonuses of vesting stock and stock options, the Company seeks to
encourage individuals to remain with the Company and continue to focus on the
long-term technical and financial performance of the Company and on increasing
the stockholder value. Further, the Company's general philosophy is to encourage
employees to have significant stockholdings in the Company so that they have
sufficient economic incentive to maximize the Company's long-term performance
and stock value.
In evaluating the performance and establishing the incentive compensation of
the Chief Executive Officer and the Company's other executive officers, the
Compensation Committee recognized that the Company continued to increase its
revenue and profitability during the past fiscal year. For the fiscal year ended
January 31, 1995, the Company's revenues increased to $1.92 billion, a 15%
increase from the prior fiscal year revenues of $1.67 billion. The Company's net
income for this same period was $49.1 million, or a 18.3% increase over the
prior fiscal year net income of $41.5 million. Correspondingly, the Formula
Price of the Company's Class A Common Stock increased from $14.19 at January 31,
1994, to $15.72 at January 31, 1995, a 10.8% increase. During the past fiscal
year, the Company's Class A Common Stock has outperformed both the broad market
index of Standard and Poor's Composite 500 Stock Index and the Company's peer
group index of the Dow Jones Diversified Technology Index. The Compensation
Committee has taken particular note of the Company's continuing financial
success despite declining defense and other government budgets and increasing
competition in the Company's markets. The Compensation Committee has also noted
that management has successfully increased the Company's business base in areas
other than national security, such as energy, environmental, health,
transportation, commercial, and international.
During the past fiscal year, Dr. Beyster was paid a base salary of
$350,000,(1) which represented an increase of 7.7% over his base salary for the
prior year. This increase was based upon Towers Perrin's conclusion that Dr.
Beyster's base salary fell below the 25th percentile for its compensation survey
data bases for Chief Executive Officers for general industry, high technology,
and aerospace/defense companies. It also took into consideration the fact that
Dr. Beyster's base salary had only been increased once during the five year
period prior to fiscal year 1995.
Dr. Beyster was paid a cash bonus of $225,000 for the fiscal year ended
January 31, 1995. During the prior five-year period, Dr. Beyster's bonus ranged
from $170,000 to $210,000 per fiscal year based on the overall performance of
the Company and the increase in the Company's stock price during such fiscal
year. Considering the Company's successful performance during the past fiscal
year, the fact that the Company's Class A Common Stock has outperformed the
comparable indexes, and the continued diversification of the Company's business
base, the Committee believes that Dr. Beyster's bonus is well warranted.
Further, Dr. Beyster's bonus was paid in cash and he was not awarded any stock
bonuses or options because of his membership on the Board's Bonus Compensation
and Stock Option Committees, which proscribe their members from receiving stock
bonuses or stock options in order to qualify the Company's Stock Option Plan and
Bonus Compensation Plan for certain exemptions under Section 16 of the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder.
- ------------------------
(1) The variance between Dr. Beyster's base salary and the salary reported in
the Summary Compensation Table is attributable to his having been paid for
40 hours of unused comprehensive leave.
12
<PAGE>
Towers Perrin has also advised the Compensation Committee that Dr. Beyster's
total compensation (base salary and bonus) paid in the last fiscal year fell
below the 25th percentile of its compensation survey data base of Chief
Executive Officers for general industry, high technology, and aerospace/defense
companies. The Compensation Committee would like to emphasize that Dr. Beyster's
below market compensation level is not a reflection of the Committee's opinion
of Dr. Beyster's ability or his relative value. It is, however, a reflection of
Dr. Beyster's personal refusal to accept anywhere near the median compensation
levels provided to the Chief Executive Officers of the comparable companies
surveyed by Towers Perrin in general industry, high technology, and
aerospace/defense companies.
Towers Perrin has reviewed the compensation for each of the other four
highest paid executive officers of the Company during its last fiscal year and
has reported to the Compensation Committee that, based on industry survey data
collected by Towers Perrin, the compensation of these executive officers was
within an acceptable range of competitive market levels for individuals with
comparable duties and responsibilities.
The Compensation Committee believes that the compensation policies, plans,
and programs the Company has implemented, and which the Compensation Committee
administers, have encouraged management's focus on the long-term financial
performance of the Company and have contributed to achieving the Company's
technical and financial success.
E.A. Frieman (Chairman) J.W. McRary
C.K. Davis M.R. Thurman
W.H. Demisch M.E. Trout
M.R. Laird J.B. Wiesler
C.B. Malone
April 14, 1995
13
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During Fiscal 1995, C.K. Davis, W.H. Demisch, E.A. Frieman, R.M. Gates(1),
M.R. Laird, C.B. Malone, J.W. McRary, B.J. Shillito(1), M.R. Thurman, M.E.
Trout, J.B. Wiesler and W.E. Zisch(1) served as members of the Compensation
Committee. None of such persons served as an officer or employee of the Company
or any of its subsidiaries during Fiscal 1995 or formerly served as an officer
of the Company or any of its subsidiaries, except for E.A. Frieman, who was an
Executive Vice President and Group Manager of the Company from 1981 to 1986, and
J.W. McRary, who was an employee of the Company from 1971 to 1994 and served as
an Executive Vice President of the Company from 1979 to 1994.
Dressendorfer-Laird Incorporated ("D-L Inc."), a company that is 50% owned
by D.M. Laird, the son of M.R. Laird, a Director of the Company, has provided
governmental relations services to the Company since 1983. During Fiscal 1995,
the Company paid D-L Inc. $225,000 for such services. M.R. Laird has no economic
interest in D-L Inc. W. Frieman, daughter of E.A. Frieman, a Director of the
Company, is an employee of the Company and the Director of the Asia Technology
Program for the Company. For services rendered during Fiscal 1995, W. Frieman
received $95,715 in cash and stock compensation, and received options to acquire
2,000 shares of Class A Common Stock at $15.72 per share, which was the market
value of the Class A Common Stock (as reflected by the Formula Price) on the
date of grant. Such options become exercisable one year after the date of grant
and vest as to 20%, 20%, 20% and 40% on the first, second, third and fourth year
anniversaries of the date of grant, respectively. W. Frieman's area of
professional expertise is the analysis of industrial and defense technology in
the Pacific Rim, with an emphasis on China, Japan and Southeast Asia.
See also "Directors' Compensation."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Foundation for Enterprise Development (the "Foundation"), a non-profit
organization, was founded in 1986 by J.R. Beyster, Chairman of the Board and
Chief Executive Officer of the Company, to promote employee ownership. Dr.
Beyster is the President and a member of the Board of Trustees of the
Foundation. In Fiscal 1995, the Company made a contribution of $250,000 to the
Foundation consisting of a combination of cash and rent-free space in a building
owned by the Company in La Jolla, California, and in a building leased by the
Company in McLean, Virginia. The aggregate estimated fair rental value of the
contributed facilities in Fiscal 1995 was approximately $28,000 and the cash
contribution was $222,000. The Board of Directors has approved a similar
contribution of a combination of cash and rent-free space to the Foundation in
fiscal year 1996 in an aggregate amount of $300,000.
R.D. Layson, wife of W.M. Layson, a Director of the Company, is an employee
of the Company and the Deputy Division Manager for the Information Systems
Integration Division. For services rendered during Fiscal 1995, R.D. Layson
received $83,343 in cash and stock compensation, and received options to acquire
500 shares of Class A Common Stock at $14.46 per share and 200 shares of Class A
Common Stock at $15.72 per share, which were the market values of the Class A
Common Stock (as reflected by the Formula Price) on the dates of grant. Such
options become exercisable one year after the date of grant and vest as to 20%,
20%, 20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively. R.D. Layson has been an employee of the Company
for over 15 years and works in the area of systems integration and software
development management.
See also "Compensation Committee Interlocks and Insider Participation."
- ------------------------
(1) B.J. Shillito's and W.E. Zisch's terms on the Board of Directors and on
the Compensation Committee expired in July 1994, and R.M. Gates resigned
from the Board of Directors and the Compensation Committee in October
1994.
14
<PAGE>
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total return on the Class A Common Stock against the cumulative
total return of the Standard & Poor's Composite-500 Stock Index and the Dow
Jones Diversified Technology Index for the ten (10) fiscal years commencing
February 1, 1985 and ending January 31, 1995. The comparison of total return
shows the change in year-end stock price, assuming the immediate reinvestment of
all dividends for each of the periods and has been indexed to $100.00 as of
January 31, 1990. The information for the Dow Jones Diversified Technology Index
for the seven (7) fiscal years commencing February 1, 1988 and ending January
31, 1995 was provided by Dow Jones. The information for the Dow Jones
Diversified Technology Index for the three (3) fiscal years commencing February
1, 1985 and ending January 31, 1988 was compiled by Houlihan Lokey Howard &
Zukin, a specialty investment banking firm, for the companies which comprised
the Dow Jones Diversified Technology Index during such time period.
COMPARISON OF TEN-YEAR
CUMULATIVE TOTAL RETURN
AMONG SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CLASS A COMMON STOCK,
STANDARD AND POOR'S COMPOSITE-500 STOCK INDEX AND
DOW JONES DIVERSIFIED TECHNOLOGY INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOW JONES DIVERSIFIED
S&P 500 INDEX SAIC STOCK INDEX TECHNOLOGY
<S> <C> <C> <C>
Jan-85 45.81 45.3 73.63
Jan-86 56.28 61.24 83.21
Jan-87 75.38 73.18 99.71
Jan-88 72.89 75.54 79.28
Jan-89 87.42 87.88 90.86
Jan-90 100.00 100.00 100.00
Jan-91 108.36 104.72 114.45
Jan-92 132.91 119.64 127.50
Jan-93 146.96 128.86 145.16
Jan-94 165.89 152.25 178.92
Jan-95 166.77 168.67 176.20
</TABLE>
15
<PAGE>
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
CLASS A COMMON STOCK
To the best of the Company's knowledge, as of the Record Date, no person
(other than State Street Bank and Trust Company ("State Street") in its capacity
as trustee of the Retirement Plans and of the Stock Compensation Plans)
beneficially owned more than 5% of the outstanding shares of Class A Common
Stock. The following table sets forth, as of the Record Date, to the best of the
Company's knowledge, the number of shares of Class A Common Stock beneficially
owned by each Director, each nominee for Director, the Named Executive Officers
and all executive officers and Directors as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- -------------------------------------------------- ----------------- --------
<S> <C> <C>
A.L. Alm.......................................... 34,740 *
J.R. Beyster...................................... 852,080 1.8%
V.N. Cook......................................... 32,064 *
S.J. Dalich....................................... 90,665 *
C.K. Davis........................................ 2,974 *
W.H. Demisch...................................... 16,779 *
E.A. Frieman...................................... 39,606 *
J.E. Glancy....................................... 126,184 *
D.A. Hicks........................................ 6,560 *
B.R. Inman........................................ 68,594 *
D.M. Kerr......................................... 24,766 *
L.A. Kull......................................... 264,839 *
M.R. Laird........................................ 41,559 *
W.M. Layson....................................... 109,358 *
C.B. Malone....................................... 2,836 *
J.W. McRary....................................... 185,746 *
E.A. Straker...................................... 116,470 *
M.R. Thurman...................................... 3,076 *
M.E. Trout........................................ 0 0%
J.H. Warner, Jr................................... 139,385 *
J.A. Welch........................................ 29,348 *
J.B. Wiesler...................................... 3,000 *
A.T. Young........................................ 0 0%
State Street Bank and Trust Company............... 21,997,082(2) 47.7%
One Enterprise Drive
North Quincy, MA 02171
All executive officers and Directors as a group
(38 persons)..................................... 2,975,301 6.5%
<FN>
- ------------------------
* Less than 1% of the outstanding shares of Class A Common Stock and less
than 1% of the voting power of the Common Stock.
(1) The beneficial ownership depicted in the table includes: (i) shares held
for the account of the individual by the Trustee of the Company's ESOP,
Profit Sharing Plan and CODA as follows: A.L. Alm (3,994 shares), J.R.
Beyster (46,721 shares), V.N. Cook (1,713 shares), S.J. Dalich (32,396
shares), J.E. Glancy (25,085 shares), D.A. Hicks (346 shares), B.R. Inman
(10 shares), D.M. Kerr (815 shares), L.A. Kull (35,959 shares), W.M. Layson
(38,131 shares), J.W. McRary (440 shares), E.A. Straker (36,844 shares),
J.H. Warner, Jr. (30,247 shares), J.A. Welch (3,094 shares), and all
executive officers and Directors as a group (372,979 shares); (ii) shares
subject to options exercisable within 60 days following the Record Date, as
follows: A.L. Alm (14,318 shares), V.N. Cook (9,800 shares), S.J. Dalich
(13,800 shares), C.K. Davis (1,523 shares), W.H. Demisch (4,800 shares),
E.A. Frieman (4,800 shares), J.E. Glancy (2,800 shares), D.A. Hicks (4,800
shares), B.R. Inman (14,800 shares), D.M. Kerr (10,003 shares), L.A. Kull
(14,000 shares), M.R. Laird (4,800 shares), C.B. Malone (1,500 shares),
J.W. McRary (10,000 shares), E.A. Straker (13,800 shares), M.R. Thurman
(1,540 shares), J.H. Warner, Jr. (3,400 shares), J.A. Welch (4,800 shares),
and all executive officers and Directors as a group (310,550 shares); (iii)
shares held by spouses, minor children or other relatives sharing a
household with the individual, as follows: J.R. Glancy (250 shares), W.M.
Layson (46,977 shares), E.A. Straker (20,712 shares), and all executive
officers and Directors as a group (100,697 shares); and (iv) shares held by
certain trusts established by the individual, as follows: J.R. Beyster
(805,359 shares), L.A. Kull (214,880 shares), J.B. Wiesler (3,000 shares)
and all executive officers and Directors as a group (1,060,434 shares).
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
(2) At the Record Date, State Street, as Trustee for the Retirement Plans and
the Stock Compensation Plans, beneficially owned the following percentage
of the outstanding shares of Class A Common Stock and Class B Common Stock
and voting power of the Common Stock under each plan: ESOP -- 34.5% Class A
Common Stock, 9.6% Class B Common Stock and 33.6% of voting power of the
Common Stock; CODA -- 12.4% Class A Common Stock, 0% Class B Common Stock
and 12.0% of voting power of the Common Stock; Profit Sharing Plan -- 0.1%
Class A Common Stock, 0.01% Class B Common Stock and 0.1% of voting power
of the Common Stock; Syntronic Retirement Plan -- 0.1% Class A Common
Stock, 0% Class B Common Stock and 0.1% of voting power of the Common Stock
and Stock Compensation Plans -- 0.5% Class A Common Stock, 0% Class B
Common Stock and 0.5% of voting power of the Common Stock. Under the terms
of the Retirement Plans, participants are entitled to direct State Street
how to vote Common Stock allocated to their accounts in the plans, subject
to certain restrictions imposed upon State Street by the fiduciary
provisions of ERISA. Under the terms of the Stock Compensation Plans, the
Trustee will vote the Common Stock held by the Trustee in the Stock
Compensation Plans in the same proportion that the other stockholders of
the Company vote their shares of Class A Common Stock.
</TABLE>
CLASS B COMMON STOCK
The following table sets forth, as of the Record Date, to the best of the
Company's knowledge, those persons who were beneficial owners of more than 5% of
the outstanding shares of Class B Common Stock. None of the Directors, nominees
for Director or executive officers of the Company own any shares of Class B
Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------------------------- ------------------- -----------
<S> <C> <C>
J.D. Cramer.............................................................. 17,240 5.1%
J.L. Griggs, Jr.......................................................... 19,464 5.7%
State Street Bank and Trust Company...................................... 32,707(1) 9.6%
One Enterprise Drive
North Quincy, MA 02171
<FN>
- ------------------------
(1) Represents shares of Class B Common Stock beneficially owned by State
Street in its capacity as trustee of the Retirement Plans. State Street's
total ownership of Common Stock is set forth in Note (2) to the previous
table above.
</TABLE>
APPROVAL OF THE 1995 STOCK OPTION PLAN
GENERAL
The Company has maintained the 1992 Stock Option Plan which has provided for
the grant of options to purchase shares of Class A Common Stock to certain of
its employees, directors and consultants. The 1992 Stock Option Plan expires by
its terms on July 31, 1995. On April 14, 1995, the Board of Directors of the
Company approved, subject to stockholder approval, the 1995 Stock Option Plan
(the "1995 Stock Option Plan"), which will enable the Company to continue to
grant options to purchase its Class A Common Stock to its employees, directors
and consultants for an additional three-year period. The 1995 Stock Option Plan
will, if approved by the stockholders, authorize the issuance of options to
purchase up to 12,000,000 shares of Class A Common Stock in the aggregate
(subject to adjustment under certain circumstances).
The following summary of the material terms and provisions of the 1995 Stock
Option Plan is qualified in its entirety by reference to the full text of the
1995 Stock Option Plan, a copy of which is attached to this Proxy Statement as
Annex I and incorporated herein by this reference.
ADMINISTRATION
The 1995 Stock Option Plan will be administered by the Stock Option
Committee of the Board of Directors (the "Stock Option Committee") whose members
consist of directors of the Company selected by the Board of Directors. Each
member of the Stock Option Committee must be a "disinterested person" as defined
in Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Members of
the Stock Option Committee will not be eligible to receive any of the options
granted under the 1995 Stock Option Plan. Further, members of the Stock Option
Committee will not receive any compensation from the 1995 Stock Option Plan or
the Company for services rendered in connection therewith.
17
<PAGE>
The Stock Option Committee will determine the persons to whom options will
be granted under the 1995 Stock Option Plan, the number of shares subject to
such options, the terms and provisions of such options, whether such options
will be incentive stock options or nonqualified stock options, and whether or
not such rights shall be exercisable in installments. The Stock Option Committee
also has the power to modify or amend the terms of an option, accelerate or
defer the exercise date of an option, or reprice, cancel, regrant or otherwise
adjust the exercise price of an option, all with the consent of the optionee.
The Stock Option Committee is also authorized to interpret the 1995 Stock Option
Plan and to adopt rules and regulations for its administration.
OPTION TERMS
The terms and conditions under which options may be granted under the 1995
Stock Option Plan are summarized below:
ELIGIBILITY
Key employees, directors and consultants of the Company and its subsidiaries
are eligible to participate in the 1995 Stock Option Plan. However, no option
may be granted to any person who, at the time the option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of the Company or any subsidiary. Further, in no
event may any single individual receive option grants for more than 500,000
shares of Class A Common Stock in the aggregate. In addition, only employees are
eligible to receive incentive stock options. As of March 10, 1995, the Company
and its subsidiaries had nine directors who were not also employees, and
approximately 18,250 employees and 1,400 consultants.
OPTIONS
Options granted pursuant to the 1995 Stock Option Plan may be nonqualified
stock options or incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended ("Code"). If an option agreement
is not executed by the optionee and returned to the Company within the time
prescribed in the option agreement, the option will be forfeited and the option
agreement will be null and void.
UNDERLYING SECURITIES
Options granted under the 1995 Stock Option Plan will be options to purchase
shares of Class A Common Stock. Pursuant to the Company's Certificate of
Incorporation, all shares of Class A Common Stock purchased pursuant to options
granted under the 1995 Stock Option Plan will be subject to the Company's right
of repurchase upon the individual's termination of employment or affiliation
with the Company at the then prevailing Formula Price. 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 Company's Limited
Market. As of March 10, 1995, the market value of the Class A Common Stock (as
reflected by the Formula Price) was $15.72 per share.
PRICE AND PAYMENT
Options must be granted with an exercise price of not less than 100% of the
fair market value of the shares of the Company's Class A Common Stock on the
date the options are granted. Payment is required to be made in cash or shares
of the Company's Class A Common Stock at the time the option is exercised.
Shares of Class A Common Stock acquired through the exercise of a stock option
must have been owned by the optionee at least six months before such shares may
be used to pay the exercise price of another option.
OPTION DURATION AND EXERCISE
The 1995 Stock Option Plan provides that options granted thereunder shall
expire on such dates as shall be determined by the Stock Option Committee;
provided, however, no option may be granted which is exercisable more than ten
years after the date it is granted. Within such limitations, the Stock Option
Committee has the discretion to determine the period or periods of time in which
the options may be exercised and it may grant options which are to be exercised
in whole or in part, in installments, cumulative or otherwise, and at such times
as it deems proper.
18
<PAGE>
TERMINATION OF OPTIONEE'S EMPLOYMENT OR AFFILIATION WITH THE COMPANY
If the optionee's employment is terminated as the result of normal
retirement, total permanent disability or early retirement under the terms of a
retirement or pension plan maintained by the Company and in which such optionee
is a participant, such optionee may, at any time within 90 days after such
termination of employment, exercise such optionee's options to the extent that
such optionee was entitled as of the date of such termination, unless such
options would expire pursuant to their terms at an earlier date, in which case
such options remain exercisable only until the earlier expiration date. If the
optionee's employment or affiliation with the Company is terminated under any
circumstances other than those stated above or other than as a result of the
optionee's death, then the right to exercise the option shall expire on the date
such employment or affiliation is terminated, unless otherwise set forth in the
option agreement; provided, however, that the Stock Option Committee in its
discretion may extend the period of time that such optionee may exercise such
optionee's options, but in no event may the Stock Option Committee extend such
period of time beyond the expiration date of the options or beyond ten years
after the date of grant of such options.
LEAVE OF ABSENCE
Optionees who are on a leave of absence shall not be deemed to have
terminated their employment; however, unless such optionee is on a leave of
absence for medical reasons, all rights to exercise options shall be suspended
during such leave of absence and, upon such optionee's return to the Company or
any subsidiary of the Company, all rights to exercise options shall be restored
to the extent such options are exercisable at that time. The Stock Option
Committee in its discretion may permit the exercise while on a leave of absence
of options which would otherwise expire or may defer the expiration date of such
options, but not beyond ten years from their date of grant. An optionee who is
on a leave of absence for medical reasons shall have all rights to exercise such
optionee's options that such optionee would have had if such optionee were not
on such a leave of absence. In certain cases, a leave of absence in excess of 90
days may result in unexercised incentive stock options being converted to
nonqualified stock options.
DEATH OF OPTIONEE
If an optionee's employment or affiliation is terminated as a result of the
optionee's death, such options may, within one year of the optionee's death (or
within such shorter period as may be specified in the option agreement by the
Stock Option Committee), be exercised by the optionee's designated beneficiary,
or if there is no surviving beneficiary, by the person or persons to whom the
optionee's rights under the option shall pass by will or by the applicable laws
of descent and distribution, to the extent that such deceased optionee was
entitled to exercise the options on the date of death, unless such options would
expire pursuant to their terms at an earlier date, in which case such options
remain exercisable only until the earlier expiration date.
AMENDMENT, SUSPENSION AND TERMINATION
The Board of Directors or the Operating Committee of the Board of Directors
may at any time amend, suspend or terminate the 1995 Stock Option Plan;
provided, however, that no such amendment may, without the affirmative vote of a
majority of the voting power of the Company's outstanding stock, (i) increase
the maximum number of shares for which options may be granted, (ii) change the
provisions relating to the establishment of the exercise price of the options or
(iii) permit the granting of options to members of the Stock Option Committee.
The 1995 Stock Option Plan, unless previously terminated, shall terminate on
July 31, 1998.
ANTI-DILUTION PROVISIONS
The 1995 Stock Option Plan provides for adjustments in the aggregate number
of shares subject to the 1995 Stock Option Plan, the maximum number of shares as
to which options may be granted to any one optionee thereunder and the number of
shares and the price per share subject to outstanding options, in the event of
any stock split, stock dividend, combination of shares or other change, exchange
of securities, reclassification, reorganization, redesignation, recapitalization
or other similar transaction.
19
<PAGE>
NON-TRANSFERABILITY
Options granted pursuant to the 1995 Stock Option Plan are not transferrable
except by will or by the laws of descent and distribution and during the
optionee's life may only be exercised by the optionee or his or her conservator
or other legal representative.
CHANGE IN CONTROL
The 1995 Stock Option Plan provides that any option shall become fully
exercisable from and after the date of a Change in Control (as hereinafter
defined) of the Company. For purposes of the 1995 Stock Option Plan, a "Change
in Control" is deemed to have occurred upon any person, other than the Company
or any subsidiary or employee benefit plan or trust maintained by the Company or
any subsidiary, becoming the beneficial owner of more than 25% of the Common
Stock of the Company outstanding at such time without the prior approval of the
Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS
Options granted under the 1995 Stock Option Plan designated as such are
intended to constitute incentive stock options for federal income tax purposes.
Generally, an optionee receiving an incentive stock option will not be in
receipt of taxable income upon the grant of the incentive stock option or upon
its timely exercise. The exercise of an incentive stock option will be timely if
made during its term and if the optionee remains an employee of the Company at
all times during the period beginning on the date of grant of the incentive
stock option and ending on the date three months before the date of exercise (or
one year before the date of exercise in the case of death). Upon the ultimate
sale of the capital stock received upon such exercise, except as noted below,
the optionee will recognize long-term capital gain or loss (if the capital stock
is a capital asset in the hands of the optionee) equal to the difference between
the amount realized upon such sale and the exercise price. The Company, under
these circumstances, will not be entitled to any federal income tax deduction in
connection with either the exercise of the incentive stock option or the sale of
such shares by the optionee.
However, if the capital stock acquired upon the timely exercise of an
incentive stock option is disposed of by the optionee prior to the expiration of
two years from the date of grant of the incentive stock option or within one
year from the date such capital stock is transferred to the optionee upon
exercise (a "disqualifying disposition"), any gain realized by the optionee
generally will be taxable at the time of such disqualifying disposition as
follows: (i) at ordinary income tax rates to the extent of the difference
between the exercise price and the lesser of the fair market value of the
capital stock on the date the incentive stock option is exercised or the amount
realized on such disqualifying disposition and (ii) if the capital stock is a
capital asset in the hands of the optionee, as short-term or long-term capital
gain to the extent of any excess of the amount realized on such disqualifying
disposition over the fair market value of the capital stock on the date which
governs the determination of the optionee's ordinary income. If a disqualifying
disposition is made in a transaction in which a loss would not be recognized
under the Code (e.g., a gift, sale to certain related parties, sale followed by
a purchase of stock or grant of a new option under the "wash sale" rules), the
taxable gain recognized as a result of such disqualifying disposition will not
be limited to the amount of gain realized in the disqualifying disposition. In
the case of a disqualifying disposition, the Company may claim a federal tax
deduction at the time and in the amount taxable to the optionee as ordinary
income. Any capital gain realized by the optionee will be long-term capital gain
if the optionee's holding period for the capital stock at the time of
disposition is more than one year; otherwise, it will be short-term capital
gain.
Net capital gains are currently 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 phase-out of personal exemptions may
result in effective marginal tax rates higher than 28% for net capital gains and
39.6% for ordinary income.
NONQUALIFIED STOCK OPTIONS
Options granted under the 1995 Stock Option Plan may be nonqualified options
or incentive stock options, as determined by the Stock Option Committee at the
time of grant. Generally, the optionee will not
20
<PAGE>
be taxed upon the grant of any nonqualified stock 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 nonqualified stock 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
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.
ALTERNATIVE MINIMUM TAX
For purposes of the alternative minimum tax provisions contained in Section
55 of the Code, the exercise of an incentive stock option will be treated as
though it were a nonqualified stock option under Section 83 of the Code
(described above), but solely for purposes of determining the optionee's
alternative minimum taxable income. The minimum tax is imposed at a rate of 26%
of alternative minimum taxable income (taxable income increased by items of tax
preference and adjusted for certain other items) up to $175,000 (and 28% of any
additional such income) over a specified exemption amount ($45,000 for married
taxpayers filing jointly, $33,750 for single taxpayers, but phased out at
specified levels of income), but is payable only if the minimum tax exceeds the
taxpayer's regular tax liability for the year.
EXERCISE WITH SHARES OF CAPITAL STOCK
If payment for the exercise price of an incentive stock option is made by
surrendering previously owned shares of the capital stock, the following rules
apply:
If shares of "statutory option stock" (i.e., stock previously acquired
pursuant to the exercise of an incentive stock option) are surrendered in
payment of the exercise price of an incentive stock option and if, at the date
of surrender, the applicable holding period for such shares has not been met
(e.g., if shares previously acquired upon the exercise of an incentive stock
option are surrendered within two years from the date of grant or within one
year from the date the shares were transferred to the optionee), such surrender
will constitute a "disqualifying disposition" and any gain realized on such
transfer will thus be taxable according to the rules described above for
disqualifying dispositions. If the shares surrendered are not statutory option
stock, or if they are statutory option stock but have been held for the
requisite holding period, no gain or loss should be recognized upon such
surrender. Although the Internal Revenue Service will not issue any rulings as
to the effect of such an exercise, it has issued a published ruling stating that
no gain or loss will be recognized upon the surrender of shares upon exercise of
a nonqualified stock option, and the Treasury Department has issued proposed
regulations which, if adopted in their current form, would appear to provide
that, except as discussed above, in general, when shares are surrendered upon
exercise of an incentive stock option:
(a) No gain or loss will be recognized as a result of the exchange.
(b) A number of shares received which is equal in number to the shares
surrendered will have a basis equal to the shares surrendered, and (except
for purposes of determining whether a disposition will be a disqualifying
disposition) will have a holding period which includes the holding period of
the shares exchanged.
(c) Any additional shares received will have a zero basis and will have
a holding period which begins on the date of the exchange. If any of the
shares received are disposed of within two years of the date of grant of the
incentive stock option or within one year after the date shares were
transferred to the optionee, the shares with the lowest basis (i.e., a zero
basis) will be deemed to be disposed of first and such disposition will be a
disqualifying disposition giving rise to ordinary income as discussed above.
If payment of the exercise price of a nonqualified stock option is made by
surrendering previously owned shares of capital stock, the following rules
apply:
21
<PAGE>
(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 nonqualified
stock option, and the surrender of shares will not be treated as a
disqualifying disposition of any stock acquired through exercise of an
incentive stock option.
(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 will (i) be taxed as ordinary income
in an amount equal to the fair market value of the shares at the time of
exercise, (ii) have a basis equal to the amount included in taxable income
by the optionee and (iii) 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 1995 Stock Option Plan.
Accordingly, holders of options granted under the 1995 Stock Option Plan 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 and makes no undertaking to maintain the tax status (e.g., as an
incentive stock option) of any option.
BENEFITS
Set forth below are the estimated benefits that would have been received
under the 1995 Stock Option Plan in Fiscal 1995, if such plan had been in
effect, by the Named Executive Officers, all current executive officers as a
group, all current Directors as a group (excluding Directors who are also
executive officers) and all eligible employees as a group (excluding all current
executive officers). The estimated benefits shown for such individuals and
groups under the 1995 Stock Option Plan are the actual benefits received by such
individuals and groups under the 1992 Stock Option Plan based on the assumption
that each such individual and member of such group would have received the same
benefits as such individual and such member received pursuant to the 1992 Stock
Option Plan during Fiscal 1995. Such information is provided for illustrative
purposes only. The benefits which such individuals or groups will actually
receive under the 1995 Stock Option Plan are not determinable because such
benefits will be determined by the Stock Option Committee based upon the
performance of the individual and may be more or less than the amount of
benefits received by the individuals or groups in Fiscal 1995 under the 1992
Stock Option Plan. The dollar value of the options such individuals or groups
might receive is also not determinable because it is dependent on a variety of
factors, such as the market value of the Class A Common Stock on the date of
exercise and the number of shares for which the options are exercisable. Under
the terms of the 1995 Stock Option Plan, the maximum number of options which may
be granted to any one individual are options to purchase 500,000 shares of Class
A Common Stock, in the aggregate.
22
<PAGE>
1995 EMPLOYEE STOCK OPTION PLAN
<TABLE>
<CAPTION>
ESTIMATED STOCK
NAME AND PRINCIPAL POSITION OPTIONS RECEIVED
- ------------------------------------------------------------ ----------------
<S> <C>
J.R. Beyster................................................ 0
Chairman of the Board and Chief Executive Officer
L.A. Kull................................................... 0
President, Chief Operating Officer and Director
D.M. Kerr................................................... 20,015
Corporate Executive Vice President
E.A. Straker................................................ 5,000
Sector Vice President and Director
J.H. Warner, Jr............................................. 2,000
Executive Vice President and Director
All current executive officers as a group (24 persons)...... 119,015
All current Directors as a group, excluding Directors who
are
also executive officers (14 persons)....................... 55,000
All employees as a group, excluding all current
executive officers and Directors (18,220 persons).......... 3,027,457
<FN>
- ------------------------
(1) As of March 10, 1995, the Company and its subsidiaries had approximately
18,220 employees, excluding all current executive officers and Directors.
Of this group, 3,956 employees received stock options during Fiscal 1995.
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
The Board of Directors believes that approval of the 1995 Stock Option Plan
is in the best interest of the Company and its stockholders because it provides
a means by which the Company and its subsidiaries can attract and retain
qualified key employees, directors and consultants and provide such personnel
with an opportunity to participate in the increased value of the Company which
their efforts, initiative and skill have helped produce. THE BOARD OF DIRECTORS
HAS APPROVED THE 1995 STOCK OPTION PLAN AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE 1995 STOCK OPTION PLAN.
The affirmative vote of the holders of a majority of the voting power of
Class A Common Stock and Class B Common Stock, voting together as a single
class, represented and voted at the Annual Meeting is required to approve the
1995 Stock Option Plan. If the 1995 Stock Option Plan is not approved by the
Company's stockholders, it will not be implemented.
APPROVAL OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company currently maintains the 1993 Employee Stock Purchase Plan (the
"1993 Stock Purchase Plan") which provides for the purchase of Class A Common
Stock by participating employees through voluntary payroll deductions. The 1993
Stock Purchase Plan expires by its terms on July 31, 1995. On April 14, 1995,
the Board of Directors of the Company approved, subject to stockholder approval,
the 1995 Employee Stock Purchase Plan (the "1995 Stock Purchase Plan"), which
will enable employees to continue to purchase Class A Common Stock through
payroll deductions for a three-year period. The 1995 Stock Purchase Plan will,
if approved by the stockholders, authorize the issuance and the purchase by
employees of up to 1,500,000 shares of Class A Common Stock in the aggregate
(subject to adjustment under certain circumstances).
23
<PAGE>
The following summary of the terms and provisions of the 1995 Stock Purchase
Plan is qualified in its entirety by reference to the full text of the 1995
Stock Purchase Plan, a copy of which is attached to this Proxy Statement as
Annex II and incorporated herein by reference. All capitalized or quoted terms
have the meanings ascribed to them in the 1995 Stock Purchase Plan unless
otherwise defined herein.
ELIGIBILITY
Generally, all of the Company's employees will be eligible to participate in
the 1995 Stock Purchase Plan, except for employees of subsidiaries which have
not been designated as eligible for participation. The Stock Purchase Committee
may also impose eligibility requirements consistent with Section 423(b) of the
Code. No employee, however, who owns capital stock of the Company having more
than 5% of the voting power or value of such capital stock will be able to
participate. An employee's eligibility to participate in the 1995 Stock Purchase
Plan will terminate immediately upon the termination of his or her employment
with the Company, upon a change in employment status to a leave of absence or
upon transfer to an ineligible subsidiary. As of March 10, 1995, there were
approximately 18,250 employees who would have been eligible to participate in
the 1995 Stock Purchase Plan.
Employees will be able to enroll in the 1995 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 3%
of compensation and the maximum allowable deduction is 10% of compensation. 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
fiscal year pursuant to the 1995 Stock Purchase Plan and any other employee
stock purchase plan which may be adopted by the Company.
PURCHASE OF SHARES
Shares of Class A Common Stock purchased under the 1995 Stock Purchase Plan
may be acquired in the Company's Limited Market or purchased from the Company
out of its authorized but unissued shares. A maximum of 1,500,000 shares of
Class A Common Stock (subject to adjustment under certain circumstances) has
been authorized for issuance by the Company as newly issued shares under the
1995 Stock Purchase Plan. At each of four predetermined purchase dates during
the year, the trustee under the 1995 Stock Purchase Plan (the "Trustee") will
purchase for the account of each participant in the 1995 Stock Purchase Plan
that whole number of shares of Class A Common Stock which may be acquired from
the funds available in the participant's account, together with the Company's
contribution described below.
The Company will contribute a certain percent of the cost of each share of
Class A Common Stock purchased under the 1995 Stock Purchase Plan. The percent
of the cost of each share of Class A Common Stock to be contributed by the
Company (the "Company Percent") will be determined by the Company's Employee
Stock Purchase Committee (the "Stock Purchase Committee"), and will be between
zero percent (0%) and fifteen percent (15%). The Company Percent will be five
percent (5%) unless and until changed by the Stock Purchase Committee. On each
purchase date, the Company will pay the Company Percent of the cost of each
share purchased by the Trustee whether purchased in the Limited Market or as a
newly issued share.
The purchase price to be paid for the shares of Class A Common Stock
acquired for the account of participants will be the Formula Price in effect as
of the date of purchase. As of March 10, 1995, the Formula Price for the Class A
Common Stock was $15.72 per share.
DISTRIBUTION AND VOTING RIGHTS
Shares of Class A Common Stock acquired under the 1995 Stock Purchase Plan
will be issued to each participant prior to any record date established by the
Company for any vote of its stockholders and in the interim will be held by the
Trustee for the account of such participant. The Trustee will vote the shares of
Class A Common Stock held by it prior to distribution in accordance with the
instructions received from employees with respect to the shares credited to
their accounts.
24
<PAGE>
RESTRICTIONS ON SHARES PURCHASED
Pursuant to the Company's Certificate of Incorporation, all shares of Class
A Common Stock purchased pursuant to the 1995 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. 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 Company's Limited Market.
WITHDRAWALS
Participants may withdraw from the 1995 Stock Purchase Plan, terminate their
election to purchase shares and obtain repayment of the balance of any monies
held in their accounts at any time prior to the acquisition of shares of Class A
Common Stock therewith. No interest will be paid on the money held in the
accounts of the participants.
AMENDMENT AND TERMINATION
The Board of Directors of the Company may suspend or amend the 1995 Stock
Purchase Plan in any respect, except that no amendment may, without the approval
of a majority of the voting power of the capital stock of the Company present or
represented and entitled to vote at a duly constituted meeting of the
stockholders, (i) increase the maximum number of shares authorized to be issued
by the Company under the 1995 Stock Purchase Plan or (ii) deny to participating
employees the right at any time to withdraw from the 1995 Stock Purchase Plan
and thereupon obtain all amounts then due to their credit in their accounts.
The 1995 Stock Purchase Plan will terminate on July 31, 1998, unless earlier
terminated by the Board of Directors.
ADMINISTRATION
The 1995 Stock Purchase Plan will be administered by the Stock Purchase
Committee, whose members are appointed by the Company's Board of Directors to
serve at the discretion of the Board. Members of the Stock Purchase Committee
will not receive any compensation from the 1995 Stock Purchase Plan or the
Company for services rendered in connection therewith.
TRUSTEE
The Company or its designee will be the Trustee of the 1995 Stock Purchase
Plan.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, no taxable income will be recognized by a
participant in the 1995 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 1995 Stock Purchase Plan, ordinary income must be recognized in the
year of 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.
25
<PAGE>
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
higher than 39.6% for ordinary income.
The Company will not be entitled to a deduction at any time for the shares
issued pursuant to the 1995 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 1995 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 1995 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 1995 Stock Purchase Plan.
BENEFITS
Set forth below are the estimated benefits that would have been received
under the 1995 Stock Purchase Plan in Fiscal 1995, if such plan had been in
effect, by the Named Executive Officers, all current executive officers as a
group, all current Directors as a group (excluding Directors who are also
executive officers) and all eligible employees as a group (excluding all current
executive officers). The estimated benefits shown for such individuals and
groups under the 1995 Stock Purchase Plan are the actual benefits received by
such individuals and groups under the 1993 Stock Purchase Plan based on the
assumption that each such individual and member of such group would have
participated at the same level as such individual and such member participated
in the 1993 Stock Purchase Plan during Fiscal 1995. Such information is provided
for illustrative purposes only. The benefits which such individuals or groups
will actually receive if they elect to participate in the 1995 Stock Purchase
Plan are not determinable because such benefits will be dependent upon the level
of participation selected by the participant and may be more or less than the
amount of benefits received by the individuals or groups in Fiscal 1995 under
the 1993 Stock Purchase Plan. Assuming no change in the Company Percent, the
dollar value of benefits received from participating in the 1995 Stock Purchase
Plan will be equal to the 5% Company contribution towards the purchase of shares
of Class A Common Stock under the Plan and the maximum benefit available in any
year to any participant under the 1995 Stock Purchase Plan will be $1,250 (i.e.,
5% of $25,000).
26
<PAGE>
1995 STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
ESTIMATED DOLLAR
VALUE OF
NAME AND PRINCIPAL POSITION BENEFITS
- ------------------------------------------------------------ ----------------
<S> <C>
J.R. Beyster................................................ 0(1)
Chairman of the Board and Chief Executive Officer
L.A. Kull................................................... 0(1)
President, Chief Operating Officer and Director
D.M. Kerr................................................... 0(1)
Corporate Executive Vice President
E.A. Straker................................................ 0(1)
Sector Vice President and Director
J.H. Warner, Jr............................................. 0(1)
Executive Vice President and Director
All current executive officers as a group (24 persons)...... 0(1)
All current Directors as a group, excluding Directors who
are also executive officers (14 persons)................... 0(2)
All employees, excluding all current
executive officers (18,226 persons)(3) $210,000
<FN>
- ------------------------
(1) In Fiscal 1995, none of the Named Executive Officers or current executive
officers participated in or received any benefits under the 1993 Stock
Purchase Plan.
(2) Directors who are not employees of the Company are not eligible to
participate in the 1995 Stock Purchase Plan. Of the 14 current Directors
who are not executive officers, five Directors were eligible to participate
in the 1993 Stock Purchase Plan. In Fiscal 1993, none of such Directors
participated in or received any benefits under the 1993 Stock Purchase
Plan.
(3) As of January 31, 1995, there were 1,632 employees participating in the
1993 Stock Purchase Plan.
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
The Board of Directors believes that approval of the 1995 Stock Purchase
Plan is in the best interest of the Company and its stockholders because it
provides a means for employees to become stockholders of the Company or increase
their present stock ownership. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE 1995 STOCK PURCHASE PLAN AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE 1995 STOCK PURCHASE PLAN.
The affirmative vote of the holders of a majority of the voting power of
Class A Common Stock and Class B Common Stock, voting together as a single
class, present or represented and entitled to vote at the Annual Meeting is
required to approve the 1995 Stock Purchase Plan. If the 1995 Stock Purchase
Plan is not approved by the Company's stockholders, it will not be implemented.
APPROVAL OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP as independent
accountants for the Company for the fiscal year ending January 31, 1996, subject
to approval by the stockholders of the Company. Price Waterhouse LLP has served
as the Company's independent accounting firm since 1977. There is no requirement
in the Company's Charter or Bylaws that the selection of independent accountants
be submitted to a vote of stockholders. However, the Board of Directors deems
this matter to be of such importance that it has concluded that it should be
subject to approval of the stockholders. If the stockholders do not approve the
appointment of Price Waterhouse LLP, the Board of Directors will reconsider such
appointment.
27
<PAGE>
It is anticipated that a representative of Price Waterhouse LLP will be
present at the Annual Meeting and will have the opportunity to make a statement
if he or she desires to do so. Such representative will also be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Any stockholder proposals intended to be presented at the 1996 Annual
Meeting of Stockholders must be received by the Company no later than February
15, 1996 in order to be considered for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting. In addition, Section 2.01
of the Company's Bylaws provides that in order for a stockholder to propose any
matter for consideration at an annual meeting of the Company (other than by
inclusion in the Company's Proxy Statement), such stockholder must have given
timely prior written notice to the Corporate Secretary of the Company of his or
her intention to bring such business before the meeting. To be timely, notice
must be received by the Company not less than 50 days nor more than 75 days
prior to the meeting (or if fewer than 65 days' notice or prior public
disclosure of the meeting date is given or made to stockholders, not later than
the 15th day following the day on which the notice of the date of the meeting
was mailed or such public disclosure was made). Such notice must contain certain
information, including a brief description of the business the stockholder
proposes to bring before the meeting, the reasons for conducting such business
at the annual meeting, the class and number of shares of Common Stock
beneficially owned by the stockholder who proposes to bring the business before
the meeting and any material interest of such stockholder in the business so
proposed.
ANNUAL REPORT
The Company's 1995 Annual Report to Stockholders for the year ended January
31, 1995, which includes audited financial statements, is being mailed with this
Proxy Statement to stockholders of record on May 19, 1995.
The Company will provide without charge to any stockholder, upon request, a
copy of its Form 10-K Annual Report for the year ended January 31, 1995 (without
exhibits), as filed with the Securities and Exchange Commission. Requests should
be directed in writing to Science Applications International Corporation, 10260
Campus Point Drive, San Diego, California 92121, Attention: Corporate Secretary.
By Order of the Board of Directors
[Sig]
J. Dennis Heipt
Corporate Secretary
June 14, 1995
28
<PAGE>
ANNEX I
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1995 STOCK OPTION PLAN
1. PURPOSE
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1995 Stock Option
Plan (the "Plan"). The purpose of the Plan is to advance the interests of the
Company and its stockholders by providing a means by which the Company and its
Subsidiaries can attract and retain qualified key employees, directors and
consultants and provide such personnel with an opportunity to participate in the
increased value of the Company which their effort, initiative and skill have
helped produce.
2. DEFINITIONS
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Class A Common Stock of the Company, par
value $.01.
(d) "Committee" shall mean the Company's Stock Option Committee responsible
for administering the Plan.
(e) "Employee/Optionee" shall mean an Optionee who is an employee of the
Company or any Subsidiary.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Price" shall mean the price per share at which an Option may
be exercised, as determined by the Committee and as specified in the Optionee's
option agreement.
(h) "Formula Price" shall mean the price per share of Common Stock as
established by the Board from time to time.
(i) "Option" shall mean an option to purchase Common Stock granted pursuant
to the Plan.
(j) "Optionee" shall mean any person who holds an Option pursuant to the
Plan.
(k) "Plan" shall mean this Science Applications International Corporation
1995 Stock Option Plan, as it may be amended from time to time.
(l) "Purchase Price" shall mean at any particular time the Exercise Price
times the number of shares for which an Option is being exercised.
(m) "Subsidiary" as used in the Plan means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations, other than the last corporation in such chain, owns at
least fifty percent (50%) of the total voting power in one of the other
corporations in such chain.
3. ADMINISTRATION
(a) THE COMMITTEE. The Plan shall be administered by the Committee which
shall consist of not less than three nor more than seven directors appointed by
the Board. Any vacancies on the Committee will be filled by the Board or the
Operating Committee of the Board. Each Committee member shall be a
"disinterested person" as defined in Rule 16b-3 under the Exchange Act. Members
of the Committee shall not be eligible to receive Options under the Plan while
they are serving on the Committee; however, service by a director on the
Committee shall not affect in any way Options which may be granted to such
director while not serving on the Committee. No member of the Committee shall be
liable for any action or determination in respect thereto, if made in good
faith.
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<PAGE>
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion and on behalf of the
Company:
(i) to grant Options;
(ii) to determine whether the Options granted are intended to be
incentive stock options or non-qualified stock options;
(iii) to determine the Exercise Price per share of Options to be granted;
(iv) to determine the individuals to whom, and the time or times at
which, Options shall be granted and the number of shares for which an Option
will be exercisable;
(v) to interpret the Plan;
(vi) to prescribe, amend, and rescind rules and regulations relating to
the Plan;
(vii) to determine the terms and provisions of each Option granted and,
with the consent of the Optionee, to modify or amend each Option;
(viii) to accelerate or defer, with the consent of the Optionee, the
exercise date of any Option;
(ix) with the consent of the Optionee, to reprice, cancel and regrant,
or otherwise adjust the Exercise Price of an Option previously granted by
the Committee; and
(x) to make all other determinations deemed necessary or advisable for
the administration of the Plan.
(c) COMMITTEE DISCRETION. In exercising its authority, the Committee shall
have the broadest possible discretion and the Committee's determinations under
the Plan made in good faith shall be binding and conclusive on Optionees and
other persons claiming entitlements under the Plan. In no event shall a
Committee determination with respect to a particular Optionee or provision of
the Plan be binding with respect to any other Optionee (even if similarly
situated) nor with respect to any future determinations regarding the same or
other provisions of the Plan.
4. ELIGIBILITY
(a) GENERAL. The individuals who shall be eligible to participate in the
Plan and to receive Options hereunder shall be such key employees, directors and
consultants of the Company and its Subsidiaries as the Committee shall from time
to time determine. The Committee may designate one or more directors who are not
eligible for participation in the Plan for a specified period of time. No Option
shall be granted to any person who, at the time the Option is granted, owns
(including stock owned by application of the constructive ownership rules of
Section 425(d) of the Code) stock possessing more than 10% of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary.
(b) INCENTIVE STOCK OPTIONS. No Option which is designated as an incentive
stock option shall be granted to any person who, at the time the Option is
granted, is not an employee of the Company or a Subsidiary. The aggregate fair
market value (determined as of the time the Option is granted) of the Common
Stock with respect to which Options designated as incentive stock options are
exercisable for the first time by an employee shall not exceed $100,000 during
any calendar year (under all plans of the Company or any Subsidiary which
provide for the granting of an incentive stock option).
5. STOCK SUBJECT TO THE PLAN
Options may be granted permitting the purchase of the aggregate of not more
than 12,000,000 shares of the Company's Common Stock, subject to adjustment
pursuant to Section 10 hereof. These shares may consist either in whole or in
part of shares of the Company's authorized but unissued Common Stock or shares
of the Company's authorized and issued Common Stock reacquired by the Company
and held in its treasury. If an Option granted under this Plan is surrendered,
expires or for any other reason ceases to be exercisable in whole or in part,
the shares which were subject to any such Option but as to which the Option
ceases to be exercisable shall be available for Options to be granted under the
Plan.
2
<PAGE>
6. STOCK OPTIONS
(a) OPTIONS. The Options granted pursuant to the Plan may be "incentive
stock options" within the meaning of Section 422 of the Code or non-qualified
stock options. Options designated to be incentive stock options shall be
designated as such in the option agreements evidencing such Options.
(b) OPTION AGREEMENTS. Options shall be evidenced by written option
agreements between the Optionee and the Company in such form as the Committee
shall from time to time determine. No Option or purported Option shall be a
valid and binding obligation of the Company unless previously granted by the
Committee and evidenced in writing by such an option agreement. If an option
agreement is not executed by the Optionee and returned to the Company within the
time prescribed in the option agreement, the Option evidenced thereby will be
forfeited and the option agreement will be null and void. Appropriate officers
of the Company are hereby authorized to execute and deliver option agreements in
the name of the Company, as directed from time to time by the Committee.
(c) EXERCISE PRICE. The Exercise Price at which Options may be granted
under the Plan shall be not less than one hundred percent (100%) of the fair
market value of the Common Stock on the day the Option is granted, but may be
less than the Exercise Price or Prices of previously granted Options, whether in
effect, canceled or expired. As long as the Company's Common Stock is not listed
on any national securities exchange or traded on a regular basis (as determined
by the Company's Board or a Committee of the Board to which the Board has
delegated the authority to make such determination) on the over-the-counter
market, fair market value may be taken as the Formula Price as in effect at the
date of grant.
(d) DATE OF GRANT. The Committee shall, after it approves the granting of
an Option to a participant, cause the participant to be notified of such action.
The date on which the Committee approves the granting of an Option shall be
considered the date on which such Option is granted.
(e) TERMS OF EXERCISE. The right to purchase shares covered by any Option
or Options under the Plan shall be exercisable only in accordance with the terms
and conditions of the grant to such Optionee. The Committee may, in its
discretion, provide that such Option or Options may be exercised in whole or in
part, in installments, cumulative or otherwise, for any period or periods of
time specified by the Committee of not more than ten years from the date of the
grant of the Option. Subject to the provisions of Paragraph 9, that portion of
an Option which is exercisable on an installment basis may not be exercised
prior to the expiration of the applicable installment period.
(f) NON-TRANSFERABILITY. An Option granted under the Plan may not be
transferred except by will or the laws of descent and distribution and, during
the lifetime of the Optionee to whom granted, may be exercised only by such
Optionee or his conservator or other legal representative.
(g) LIMIT ON OPTION GRANTS. In no event may any single Optionee receive
Option grants for more than 500,000 shares of Common Stock in the aggregate.
7. EXPIRATION AND TERMINATION
(a) EXPIRATION OF OPTION. Each Option and all rights and obligations
thereunder shall, subject to the provisions of Paragraph 9, expire on a date to
be determined by the Committee, such date, however, in no event to be later than
ten (10) years from the date an Option is granted.
(b) TERMINATION OF EMPLOYMENT OR AFFILIATION. Subject to the provisions of
Paragraph 9, that portion of an Option which is exercisable on an installment
basis may not be exercised unless the Optionee shall continue in the employ or
affiliation of the Company or any of its Subsidiaries during the entire period
to which such installment relates. Except as set forth below in Paragraphs 7(c)
through (e) or otherwise set forth in an option agreement, all Options granted
to an Optionee under this Plan shall terminate and no longer be exercisable as
of the date such Optionee ceases to be employed or affiliated with the Company
or any Subsidiary; provided, however, the Committee in its discretion may extend
the period of time that such Optionee may exercise such Optionee's Options, but
in no event may the Committee extend such period of time beyond the expiration
date of the Options or beyond ten (10) years from the date of grant of such
Options.
3
<PAGE>
(c) TERMINATION DUE TO RETIREMENT OR PERMANENT TOTAL DISABILITY. In the
event an Employee/Optionee's employment with the Company or any Subsidiary shall
terminate as the result of normal retirement, permanent total disability or
early retirement under the terms of a retirement or pension plan maintained by
the Company and in which such Employee/Optionee is a participant, such
Employee/Optionee may, at any time within ninety (90) days after such
termination of employment, exercise such Employee/Optionee's Options to the
extent that the Employee/Optionee was entitled to exercise them on the date of
such termination of employment, unless such Options would expire pursuant to
their terms at an earlier date, in which case such Options shall remain
exercisable only until the earlier expiration date.
(d) DEATH. If an Optionee dies while in the employ or affiliation of the
Company or of a Subsidiary without having fully exercised such Optionee's
Options, such Options may, within one (1) year of the Optionee's death (or
within such shorter period as may be specified in the Option by the Committee),
be exercised by the beneficiary designated pursuant to Paragraph 8(c), or if
there is no such surviving beneficiary, by the person or persons to whom the
Optionee's rights under the Option shall pass by will or by the applicable laws
of descent and distribution to the extent that such deceased Optionee was
entitled to exercise the Options on the date of death, unless such Options would
expire pursuant to their terms at an earlier date, in which case such Options
shall remain exercisable only until the earlier expiration date.
(e) LEAVES OF ABSENCE. An Employee/Optionee who is on a leave of absence
pursuant to the terms of the Company's Administrative Policy No. B-11 "Unpaid
Personal Leave of Absence" or any amended or replacement policy thereof, shall
not, during the period of any such absence be deemed, by virtue of such absence
alone, to have terminated such Employee/Optionee's employment with the Company
or any Subsidiary except as the Committee may otherwise expressly provide.
Except as otherwise determined by the Committee, or unless otherwise required by
applicable law, unless such Employee/Optionee is on a Medical Leave (as
hereinafter defined), all rights which such Employee/Optionee would have had to
exercise Options granted hereunder will be suspended during the period of such
leave of absence. Upon such Employee/ Optionee's return to the Company or any
Subsidiary, all rights to exercise Options shall be restored to the extent such
Options are exercisable at that time. The Committee in its discretion may permit
the exercise, while on a leave of absence, of Options which would otherwise
expire or may defer the expiration date of such Options, but not beyond ten (10)
years from their date of grant. An Employee/Optionee who is on a Medical Leave
shall have all rights to exercise such Employee/Optionee's Options that such
Employee/ Optionee would have had if such Employee/Optionee were not on a
Medical Leave. For purposes of this Paragraph 7(e), "Medical Leave" shall be
defined as a leave of absence for medical reasons which shall begin after
ninety-one (91) consecutive calendar days of total disability leave and shall
remain in effect until the earlier of a release by the attending physician for
the Employee/Optionee to return to work or until the termination of employment.
In the case of incentive stock options which would otherwise cease to be
incentive stock options during a leave of absence by virtue of the operation of
Treasury Regulations Section 1.421(7)(h)(2), the Committee, in its sole
discretion, may permit exercise of the incentive stock option while on such a
leave of absence or may permit conversion of such incentive stock option to a
non-qualified stock option with otherwise identical terms.
8. EXERCISE OF OPTIONS
(a) The Purchase Price shall be paid in full when the Option is exercised.
The Purchase Price may be paid in whole or in part in (i) cash or (ii) whole
shares of Common Stock of the Company evidenced by negotiable certificates,
valued at the Formula Price in effect on the date of exercise; provided,
however, that unless an exception is granted by the Secretary of this
Corporation, shares of Common Stock of the Company acquired through the exercise
of a stock option must have been owned by the Optionee for at least six months
before such shares of Common Stock may be used to pay the Purchase Price. The
Company or any Subsidiary shall be entitled to deduct from other compensation
payable to each Optionee any sums required by federal, state or local tax law to
be withheld with respect to the exercise of an Option but, in the alternative,
may require the Optionee or other person exercising the Option to pay, or the
Optionee or such other persons may pay, such sums to the employer corporation at
the time of such exercise. The Committee shall have the authority in its
discretion to allow withholding on exercise of an Option to be satisfied by
withholding from the shares to be issued upon the exercise of the Option a
number of shares, valued at the
4
<PAGE>
Formula Price in effect on the date of exercise of the Option, equal in value to
the withholding requirement. In allowing such withholding in Common Stock, the
Committee may prescribe such rules as may be required to satisfy Rule 16b-3
under the Exchange Act.
(b) An Optionee shall have no rights as a shareholder of the Company with
respect to any shares for which his or her Option is exercisable until the date
of exercise of such Option and the issuance of a stock certificate for such
shares. No adjustment shall be made for dividends, ordinary or extraordinary or
whether in currency, securities or other property, distributions, or other
rights for which the record date is prior to the date such stock certificate is
issued.
(c) Each Optionee may name a beneficiary or beneficiaries (who may be named
contingently or successively) to whom the right to exercise Options following
the Optionee's death (as provided in Paragraph 7(d)) shall pass. Each
designation will revoke any prior designations by the same Optionee, shall be on
a form prescribed by the Committee, and shall be effective only when filed by
the Optionee in writing with the Committee during the lifetime of the Optionee.
In the absence of any such designation, the right to exercise any unexercised
Options following the death of the Optionee shall pass to the person or persons
to whom the Optionee's rights under the Option pass by will or by the applicable
laws of descent and distribution.
9. CHANGE IN CONTROL
Notwithstanding any provision of Paragraph 7 above to the contrary but
subject to the provisions of Paragraph 4(b) above, any Option granted pursuant
to the Plan shall, in the case of a Change In Control (as hereinafter defined)
of the Company, become fully exercisable as to all shares of Common Stock to
which it relates from and after the date of such Change In Control. For purposes
of this Paragraph 9, the term "Change in Control" shall be deemed to occur upon
any "person" (as defined in Section 13(d) of the Exchange Act), other than the
Company or any Subsidiary or employee benefit plan or trust maintained by the
Company or any Subsidiary, becoming the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of more than 25% of the
Common Stock of the Company outstanding at such time, without the prior approval
of the Board. If the provisions of this Paragraph 9 are limited by the $100,000
limit of Paragraph 4(b) above, the acceleration of exercisability provided under
this Paragraph 9 shall be first applied to those incentive stock options having
the lowest Exercise Price. Any remaining Options which would have become
exercisable but for the $100,000 limit shall become exercisable on the first
date on which they may become exercisable without exceeding the $100,000 limit.
10. LOANS
The Company may, but shall not be obligated to, provide to any Optionee a
loan or guarantee on behalf of any Optionee a loan to facilitate the exercise of
Options on such terms and conditions as agreed to by the Committee.
11. CAPITAL ADJUSTMENTS
The aggregate number of shares of the Company's Common Stock subject to this
Plan, the maximum number of shares as to which Options may be granted to any one
Optionee hereunder, and the number of shares and the Exercise Price shall be
appropriately adjusted, as determined by the Committee in its discretion, for
any increase or decrease in the number of shares of Common Stock which the
Company has issued resulting from any stock split, stock dividend, combination
of shares or any other change, or any exchange for other securities or any
reclassification, reorganization, redesignation, recapitalization, or otherwise.
12. NO EMPLOYMENT OBLIGATION
An Employee/Optionee's employment with the Company or a Subsidiary is not
for any specified term and may be terminated by such Employee/Optionee or by the
Company or a Subsidiary at any time, for any reason, with or without cause.
Nothing in this Plan or in any option agreement pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ of, or affiliation
with, the Company or a Subsidiary nor constitute any promise or commitment by
the Company or a Subsidiary regarding future positions, future work assignments,
future compensation or any other term or condition of employment or affiliation.
5
<PAGE>
13. GOVERNMENT AND STOCK EXCHANGE REGULATIONS
The Company shall not be required to issue any shares upon the exercise of
any Option unless and until the Company has fully complied with any then
applicable requirements by the Securities and Exchange Commission, the
California Corporations Commissioner, or other regulatory agencies having
jurisdiction, and of any exchanges upon which Common Stock of the Company may be
listed.
Upon the exercise of an Option at a time when there is not in effect a
registration statement under the Securities Act of 1933 or a similar statute
(the "Act") relating to the stock issuable upon exercise thereof and available
for delivery a prospectus meeting the requirements of Section 10(a)(3) of said
Act, or if the rules or interpretations of the Securities and Exchange
Commission so require, the stock may be issued only if the holder represents and
warrants in writing to the Company that the shares purchased are being acquired
for investment and not with a view to distribution thereof.
14. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board or the Operating Committee of the Board may at any time suspend or
terminate the Plan and may amend it from time to time in such respects as the
Board or the Operating Committee may deem advisable in order that Options
granted thereunder shall conform to any change in the law, or in any other
respect which the Board or the Operating Committee may deem to be in the best
interests of the Company; provided, however, that no such amendment shall,
without the approval of a majority of the voting power of the capital stock of
the Company present or represented and entitled to vote at a duly constituted
meeting of the stockholders, (i) increase the maximum number of shares for which
Options may be granted under the Plan, except as specified in Paragraph 11, (ii)
change the provisions of Paragraph 6(c) relating to the establishment of the
Exercise Price other than to change the manner of determination the fair market
value of the Company's Common Stock to conform with any then applicable
provisions of the Code or regulations issued thereunder, or (iii) permit the
granting of Options to members of the Committee. No Option may be granted during
any suspension, or after termination of the Plan.
15. NO IMPLIED RIGHTS OR OBLIGATIONS
The Company, in establishing and maintaining this Plan as a voluntary and
unilateral undertaking, expressly disavows the creation of any rights in
Optionees or others claiming entitlements under the Plan or any obligations on
the part of the Company, any Subsidiary or the Committee, except as expressly
provided herein.
16. EMPLOYEES BASED OUTSIDE OF THE UNITED STATES
Notwithstanding any provision of the Plan to the contrary, in order to
foster and promote achievement of the purposes of the Plan or to comply with
provisions of laws or regulations in other countries in which the Company and
its subsidiaries operate or have employees, the Committee, in its sole
discretion, shall have the power and authority to (i) determine which employees
employed outside the United States are eligible to participate in the Plan, (ii)
modify the terms and conditions of any Options granted to employees who are
employed outside the United States and (iii) establish subplans, modified option
exercise procedures and other terms and procedures to the extent such actions
may be necessary or advisable.
17. EFFECTIVE DATE
The effective date of the Plan shall be July 14, 1995.
18. TERMINATION DATE
Unless the Plan shall have been previously terminated by the Board or the
Operating Committee of the Board, the Plan shall terminate on July 31, 1998,
except as to Options theretofore granted and outstanding under the Plan at that
date, and no Option shall be granted after that date.
19. GOVERNING LAW
The Plan and all option agreements shall be construed in accordance with and
governed by the laws of the State of Delaware.
6
<PAGE>
ANNEX II
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1995 Employee
Stock Purchase Plan (the "Plan"). The purpose of the Plan is to secure for the
Company and its stockholders the benefits inherent in the ownership of capital
stock of the Company by employees of the Company and its subsidiaries. The Plan
is intended to provide to all eligible employees of the Company and designated
subsidiaries an opportunity to purchase shares of Class A Common Stock through
payroll deductions. It is intended that the Plan shall qualify under Section
423(b) of the Code.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Company's Employee Stock Purchase Committee
responsible for administering the Plan.
(d) "Company Percent" shall mean the percent of the purchase price
contributed by the Company pursuant to the provisions of Paragraph 11. The
Company Percent shall be from zero percent (0%) to fifteen percent (15%) and
shall initially be five percent (5%) until changed by the Committee.
(e) "Formula Price" shall mean the formula price as defined in the Company's
Certificate of Incorporation.
(f) "Limited Market" shall mean the limited secondary market maintained by
Bull, Inc., a wholly-owned subsidiary of the Company.
(g) "Participant Percent" shall mean the difference between one hundred
percent and the Company Percent.
(h) "Plan Year" shall mean February 1 through January 31 of each year.
(i) "Trustee" shall mean the Trustee for the Plan and shall be either the
Company or its designee.
3. STOCK SUBJECT TO THE PLAN.
The capital stock which may be purchased under the Plan is the Class A
Common Stock, par value $.01 per share (the "Common Stock"), of the Company,
which may be either authorized and unissued shares or issued shares. The Common
Stock purchased by the Trustee for employee stock purchase accounts under the
Plan shall be subject to the terms, conditions and restrictions as set forth in
the Plan, as well as restrictions set forth in the Company's Certificate of
Incorporation. The Company has reserved 1,500,000 shares of Common Stock for
issuance under the Plan.
4. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The Committee shall
have the number of members as determined by the Board with a minimum of three
members. The members of the Committee shall be appointed by and serve at the
discretion of the Board. Each such Committee member shall be a stockholder of
the Company and may be a director. Vacancies occurring in the membership of the
Committee shall be filled by appointment of the Board.
(b) Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion and on behalf of the Company:
(i) to determine and change from time to time the Company Percent;
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<PAGE>
(ii) to prescribe, amend and rescind rules and regulations relating to
the Plan;
(iii) to prescribe forms for carrying out the provisions and purposes of
the Plan;
(iv) to interpret the Plan; and
(v) to make all other determinations deemed necessary or advisable for
the administration of the Plan.
(c) In exercising its authority, the Committee shall have the broadest
possible discretion and the Committee's determinations under the Plan made in
good faith shall be binding and conclusive on participating employees and other
persons claiming entitlements under the Plan. In no event shall a Committee
determination with respect to a particular employee or provision of the Plan be
binding with respect to any other employee (even if similarly situated) nor with
respect to any future determinations regarding the same or other provisions of
the Plan. No member of the Committee shall be liable for any action or
determination in respect thereto, if made in good faith.
(d) The Committee shall maintain written minutes of its proceedings. A
majority of the Committee shall constitute a quorum. The acts of the majority of
the members present at any meeting at which a quorum is present, or acts
approved in writing by all of the members, shall be the acts of the Committee.
5. ELIGIBILITY.
(a) Subject to the terms, provisions and conditions of the Plan, each
employee of the Company or of a participating subsidiary of the Company shall be
eligible to participate in the Plan except for an employee who owns capital
stock having five percent (5%) or more of the total combined voting power or
value of all classes of capital stock of the Company or its subsidiaries. The
subsidiaries whose employees may participate in the Plan shall be designated
from time to time by the Committee. The Committee may also impose additional
eligibility requirements consistent with Section 423(b) of the Code.
(b) An employee shall cease to be eligible to participate in the Plan (i)
upon termination of employment with the Company or with a subsidiary thereof,
whether by death, total disability, retirement or otherwise, (ii) upon a change
in employment status to Leave of Absence pursuant to the terms of the Company's
Administrative Policy No. B-11 "Unpaid Personal Leave of Absence," unless the
participant is on Medical Leave (as hereinafter defined), or (iii) upon transfer
to a subsidiary of the Company designated by the Committee as ineligible for
participation. An employee shall again become eligible to participate in the
Plan as of the date of such person's re-employment by the Company or by a
participating subsidiary of the Company. For purposes of this Paragraph 5(b),
"Medical Leave" shall be defined as a leave of absence for medical reasons which
shall begin after ninety-one (91) consecutive calendar days of total disability
leave and shall remain in effect until the earlier of a release by the attending
physician for the employee to return to work or until the termination of
employment.
(c) No employee shall be entitled to purchase shares of Common Stock with a
fair market value (measured as of its purchase date) of more than twenty-five
thousand dollars ($25,000.00) in any Plan Year pursuant to the Plan and any
other "employee stock purchase plan" (as such term is defined in Section 423(b)
of the Code and regulations issued thereunder) of the Company or any of its
subsidiaries, or at any other rate of purchase that exceeds the rate allowed for
plans qualifying under Section 423(b) of the Code.
6. PARTICIPATION IN THE PLAN.
(a) An eligible employee may enter the Plan at any time prior to its
termination by completing a payroll deduction authorization form and delivering
such form in the manner prescribed by the Committee. The employee's payroll
deduction authorization form shall authorize regular payroll deductions from the
employee's compensation.
(b) The participating employee's payroll deduction authorization form shall
also designate the Company or the Company's designee to be Trustee for
participating employees with respect to all stock certificates for shares
purchased under the Plan. All such stock certificates representing shares
purchased for such
2
<PAGE>
participating employees shall be delivered to and held by the Trustee. The
Trustee will maintain an account for each participating employee showing the
number of shares credited to the participating employee's account. Prior to any
record date established by the Company for any vote of its stockholders, the
Trustee shall distribute to each participant a stock certificate representing
all shares purchased under the Plan and credited to the participating employee's
account and not yet distributed.
(c) A participating employee suffering from financial hardship shall be
eligible to apply to the Committee for an early distribution of such employee's
interest in the Plan. The decision for an early distribution based upon
financial hardship shall be at the sole discretion of the Committee. As soon as
practicable after the approval of an early distribution to an employee based
upon financial hardship, the Trustee shall distribute to the employee all cash
credited to his or her stock purchase account and shall release all shares
credited to his or her stock purchase account.
7. PAYROLL DEDUCTIONS.
(a) Payroll deductions for employees shall be in an amount specified by the
employee in his or her payroll deduction authorization form, but not less than
three percent (3%) nor more than ten percent (10%) of his or her compensation,
expressed as a whole percentage of such compensation. Compensation as used
herein shall be as defined by the Committee; provided, however, it shall include
the regular wages, salary or commissions paid to the employee. Payroll
deductions shall be credited to the stock purchase account to be maintained for
each participating employee.
(b) A participating employee may at any time increase or decrease the amount
of his or her payroll deduction (within the minimum and maximum limits provided
for in Paragraph 7(a) above) by delivering a new payroll deduction authorization
form in the manner prescribed by the Committee. The change shall become
effective as soon as practicable after delivery of the payroll deduction
authorization form.
8. STOCK PURCHASE ACCOUNTS.
(a) Amounts credited to a participating employee's stock purchase account
may not be assigned, transferred, pledged, hypothecated or otherwise disposed of
in any way by a participating employee other than by will or the laws of descent
and distribution and any attempt to do so shall be null and void and without
effect.
(b) No interest will be paid on the amounts credited to a participating
employee's stock purchase account, unless required by applicable law.
9. PURCHASE PRICE OF SHARES.
Unless otherwise determined by the Board of Directors, the purchase price of
each share of Common Stock purchased under the Plan shall be the "Formula Price"
in effect as of the date of purchase.
10. PURCHASE OF SHARES.
(a) Shares will be purchased by the Trustee on the Company's Limited Market
maintained by Bull, Inc., a wholly-owned subsidiary of the Company, or shares
will be issued by the Company from the remaining balance of those shares
reserved for issuance under Paragraph 3 of the Plan.
(b) Stock purchases shall be made on predetermined purchase dates which
shall coincide with the dates that trades are conducted on the Limited Market by
Bull, Inc. If on any purchase date a participating employee has sufficient funds
credited to his or her stock purchase account to pay the Participant Percent of
the purchase price of one or more whole shares of Common Stock, the Trustee
shall then purchase such number of shares at the applicable price per share. The
employee's stock purchase account thereupon shall be charged with the
Participant Percent of the purchase price of such shares. Only whole shares may
be purchased. Any balance remaining in the participating employee's stock
purchase account will remain in such stock purchase account and be treated as
part of the accumulations for the succeeding purchase date.
(c) With respect to both newly issued shares of Common Stock which are
purchased for the account of participating employees under the Plan and shares
so purchased on the Limited Market, a stock certificate will be issued in the
name of the Trustee and held by the Trustee in accordance with Paragraph 6 of
the Plan.
3
<PAGE>
Notwithstanding that such shares are held by the Trustee for participating
employees, each participant shall have all the rights and privileges of a
stockholder with respect to the shares purchased for the participating
employee's account, subject to the provisions of Paragraphs 6 and 10(d).
(d) Shares held in the Plan by the Trustee may not be sold, transferred,
pledged as collateral or in any way encumbered for so long as the shares are
held by the Trustee.
11. COMPANY CONTRIBUTIONS.
The Company shall contribute the Company Percent of the purchase price of
each share of Common Stock purchased under the Plan. On each purchase date, the
Company will, through the Trustee and under the direction of the Committee, pay
the Company Percent of the purchase price of each share purchased by the
Trustee, whether purchased on the Limited Market or as a newly issued share. No
contribution shall be made by the Company into an employee's stock purchase
account.
12. TERMINATION OF PARTICIPATION AND RE-ENTRY.
(a) An employee may terminate participation in the Plan at any time by
completing a payroll deduction authorization form and delivering such form in
the manner prescribed by the Committee. Such employee's participation in the
Plan shall terminate as soon as practicable upon receipt of the payroll
deduction authorization form by the Company. An employee who terminates
participation in the Plan pursuant to this Paragraph 12(a) shall not be eligible
to reenter the Plan until the first business day of the following Plan Year.
(b) In the event that a participating employee ceases to be eligible to
participate in the Plan as described in Paragraph 5(b) or terminates
participation in the Plan or the Plan terminates or is terminated, any cash
credited to such employee's stock purchase account will be distributed to the
participating employee, or in the event of the death of the participating
employee, to his or her estate. Any shares held by the Trustee for an employee
whose employment with the Company or a subsidiary thereof is terminated will be
delivered by the Trustee to the Company for repurchase pursuant to the
provisions of Article Fourth of the Company's Certificate of Incorporation.
13. GOVERNMENT AND STOCK EXCHANGE REGULATIONS.
The Company shall not be required to sell or deliver any shares of Common
Stock under the Plan unless and until the Company has fully complied with any
then applicable requirements of the Securities and Exchange Commission, state
securities commissions, or other regulatory agencies having jurisdiction, and of
any exchanges upon which Common Stock of the Company may be listed.
14. APPLICATION OF FUNDS.
All funds received or held by the Company or by any subsidiary under the
Plan as a result of the sale of newly issued shares of Common Stock under the
Plan may be used for any corporate purpose.
15. RECAPITALIZATION.
In the event any change, such as a stock split, reverse stock split, or
stock dividend, is made in the Company's capitalization which results in an
adjustment in the number of shares of capital stock outstanding without receipt
of consideration by the Company, appropriate adjustment as determined by the
Committee in its discretion, shall be made in the number of shares reserved for
issuance as provided in Paragraph 3 of the Plan and in the number of shares
allocated to an employee under the Plan.
16. WITHHOLDING.
The Company shall be entitled to make appropriate arrangements to comply
with any withholding requirements imposed by federal, state or local law with
respect to the purchase or disposition of shares of Common Stock under the Plan,
including, without limitation, payroll withholding or withholding from proceeds
of a disposition of shares of Common Stock acquired under the Plan.
17. NO EMPLOYMENT OBLIGATION
An employee's employment with the Company or a subsidiary is not for any
specified term and may be terminated by such employee or by the Company or a
subsidiary at any time, for any reason, with or without
4
<PAGE>
cause. Nothing in this Plan shall confer upon any employee any right to continue
in the employ of, or affiliation with, the Company or a subsidiary nor
constitute any promise or commitment by the Company or a subsidiary regarding
future positions, future work assignments, future compensation or any other term
or condition of employment or affiliation.
18. AMENDMENT OF THE PLAN.
The Board of Directors or Operating Committee of the Board of Directors of
the Company may at any time suspend or terminate the Plan and may at any time or
from time to time amend the Plan in such respects as the Board or the Operating
Committee may deem advisable in order that the Plan shall conform to any change
in the law, or in any other respect which the Board or the Operating Committee
may deem to be in the best interest of the Company; provided, however, no such
amendment of the Plan shall, without the approval of a majority of the voting
power of the capital stock of the Company present or represented and entitled to
vote at a duly constituted meeting of stockholders, (a) increase the maximum
number of shares available for purchase under the Plan, except as provided in
Paragraph 15 or (b) deny a participating employee the right to withdraw from the
Plan and obtain the balance of any monies held in the participating employee's
stock purchase account.
19. NO IMPLIED RIGHTS OR OBLIGATIONS
The Company, in establishing and maintaining this Plan as a voluntary and
unilateral undertaking, expressly disavows the creation of any rights in
participating employees or others claiming entitlements under the Plan or any
obligations on the part of the Company, any subsidiary, the Trustee or the
Committee, except as expressly provided herein.
20. EMPLOYEES BASED OUTSIDE OF THE UNITED STATES
Notwithstanding any provisions of the Plan to the contrary, in order to
foster and promote achievement of the purposes of the Plan or to comply with
provisions of laws or regulations in other countries in which the Company or a
participating subsidiary operates or has employees, the Committee, in its sole
discretion, shall have the power and authority to modify the eligibility for,
and terms and conditions of, participation in the Plan by employees employed
outside the United States and to establish subplans, modified Plan procedures
and other terms and procedures consistent with Section 423(b) of the Code to the
extent such actions are deemed necessary or desirable.
21. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
(a) The effective date of the Plan shall be July 14, 1995.
(b) Unless the Plan shall have been previously terminated by the Board, the
Plan shall terminate on July 31, 1998. In any case, termination shall be deemed
to be effective as of the close of business on the day of termination.
22. GOVERNING LAW
The Plan shall be construed in accordance with and governed by the laws of
the State of Delaware.
5
<PAGE>
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- JULY 14, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.R. BEYSTER, J.D. HEIPT and D.E. SCOTT, and
each of them, with full power of substitution, as proxies to represent the
undersigned and to vote all of the shares of Class A Common Stock and/or Class B
Common Stock the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Science Applications International Corporation (the "Company")
to be held in the Grand Ballroom of the Ritz-Carlton Hotel, 1700 Tysons
Boulevard, McLean, Virginia, on Friday, July 14, 1995, at 10:00 A.M. (local
time), and at any adjournment, postponement or continuation thereof, as
indicated below.
This proxy will be voted as directed. If this proxy card is properly signed
and returned but no directions are specified, this proxy will be voted FOR the
election of directors so as to elect the maximum number of the Board of
Directors' nominees that may be elected by cumulative voting and FOR Proposals
2, 3 and 4. This proxy card, if properly executed and delivered in a timely
manner, will revoke all prior proxies.
1. Election of eight Class II Directors.
/ / FOR all nominees listed below (EXCEPT AS MARKED TO THE CONTRARY
BELOW)
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through such nominee's name in
the following list:
A.L. Alm, B.R. Inman, W.M. Layson, E.A. Straker, M.E.
Trout, J.H. Warner, Jr., J.B. Wiesler and A.T. Young
/ / WITHHOLD AUTHORITY to vote for ALL nominees listed above.
2. Proposal to approve the 1995 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve the 1995 Employee Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve the appointment of Price Waterhouse LLP as
independent accountants for the fiscal year ending January 31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, on any other matters properly coming before the
meeting and any adjournment, postponement or continuation thereof.
<PAGE>
PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE.
Dated __________, 1995
----------------------------------------
Signature
----------------------------------------
Signature
Please sign EXACTLY as name or names
appear hereon. When signing as attorney,
executor, trustee, administrator or
guardian, please give your full title.
If a corporate name, please sign in full
corporate name by president or other
authorized officer. If partnership,
please sign in partnership name by
authorized person.
<PAGE>
VOTING INSTRUCTION CARD FOR ANNUAL MEETING OF STOCKHOLDERS -- JULY 14, 1995
THIS VOTING INSTRUCTION CARD IS SOLICITED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE BOARD OF DIRECTORS.
The undersigned hereby instructs the Trustee, State Street Bank and Trust
Company and any successor, under the Cash or Deferred Arrangement, Employee
Stock Ownership Plan ("ESOP") and Profit Sharing Retirement Plan of Science
Applications International Corporation (the "Company") and the Syntonic
Technology, Inc. Retirement Savings Plan (collectively, the "Plans") to vote all
of the shares of Class A Common Stock and/or Class B Common Stock held for the
undersigned's account in each of the Plans at the Annual Meeting of Stockholders
of the Company to be held in the Grand Ballroom of the Ritz-Carlton Hotel, 1700
Tysons Boulevard, McLean, Virginia, on Friday, July 14, 1995, at 10:00 A.M.
(local time), and at any adjournment, postponement or continuation thereof, as
indicated below.
Subject to certain restrictions imposed upon the Trustee by the fiduciary
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the shares of Class A Common Stock and/or Class B Common Stock to
which this voting instruction card relates will be voted as directed. If this
card is signed and returned but no instructions are indicated with respect to a
particular item, the vote of such shares as to any such item will be deemed to
have been directed, and such shares will be voted FOR the election of directors
so as to elect the maximum number of the Board of Directors' nominees that may
be elected by cumulative voting and FOR Proposals 2, 3 and 4. Subject to the
fiduciary provisions of ERISA, all allocated shares of Class A Common Stock
and/or Class B Common Stock held in the Plans (other than shares held in the
TRASOP accounts of participants in the ESOP) as to which no voting instruction
cards are received, together with all shares held in the Plans which have not
yet been allocated to the accounts of participants, will be voted, on a
plan-by-plan basis, in the same proportion as the shares held in each Plan for
which voting instructions have been received are voted. Shares held in the
TRASOP accounts of participants in the ESOP as to which no voting instruction
cards are received will not be voted by the Trustee. This voting instruction
card, if properly executed and delivered, will revoke all prior voting
instruction cards.
1. Election of eight Class II Directors.
/ / FOR all nominees listed below (EXCEPT AS MARKED TO THE CONTRARY
BELOW)
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through such nominee's name in
the following list:
A.L. Alm, B.R. Inman, W.M. Layson, E.A. Straker, M.E.
Trout, J.H. Warner, Jr., J.B. Wiesler and A.T. Young
/ / WITHHOLD AUTHORITY to vote for ALL nominees listed
above.
<PAGE>
2. Proposal to approve the 1995 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve the 1995 Employee Stock Purchase Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve the appointment of Price Waterhouse LLP as
independent accountants for the fiscal year ending January 31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, on any other matters properly coming before the
meeting and any adjournment, postponement or continuation thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE. IN ORDER TO BE COUNTED, VOTING INSTRUCTION CARDS MUST BE
RECEIVED BY THE PROXY COUNTER BY JULY 10, 1995.
Dated __________, 1995
----------------------------------------
Signature
Please sign EXACTLY as name or names
appear hereon. When signing as attorney,
executor, trustee, administrator or
guardian, please give your full title.
