<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1995
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 33-53177
POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT NO. 33-61022
POST-EFFECTIVE AMENDMENT NO. 3 TO REGISTRATION STATEMENT NO. 33-47244
POST-EFFECTIVE AMENDMENT NO. 4 TO REGISTRATION STATEMENT NO. 33-40079
POST-EFFECTIVE AMENDMENT NO. 5 TO REGISTRATION STATEMENT NO. 33-34375
POST-EFFECTIVE AMENDMENT NO. 8 TO REGISTRATION STATEMENT NO. 33-21145
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3630868
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
10260 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 546-6000
(Address, including zip code, and telephone number,
including area code of Registrant's principal executive offices)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
DR. LORENZ A. KULL DOUGLAS E. SCOTT, ESQ.
President and Chief Operating Officer Corporate Vice President and General Counsel
Science Applications International Corporation Science Applications International Corporation
10260 Campus Point Drive 10260 Campus Point Drive
San Diego, California 92121 San Diego, California 92121
(619) 546-6000 (619) 546-6000
</TABLE>
(name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALES TO THE PUBLIC:
FROM TIME TO TIME AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED* BE REGISTERED PER UNIT** OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock,
par value $.01 per share................... 14,745,402 shs. $16.41 $241,972,047 $83,439.22
<FN>
*This Registration Statement also relates to an indeterminate number of
interests in the Science Applications International Corporation Cash or
Deferred Arrangement, the Science Applications International Corporation 1993
Employee Stock Purchase Plan, the Science Applications International
Corporation 1995 Employee Stock Purchase Plan (if such plan is approved at the
1995 Annual Meeting of Stockholders), the Science Applications International
Corporation Stock Compensation Plan and the Science Applications International
Corporation Management Stock Compensation Plan pursuant to which certain of
the shares of Class A Common Stock offered pursuant to the Prospectus included
as part of this Registration Statement may be issued and delivered or sold.
**Estimated solely for the purpose of calculating the registration fee.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS
CONTAINED HEREIN WILL BE USED IN CONNECTION WITH THE SECURITIES COVERED BY THIS
REGISTRATION STATEMENT AND REGISTRATION STATEMENTS NOS. 33-53177, 33-61022,
33-47244, 33-40079, 33-34375 AND 33-21145.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) OF REGULATION C AND ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... The Company; Government Contracts; Securities Offered
by the Prospectus
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page; Market Information
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Securities Offered by the Prospectus
8. Plan of Distribution................................. Outside Front Cover Page; Securities Offered by the
Prospectus; Market Information
9. Description of Securities to be Registered........... Securities Offered by the Prospectus; Description of
Capital Stock
10. Interest of Named Experts and Counsel................ Legal Opinion; Experts
11. Material Changes..................................... Not Applicable
12. Incorporation of Certain Information by Reference.... Information Incorporated by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS (LOGO)
34,000,000 SHARES OF CLASS A COMMON STOCK
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
Of the 34,000,000 shares of Class A Common Stock, par value $.01 per share,
of the Company (the "Class A Common Stock") offered hereby, 33,773,500 shares
may be offered and sold by the Company and 226,500 shares may be offered and
sold by certain directors and directors emeritus of the Company (the "Selling
Stockholders"). See "Securities Offered by the Prospectus." The Company will not
receive any portion of the net proceeds from the sale of shares by the Selling
Stockholders.
The 33,773,500 shares of Class A Common Stock offered by the Company are
anticipated to be offered as follows: (i) 1,156,492 shares may be offered and
sold by the Company (including shares sold by stockholders through the limited
market maintained by Bull, Inc. (the "Limited Market"), the sale of which may be
attributed to the Company) to present and future employees, consultants and
directors and to trustees or agents for the benefit of employees of certain
subsidiaries of the Company under their retirement plans.; (ii) 1,250,000 shares
may be issued and delivered to a trustee for the benefit of employees under the
Company's Employee Stock Ownership Plan; (iii) 1,750,000 shares may be issued
and delivered to a trustee for the benefit of employees under the Company's Cash
or Deferred Arrangement; (iv) 1,000,000 shares may be awarded to employees and
directors under the Company's 1984 Bonus Compensation Plan; (v) 600,000 shares
may be issued and delivered to a trustee for the benefit of employees under the
Company's Stock Compensation Plan and Management Stock Compensation Plan; (vi)
85,000 shares may be offered and sold to a trustee or agent for the benefit of
employees under the Company's 1993 Employee Stock Purchase Plan; (vii)
14,432,008 shares may be issued upon the exercise of options granted and
available to be granted under the Company's 1982 and 1992 stock option plans;
(viii) 1,500,000 shares may be offered and sold to a trustee or agent for the
benefit of employees under the Company's 1995 Employee Stock Purchase Plan, if
such plan is approved at the Company's 1995 Annual Meeting of Stockholders; and
(ix) 12,000,000 shares may be issued upon the exercise of options available to
be granted under the Company's 1995 Stock Option Plan, if such plan is approved
at the Company's 1995 Annual Meeting of Stockholders. The foregoing allocation
of the total shares offered by the Company represents the Company's current
anticipated use of such shares and is provided for illustrative purposes only.
The actual number of shares offered and sold by the Company under each category
may exceed or be less than the indicated number. All of the shares of Class A
Common Stock offered hereby will be subject to certain restrictions (including
restrictions on their transferability) set forth in the Company's Certificate of
Incorporation (the "Certificate of Incorporation") and may be subject to certain
other contingencies. See "Securities Offered by the Prospectus," "Employee
Benefit Plans" and "Description of Capital Stock -- Common Stock -- Restrictions
on Class A Common Stock." The Selling Stockholders and all other stockholders
(other than the Company and the Retirement Plans, as defined below) will pay a
commission to Bull, Inc., a wholly-owned subsidiary of the Company, equal to two
percent of the proceeds from the sale of shares of Class A Common Stock sold by
them in the Limited Market. Bull, Inc. is a registered broker-dealer whose
business is limited to effecting purchases and sales of the Company's
securities. See "Market Information -- The Limited Market."
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------
The purchase price of the shares of Class A Common Stock offered hereby,
other than those shares issuable upon exercise of options or awarded under the
Company's 1984 Bonus Compensation Plan, the Management Stock Compensation Plan
or the Stock Compensation Plan, will be their fair market value determined
pursuant to the formula and valuation process described below (the "Formula
Price"). The Formula Price is reviewed four times each year, generally in
conjunction with Board of Directors meetings which are currently scheduled for
January, April, July and October. The price applicable to shares of Class B
Common Stock, par value $.05 per share, of the Company (the "Class B Common
Stock") will be equal to five times the Formula Price. The following formula
(the "Formula") is used in determining the Formula Price: the price per share is
equal to the sum of (i) a fraction, the numerator of which is the stockholders'
equity of the Company at the end of the fiscal quarter immediately preceding the
date on which a price revision is to occur ("E") and the denominator of which is
the number of outstanding common shares and common share equivalents at the end
of that fiscal quarter ("W1"), and (ii) a fraction, the numerator of which is
5.66 multiplied by the market factor ("M" or "Market Factor"), multiplied by the
earnings of the Company for the four fiscal quarters immediately preceding the
price revision ("P"), and the denominator of which is the weighted average
number of outstanding common shares and common share equivalents for those four
fiscal quarters, as used by the Company in computing primary earnings per share
("W"). The number of outstanding common shares and common share equivalents
described above assumes the conversion of each share of Class B Common Stock
into five shares of Class A Common Stock. The 5.66 multiplier is a constant
which was first included in the Formula in March 1976. The Market Factor is a
numerical factor which yields a fair market value for the Class A Common Stock
and Class B Common Stock by reflecting existing securities market conditions
relevant to the valuation of such stock. The Market Factor is generally reviewed
quarterly by the Board of Directors in conjunction with an appraisal which is
prepared by an independent appraisal firm for the committee administering the
Company's qualified retirement plans (the "Committee") and which is relied upon
by the Committee and the Board of Directors. The Board of Directors believes
that the valuation process and Formula result in a fair market value for the
Class A Common Stock within a broad range of financial criteria. See "Market
Information -- Price Range of Class A Common Stock and Class B Common Stock."
Since January 14, 1995, the Market Factor has been 1.5. Prior thereto and since
July 9, 1994, the Market Factor was 1.45. The Formula Price of the Class A
Common Stock, expressed as an equation, is as follows:
<TABLE>
<S> <C> <C> <C> <C>
E 5.66MP
FORMULA PRICE = --- + -------
W(1) W
</TABLE>
On April 14, 1995, the Formula Price was $16.41, and the price for the Class
B Common Stock was $82.05.
THE DATE OF THIS PROSPECTUS IS APRIL , 1995
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC"
or "Commission"), Washington, D.C., a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and the exhibits thereto. For further
information, reference is made to such Registration Statement and exhibits.
Statements contained in this Prospectus as to any contract, plan or other
document are not necessarily complete and in each instance reference is made to
the copy of such contract, plan or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement and the exhibits thereto
may be inspected without charge at the offices of the Commission listed below,
and copies of all or any part thereof may be obtained from the Commission upon
payment of prescribed fees.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
requirements of the Exchange Act, the Company files with the Commission reports,
proxy statements and other information which can be inspected and copied at the
offices of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549; Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511; and 75 Park Place, New York, New York 10007. Copies of such
materials can be obtained at prescribed rates from the Commission's Public
Reference Section, Washington, D.C. 20549.
INFORMATION INCORPORATED BY REFERENCE
The following documents, each of which has been filed by the Company with
the Commission pursuant to the Exchange Act, are incorporated herein by
reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995 (the "1995 10-K"); and
(ii) the Annual Reports of the Company's 1993 Employee Stock Purchase
Plan for the plan year ended January 31, 1995 and the Company's Cash or
Deferred Arrangement for the plan year ended December 31, 1994, which are
filed as exhibits to the 1995 10-K.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated herein by reference.
The Company undertakes to provide, without charge, to any person to whom a
copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any document incorporated by reference into this Prospectus,
without exhibits (unless such exhibits are incorporated by reference into such
documents). Requests for such copies should be directed to: Science Applications
International Corporation, 10260 Campus Point Drive, San Diego, California
92121, Attention: Corporate Secretary (telephone (619) 535-7323).
THE COMPANY
The Company provides diversified professional and technical services
("Technical Services") and designs, develops and manufactures high-technology
products ("Products"). The Company's Technical Services and Products are
primarily sold to departments and agencies of the U.S. Government, including the
Department of Defense ("DOD"), Department of Energy ("DOE"), Department of
Transportation ("DOT"), Department of Veterans Affairs ("VA"), Environmental
Protection Agency ("EPA") and National Aeronautics and Space Administration
("NASA"). Revenues generated from
2
<PAGE>
the sale of Technical Services and Products to the U.S. Government as a prime
contractor or subcontractor accounted for 86%, 88% and 88% of revenues in fiscal
years 1995, 1994 and 1993, respectively. The balance of the Company's revenues
are attributable to the sales of Technical Services and Products to foreign,
state and local governments, commercial customers and others.
The percentage of revenues attributable to Technical Services and Products
has remained relatively constant at approximately 91% and 9%, respectively, for
fiscal year 1995 and 92% and 8%, respectively, for fiscal years 1994 and 1993.
Within Technical Services, revenues are further classified between "National
Security," "Environment," "Energy" and "Other Technical Services," the last of
which includes the Company's health, space, transportation and commercial
information technology business areas. The percentage of Technical Services
revenues attributable to National Security-related work has declined gradually
to 46% of total revenues for fiscal year 1995. For fiscal year 1995, the
Environment, Energy and Other Technical Services business areas accounted for
14%, 9% and 22%, respectively, of total revenues.
The Company's principal executive offices are located at 10260 Campus Point
Drive, San Diego, California 92121, telephone (619) 546-6000. As used in this
Prospectus, all references to the Company include, unless the context indicates
otherwise, Science Applications International Corporation and its predecessor
and subsidiary corporations.
GOVERNMENT CONTRACTS
Many of the U.S. Government programs in which the Company participates as a
contractor or subcontractor may extend for several years; however, such programs
are normally funded on an annual basis. All U.S. Government contracts and
subcontracts may be modified, curtailed or terminated at the convenience of the
government if program requirements or budgetary constraints change. In the event
that a contract is terminated for convenience, the Company would be reimbursed
for its allowable costs through the date of termination and would be paid a
proportionate amount of the stipulated profit or fee attributable to the work
actually performed.
Termination or curtailment of major programs or contracts of the Company
could have a material adverse effect on the results of the Company's operations.
Although such contract and program terminations have not had a material adverse
effect on the Company in the past, no assurance can be given that curtailments
or terminations of U.S. Government programs or contracts will not have a
material adverse effect on the Company in the future.
The Company's business with the U.S. Government and other customers is
generally performed under cost-reimbursement, time-and-materials, fixed-price
level-of-effort or firm fixed-price contracts. Under cost-reimbursement
contracts, the customer reimburses the Company for its direct costs and
allocable indirect costs, plus a fixed fee or incentive fee. Under
time-and-materials contracts, the Company is paid for labor hours at negotiated,
fixed hourly rates and reimbursed for other allowable direct costs at actual
costs plus allocable indirect costs. Under fixed-price level-of-effort
contracts, the customer pays the Company for the actual labor hours provided to
the customer at negotiated hourly rates. Under firm fixed-price contracts, the
Company is required to provide stipulated products, systems or services for a
fixed price. Because the Company assumes the risk of performing a firm
fixed-price contract at the stipulated price, the failure to accurately estimate
ultimate costs or to control costs during performance of the work could result,
and in some instances has resulted, in losses.
During the fiscal years ended January 31, 1995, 1994 and 1993, approximately
64%, 65% and 62%, respectively, of Technical Services revenues were derived from
cost-reimbursement type contracts and 13%, 12% and 16%, respectively, of the
Technical Services revenues were from firm fixed-price type contracts with the
balance from time-and-materials and fixed-price level-of-effort type contracts.
In contrast, the majority of Products revenues in these three years were derived
from firm fixed-price type contracts.
3
<PAGE>
Any costs incurred by the Company prior to the execution of a contract or
contract amendment are incurred at the Company's risk, and it is possible that
such costs will not be reimbursed by the customer. Unbilled receivables in this
category which were included in the Technical Services revenues, exclusive of
related fees, at January 31, 1995 were $13,393,000. Unbilled receivables in this
category which were included in the Products revenues, exclusive of related
fees, at January 31, 1995 were $383,000. Although no assurance can be given that
the contracts or contract amendments will be received or that the related costs
will be recovered, the Company expects to recover substantially all such costs.
Contract costs for services or products supplied to the U.S. Government,
including allocated indirect costs, are subject to audit and adjustments by
negotiations between the Company and U.S. Government representatives. The
majority of the Company's indirect contract costs have been agreed upon through
the fiscal year ended January 31, 1991 and substantially all of the Company's
indirect costs have been agreed upon through the fiscal year ended January 31,
1990. Contract revenues for subsequent years have been recorded in amounts which
are expected to be realized upon final settlement. However, no assurance can be
given that audits and adjustments for subsequent years will not result in
decreased revenues or profits for those years.
On February 15, 1994, the Company was served with search warrants and a
subpoena for documents and records associated with the performance by the SAIT
operating unit of the Company under three contracts with the DOD. The search
warrants and the subpoena state that the U.S. Government is seeking evidence
regarding the making of false statements and false claims to the DOD, as well as
conspiracy to commit such offenses. The search warrants and subpoena appear to
be based upon allegations contained in a civil complaint that had been filed
under seal on March 13, 1993 by an employee of the Company's SAIT operating
unit. The complaint was filed in the U.S. District Court for the Southern
District of California and sought damages on behalf of the U.S. Government under
the Federal False Claims Act. On August 1, 1994, the Department of Justice on
behalf of the U.S. Government announced its intention to intervene in the case.
Based on the Company's motion, on November 8, 1994, the District Court dismissed
the employee who had originally filed the complaint from the lawsuit, leaving
only the U.S. Government and the Company as parties. The employee has appealed
the District Court's order to the U.S. Court of Appeals for the Ninth Circuit.
The Company has engaged in a series of presentations and submissions with the
Department of Justice in which the Company responded to issues raised by the
Department of Justice. At this stage of the proceedings, the Company is unable
to assess the impact, if any, of this investigation and lawsuit on its
consolidated financial position, results of operations or ability to conduct
business.
The Company is from time to time subject to certain other U.S. Government
inquiries and investigations of its business practices. The Company does not
anticipate any action as a result of such inquiries and investigations which
would have a material adverse effect on its consolidated financial position or
results of operations or its ability to conduct business.
SECURITIES OFFERED BY THE PROSPECTUS
CLASS A COMMON STOCK OFFERED BY THE COMPANY
The shares of Class A Common Stock offered by the Company may be offered
directly or contingently to present and potential employees, consultants and
directors of the Company or pursuant to the employee benefit plans of the
Company or its subsidiaries as described below. The Company believes that its
success is principally dependent upon the abilities of its employees,
consultants and directors. Therefore, since its inception, the Company has
pursued a policy of offering such persons an opportunity to make an equity
investment in the Company as an inducement to such persons to become or remain
employed by or affiliated with the Company.
4
<PAGE>
DIRECT AND CONTINGENT SALES TO EMPLOYEES, CONSULTANTS, DIRECTORS AND CERTAIN
SUBSIDIARY RETIREMENT PLANS
At the discretion of the Board of Directors or the Operating Committee of
the Board of Directors (the "Operating Committee"), employees, directors and
consultants may be offered an opportunity to purchase a specified number of the
shares of Class A Common Stock offered hereby in the Limited Market. All such
direct and contingent sales to employees, directors and consultants are effected
through the Limited Market and may be attributed to the Company. Pursuant to the
Certificate of Incorporation, all shares of Class A Common Stock offered by the
Company, directly or contingently, to its employees, consultants or directors
are subject to a right of first refusal and a right of repurchase upon
termination of employment or affiliation. See "Description of Capital Stock --
Common Stock -- Restrictions on Class A Common Stock." In addition, the trustees
of certain retirement plans of subsidiaries of the Company may purchase shares
in the Limited Market on behalf of plan participants, which sales may be
attributable to the Company.
CASH OR DEFERRED ARRANGEMENT
The Company maintains a Cash or Deferred Arrangement (the "CODA") which is
intended to be qualified under Sections 401(a) and (k) of the Internal Revenue
Code of 1986, as amended (the "Code"). Generally, all employees are eligible to
participate, except for employees of groups or units designated as ineligible.
The CODA permits a participant to elect to defer, for federal income tax
purposes, a portion of his or her annual compensation and to have such amount
contributed directly by the Company to the CODA for his or her benefit. The
Company may, but is not obligated to, make a matching contribution for the
benefit of those participants who have elected to defer a portion of their
compensation. The amount of the matching contribution currently is equal to 30%
of the first $2,000 and 15% of amounts above $2,000 which participants have
elected to defer in that year. No matching contribution is provided on amounts
deferred in excess of 10% of a participant's compensation. Further, employees of
certain participating groups or units have been designated as ineligible to
receive a matching contribution. The Company may also make additional
contributions in order to comply with Section 401(k) of the Code. The Company's
contributions to the CODA are made in cash unless the Board of Directors
determines to make the contributions in shares of Class A Common Stock or some
other form. Each participant is at all times 100% vested in amounts deferred to
his or her CODA account. Effective January 1, 1995, the Company's matching
contribution to employees hired after such date vest in accordance with a
vesting schedule and other vesting rules set forth in the CODA, while the
Company's matching contributions for existing employees remain fully vested.
Benefits are payable to a participant in cash within certain specified time
periods following such participant's retirement, permanent disability, death or
other termination of employment. See "Employee Benefit Plans -- CODA."
EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an employee stock ownership plan (the "Employee Stock
Ownership Plan") which is a stock bonus retirement plan intended to be qualified
under Section 401(a) of the Code. Generally, employees who have attained the age
of 21, completed 12 months of employment and completed 850 hours of service with
the Company during one of the applicable 12-month computational periods are
eligible to participate as of the next semi-annual entry date, except employees
of groups or units designated as ineligible. Interests of participants in the
Employee Stock Ownership Plan vest in accordance with a vesting schedule and
other vesting rules set forth in the Plan. Each participant, however, is at all
times 100% vested in any amounts transferred from the CODA. Benefits are
generally payable to a participant in cash, unless the participant elects,
subject to requirements and limitations set forth in the Employee Stock
Ownership Plan, to receive a distribution in shares of stock, and are payable
within certain specified time periods following such participant's retirement,
permanent disability, death or other termination of employment. The amount of
the Company's annual contribution to the Employee Stock Ownership Plan is
determined by, and within the discretion of, the Board of Directors and may be
in the form of cash or Class A Common Stock. Pursuant to the Employee Stock
Ownership Plan and the Certificate of Incorporation, any shares of Class A
5
<PAGE>
Common Stock distributed out of the Employee Stock Ownership Plan will be
subject to a right of first refusal on behalf of the Company and the Employee
Stock Ownership Plan, but will not be subject to the Company's right of
repurchase upon termination of employment or affiliation. See "Employee Benefit
Plans -- Employee Stock Ownership Plan" and "Description of Capital Stock --
Common Stock -- Restrictions on Class A Common Stock."
BONUS COMPENSATION PLAN
The Company maintains a bonus compensation plan (the "Bonus Compensation
Plan") which provides for the payment of bonuses in cash and/or shares of Class
A Common Stock to officers, directors and employees. Awards of shares of Class A
Common Stock are distributed during each fiscal year and may be subject to
forfeiture, in whole or in part, in the event of the termination of the
recipient's employment or affiliation with the Company prior to the expiration
of certain vesting periods as determined by the committee administering the
Plan. Pursuant to the Certificate of Incorporation, all shares of Class A Common
Stock awarded pursuant to the Bonus Compensation Plan are subject to the
Company's right of first refusal and the Company's right of repurchase upon
termination of employment or affiliation. See "Employee Benefit Plans -- Bonus
Compensation Plan" and "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock."
STOCK COMPENSATION PLANS
On April 9, 1994, the Company adopted the Stock Compensation Plan ("Stock
Compensation Plan") and the Management Stock Compensation Plan ("Management
Stock Compensation Plan"), together referred to as the "Stock Compensation
Plans." The Stock Compensation Plans provide for awards of Share Units to
eligible employees of the Company, which Share Units generally correspond to
shares of Class A Common Stock which are held in a trust for the benefit of
participants in the Stock Compensation Plans, but which are subject to claims of
creditors of the Company in the event of the bankruptcy or insolvency of the
Company. Awards under the Stock Compensation Plans are subject to forfeiture, in
whole or in part, in the event of termination of the recipient's employment with
the Company, commencement of a leave of absence from the Company (other than for
disability, qualified military leave or qualified family medical leave) or
conversion to consulting employee status prior to the expiration of applicable
vesting periods as determined by the committee administering the Stock
Compensation Plans. Pursuant to the Certificate of Incorporation, all shares of
Class A Common Stock distributed from the trust associated with the Stock
Compensation Plans will be subject to the Company's right of first refusal and
the Company's right of repurchase upon termination of employment or affiliation.
See "Employee Benefit Plans -- Stock Compensation Plans" and "Description of
Capital Stock -- Common Stock -- Restrictions on Class A Common Stock."
EMPLOYEE STOCK PURCHASE PLANS
The Company maintains the 1993 Employee Stock Purchase Plan (the "Stock
Purchase Plan") for the benefit of substantially all of its employees. The Stock
Purchase Plan provides for the purchase of Class A Common Stock through payroll
deductions by participating employees and is intended to qualify under Section
423(b) of the Code. Participants contribute 95% of the purchase price of the
Class A Common Stock and the Company contributes the remaining five percent. All
shares purchased pursuant to the Stock Purchase Plan will be distributed within
90 days after the end of the plan year in which they were purchased and,
pursuant to the Certificate of Incorporation, will be subject to the Company's
right of first refusal and the Company's right of repurchase upon termination of
employment or affiliation. The Stock Purchase Plan will expire on July 31, 1995.
At the Company's 1995 Annual Meeting of Stockholders, stockholders will be asked
to approve a new employee stock purchase plan (the "1995 Employee Stock Purchase
Plan"), the terms of which will be substantially the same as those currently in
effect with respect to the Stock Purchase Plan, except that pursuant to the 1995
Employee Stock Purchase Plan, the Company contribution to the purchase price may
be from 0% to 15% of the purchase price, as determined by the Company from time
to time, and distribution of shares of Class A Common Stock acquired under the
1995 Employee Stock Purchase Plan will be made prior to any record date
established by the Company for a stockholder vote. If the 1995 Employee Stock
Purchase Plan is approved by the stockholders, up to 1,500,000 shares of Class A
Common Stock
6
<PAGE>
offered hereby may be sold pursuant thereto. See "Employee Benefit Plans --
Employee Stock Purchase Plans" and "Description of Capital Stock -- Common Stock
- -- Restrictions on Class A Common Stock."
STOCK OPTION PLANS
Pursuant to the Company's 1992 Stock Option Plan, the Company grants stock
options to certain of its employees, consultants and directors. Although the
Company's 1982 Stock Option Plan terminated on June 10, 1992 and no additional
stock options can be granted under that Plan, certain stock options remain
outstanding. Stock options under the 1992 Stock Option Plan may be granted
contingent upon an employee or consultant obtaining a certain level of contract
awards for the Company within a specified period or upon other performance
criteria and, in many cases, a requirement that such individual also purchase a
specified number of shares of Class A Common Stock in the Limited Market at the
prevailing Formula Price. Pursuant to the Certificate of Incorporation, all
shares of Class A Common Stock issuable upon the exercise of such stock options
will be subject to the Company's right of first refusal and the Company's right
of repurchase upon termination of employment or affiliation. At the Company's
1995 Annual Meeting of Stockholders, stockholders will be asked to approve a new
stock option plan (the "1995 Stock Option Plan"), the terms of which will be
similar to those of the 1992 Stock Option Plan, except that the 1995 Stock
Option Plan will authorize the grant of both non-qualified stock options and
incentive stock options, whereas, the 1992 Stock Option Plan authorizes the
grant only of non-qualified stock options, and under the terms of the 1995 Stock
Option Plan the aggregate number of shares subject to options granted to any
individual may not exceed 500,000 shares. If the 1995 Stock Option Plan is
approved by the stockholders, up to 12,000,000 shares of Class A Common Stock
offered hereby may be sold pursuant thereto. See "Employee Benefit Plans --
Stock Option Plans" and "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock."
CLASS A COMMON STOCK OFFERED BY THE SELLING STOCKHOLDERS
The Selling Stockholders may sell up to an aggregate of 226,500 shares of
the Class A Common Stock being offered hereby in the Limited Market or
otherwise. The Selling Stockholders will not be treated more favorably than
other stockholders participating in the Limited Market and, like all
stockholders selling shares in the Limited Market (other than the Company and
its retirement plans), will pay the Company's wholly-owned subsidiary, Bull,
Inc., a commission equal to two percent of the proceeds from their sales. See
"Market Information -- The Limited Market." Pursuant to the Certificate of
Incorporation, all of the shares of Class A Common Stock purchased in the
Limited Market from the Selling Stockholders will be subject to the Company's
right of first refusal and the Company's right of repurchase upon termination of
employment or affiliation. See "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock."
7
<PAGE>
The following table sets forth information as of March 10, 1995 with respect
to the number of shares of Class A Common Stock owned by each Selling
Stockholder (including shares issuable upon the exercise of outstanding stock
options which are exercisable within 60 days of such date and shares allocated
to such person's accounts as of such date under the Company's employee benefit
plans) and as adjusted to reflect the sale of all shares of Class A Common Stock
being offered hereby by such Selling Stockholder. The table does not give effect
to the sale of any shares of Class A Common Stock being offered by the Company.
Each of the Selling Stockholders has been a director and/or officer of the
Company for the past three years. Except as indicated below, all the shares are
owned of record and beneficially.
<TABLE>
<CAPTION>
OWNERSHIP
PRIOR OWNERSHIP
TO OFFERING AFTER OFFERING
------------ NUMBER -------------------------
NUMBER OF SHARES NUMBER
NAME POSITION OF SHARES OFFERED OF SHARES PERCENT(1)
- ---------------- ---------------------------------------- ------------ --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
J.R. Beyster Chairman of the Board and Chief 852,019(2) 50,000 802,019(2) 1.8%
Executive Officer
V.N. Cook Director 31,794 13,500 18,294 *
E.A. Frieman Director 39,606 10,000 29,606 *
J.E. Glancy Corporate Executive Vice President and 124,439(2) 5,000 119,439(2) *
Director
L.A. Kull Director, President and Chief Operating 264,607(2) 10,000 254,607(2) *
Officer
M.R. Laird Director 41,559 10,000 31,559 *
W.M. Layson Director and Senior Vice President 108,720(2) 10,000 98,720(2) *
J.W. McRary Director 195,498 60,000 135,498 *
B.J. Shillito Director Emeritus 65,550(3) 3,000 62,550(3) *
E.A. Straker Director and Sector Vice President 115,961(2) 20,000 95,961(2) *
J.H. Warner, Jr. Director and Executive Vice President 144,640 25,000 119,640 *
J.A. Welch Director and part-time employee 29,075 10,000 19,075 *
------------ --------- ------------ --
2,013,468 226,500 1,786,968 4.0%
<FN>
- ------------------------
(1) Based upon the total number of outstanding shares of Class A Common Stock
at March 10, 1995. Assuming that each outstanding share of Class B Common
Stock is converted into five shares of Class A Common Stock, Dr. Beyster
and all Selling Stockholders as a group would own 1.7% and 3.8%,
respectively, after the offering.
(2) Includes shares owned of record by family members and/or trusts.
(3) Excludes 70,500 shares owned of record by family members and/or trusts that
are not beneficially owned by Mr. Shillito.
* Represents less than one percent of the outstanding shares of Class A
Common Stock at March 10, 1995.
</TABLE>
The 226,500 shares of Class A Common Stock registered for sale by the
Selling Stockholders listed above represent only the maximum number of shares
that may be sold by such persons pursuant to this Prospectus. Of the 209,000
shares of Class A Common Stock offered by certain of the directors of the
Company pursuant to the Company's previous Prospectus dated April 22, 1994, only
68,190 shares were actually sold by such persons.
MARKET INFORMATION
THE LIMITED MARKET
Since its inception, the Company has followed a policy of remaining
essentially employee owned. As a result, there has never been a general public
market for any of the Company's securities. In order
8
<PAGE>
to provide liquidity for its stockholders, however, the Company has maintained a
limited secondary market (the "Limited Market") through its wholly-owned
subsidiary, Bull, Inc., which was organized in 1973 for the purpose of
maintaining the Limited Market.
The Limited Market generally permits existing stockholders to sell shares of
Class A Common Stock on four predetermined days each year (each a "Trade Date").
All shares of Class B Common Stock to be sold in the Limited Market must first
be converted into five times as many shares of Class A Common Stock. All sales
are made at the prevailing Formula Price to employees, consultants and directors
of the Company who have been approved by the Board of Directors or the Operating
Committee as being entitled to purchase up to a specified number of shares of
Class A Common Stock. In addition, the trustees of the Company's Employee Stock
Ownership Plan, CODA, Stock Purchase Plan, 1995 Employee Stock Purchase Plan (if
approved by the Company's stockholders at the 1995 Annual Meeting of
Stockholders), Stock Compensation Plans and certain retirement plans of the
Company's subsidiaries may also purchase shares of Class A Common Stock for
their respective trusts in the Limited Market. All sellers in the Limited Market
(other than the Company and the CODA, the Employee Stock Ownership Plan, the
Profit Sharing Retirement Plan and certain retirement plans of the Company's
subsidiaries (the "Retirement Plans")) pay Bull, Inc. a commission equal to two
percent of the proceeds from such sales. No commission is paid by purchasers in
the Limited Market.
In the event that the aggregate number of shares offered for sale is greater
than the aggregate number of shares sought to be purchased by authorized buyers
and the Company, offers to sell 500 or less shares of Class A Common Stock, or
up to the first 500 shares if more than 500 shares of Class A Common Stock are
offered by any seller, will be accepted first. Offers to sell shares in excess
of 500 shares of Class A Common Stock will be accepted on a pro-rata basis
determined by dividing the total number of shares remaining under purchase
orders by the total number of shares remaining under sell orders. If, however,
there are insufficient purchase orders to support the primary allocation of 500
shares of Class A Common Stock for each proposed seller, then the purchase
orders will be allocated equally among all of the proposed sellers up to the
total number of shares offered for sale. To the extent that the aggregate number
of shares sought to be purchased exceeds the aggregate number of shares offered
for sale, the Company may, but is not obligated to, sell authorized but unissued
shares of Class A Common Stock in the Limited Market.
The Company is currently authorized, but not obligated, to purchase up to
1,250,000 shares of Class A Common Stock in the Limited Market on any Trade
Date, but only if and to the extent that the number of shares offered for sale
by stockholders exceeds the number of shares sought to be purchased by
authorized buyers and the Company, in its discretion, determines to make such
purchases. In fiscal year 1995, the Company purchased 279,658 shares in the
Limited Market. The Company did not purchase shares in the Limited Market in
fiscal year 1994. The Company's purchases in fiscal year 1995 accounted for 16%
of the total shares purchased by all buyers in the Limited Market during that
year.
During the 1995 and 1994 fiscal years, the trustees of the Company's Profit
Sharing Retirement Plan II (consolidated as of January 1, 1995 with the
Company's Profit Sharing Retirement Plan), Employee Stock Ownership Plan, CODA
and Stock Purchase Plan purchased an aggregate of 1,065,741 shares and 1,824,077
shares, respectively, in the Limited Market. These purchases accounted for
approximately 61% and 81% of the total shares purchased by all buyers in the
Limited Market during fiscal years 1995 and 1994, respectively. Such purchases
may change in the future, depending on the levels of participation in and
contributions to such plans and the extent to which such contributions are
invested in Class A Common Stock. To the extent that purchases by the trustees
of the Company's employee benefit plans decrease and purchases by the Company do
not increase, the ability of stockholders to resell their shares in the Limited
Market will likely be adversely affected. No assurance can be given that a
stockholder desiring to sell all or a portion of his or her shares of the
Company's Class A Common Stock in any trade will be able to do so.
9
<PAGE>
The Company received a no-action letter from the SEC (the "SEC Letter") that
authorizes the Company and the Employee Stock Ownership Plan to commence on an
annual basis, at the Company's discretion, a joint tender offer (a "Tender
Offer") to purchase all shares of the Company's Class A Common Stock held by
persons who are not directors, employees or consultants of the Company (or
family members of, or trustees for, such employees, directors or consultants of
the Company) as of the date the Tender Offer is commenced (the "Outside
Stockholders"). Under current federal income tax laws, the Tender Offer, as
structured, would allow Outside Stockholders who tender certain shares purchased
by the Employee Stock Ownership Plan to defer the payment of federal income tax
under Section 1042 of the Code on any capital gain derived from the sale,
provided certain conditions are met.
The Company and the Employee Stock Ownership Plan have completed one Tender
Offer pursuant to which the Employee Stock Ownership Plan purchased on November
20, 1992 an aggregate of 700,444 shares of Class A Common Stock from 186 Outside
Stockholders. The Company has not yet determined whether it will commence a
Tender Offer during calendar year 1995. There can be no assurance that a Tender
Offer will be commenced in the future or, if commenced, that it will be
completed. If a Tender Offer is undertaken in the future, the Company will be
required to take certain
actions to ensure that such Tender Offer does not negatively affect the
liquidity of the Limited Market on the Trade Date upon which such Tender Offer
is completed.
PRICE RANGE OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The fair market value of the Class A Common Stock is established pursuant to
the valuation process described below, which uses the Formula set forth on the
cover page of this Prospectus to determine the Formula Price at which the Class
A Common Stock trades in the Limited Market. The Formula Price is reviewed by
the Board of Directors at least four times each year, generally in conjunction
with Board of Directors meetings which are currently scheduled for January,
April, July and October. Pursuant to the Certificate of Incorporation, the price
applicable to shares of Class B Common Stock is equal to five times the Formula
Price.
The following formula is used in determining the Formula Price: the price
per share is equal to the sum of (i) a fraction, the numerator of which is the
stockholders' equity of the Company at the end of the fiscal quarter immediately
preceding the date on which a price revision is to occur ("E") and the
denominator of which is the number of outstanding common shares and common share
equivalents at the end of such fiscal quarter ("W(1)") and (ii) a fraction, the
numerator of which is 5.66 multiplied by the market factor ("M" or "Market
Factor"), multiplied by the earnings of the Company for the four fiscal quarters
immediately preceding the price revision ("P"), and the denominator of which is
the weighted average number of outstanding common shares and common share
equivalents for those four fiscal quarters, as used by the Company in computing
primary earnings per share ("W"). The number of outstanding common shares and
common share equivalents described above assumes the conversion of each share of
Class B Common Stock into five shares of Class A Common Stock. The 5.66
multiplier is a constant which was first included in the Formula in March 1976.
The Market Factor is a numerical factor which yields a fair market value for the
Class A Common Stock and the Class B Common Stock by reflecting existing
securities market conditions relevant to the valuation of such stock. In
establishing the Market Factor, the Board of Directors considers the performance
of the general securities markets and relevant industry groups, the financial
performance of the Company versus comparable public companies, general economic
conditions, input from an independent appraisal firm and other relevant factors.
The Market Factor is generally reviewed quarterly by the Board of Directors in
conjunction with an appraisal which is prepared by an independent appraisal firm
for the committee administering the Company's qualified retirement plans (the
"Committee")
10
<PAGE>
and which is relied upon by the Committee and the Board of Directors. The Market
Factor, as determined by the Board of Directors, remains in effect until
subsequently changed by the Board of Directors. The Formula Price of the Class A
Common Stock, expressed as an equation, is as follows:
<TABLE>
<S> <C> <C> <C> <C>
E 5.66MP
FORMULA PRICE = --- + -------
W(1) W
</TABLE>
The Formula was modified by the Board of Directors on April 14, 1995 to
delete a limitation that the Formula Price not be less than 90% of the net book
value per share of the Class A Common Stock at the end of the quarter
immediately preceding the date on which a price revision is to occur (the "book
value floor"). The modification was intended to ensure that the Formula Price
would be a fair market value as required by law. The Formula Price has always
exceeded the book value floor, and the book value floor has never been used to
establish the Formula Price. With the exception of this modification, the
Formula has not been modified by the Board of Directors since March 23, 1984.
The following table sets forth information concerning the Formula Price for
the Class A Common Stock, the applicable price for the Class B Common Stock and
the Market Factor in effect for the periods beginning on the dates indicated.
There can be no assurance that the Class A Common Stock or the Class B Common
Stock will in the future provide returns comparable to historical returns.
<TABLE>
<CAPTION>
PRICE PRICE
PER SHARE PER SHARE
MARKET OF CLASS A OF CLASS B
DATE FACTOR COMMON STOCK COMMON STOCK
- ------------------------------------------------------ ------ ------------ ------------
<S> <C> <C> <C>
April 9, 1993......................................... 1.40 $12.63 $63.15
July 9, 1993.......................................... 1.40 $12.85 $64.25
October 8, 1993....................................... 1.40 $13.12 $65.60
January 14, 1994...................................... 1.50 $14.19 $70.95
April 9, 1994......................................... 1.50 $14.46 $72.30
July 9, 1994.......................................... 1.45 $14.48 $72.40
October 15, 1994...................................... 1.45 $15.07 $75.35
January 14, 1995...................................... 1.50 $15.72 $78.60
April 14, 1995........................................ 1.50 $16.41 $82.05
</TABLE>
The Board of Directors believes that the valuation process and Formula
result in a fair market value for the Class A Common Stock within a broad range
of financial criteria. Other than the quarterly review and possible modification
of the Market Factor, the Board of Directors will not change the Formula unless
(i) in the good faith exercise of its fiduciary duties and after consultation
with the Company's independent accountants as to whether the change would result
in a charge to earnings upon the sale of Class A Common Stock or Class B Common
Stock, the Board of Directors, including a majority of the directors who are not
employees of the Company, determines that the Formula no longer results in a
fair market value for the Class A Common Stock or (ii) a change in the Formula
or the method of valuing the Class A Common Stock is required under applicable
law.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and no cash dividends on the Class A Common Stock or Class B Common Stock
are contemplated in the foreseeable future. The Company's present intention is
to retain any future earnings for use in its business.
USE OF PROCEEDS
The shares of Class A Common Stock which may be offered by the Company are
principally being offered to permit the continued acquisition of shares by the
Company's employee benefit plans as described herein and to permit the Company
to offer shares of Class A Common Stock to present and potential employees,
consultants and directors. The net proceeds to be received by the Company from
11
<PAGE>
the sale of shares of Class A Common Stock offered by the Company, after
deducting expenses payable by the Company, which are estimated to be $178,940,
will be added to the general funds of the Company for working capital and
general corporate purposes. Currently, the Company has no specific plans for the
use of such proceeds. Approximately 226,500 of the shares registered hereby are
offered by stockholders (other than the Selling Stockholders) for sale in the
Limited Market and such sales may be attributed to the Company for federal
securities law purposes. The Company will not receive any portion of the net
proceeds from the sale of such shares or from the sale of shares by the Selling
Stockholders.
EMPLOYEE BENEFIT PLANS
The Company maintains several employee benefit plans pursuant to which
certain of the shares of Class A Common Stock being offered hereby may be sold.
The primary purpose of these plans is to motivate the Company's employees,
consultants and directors to contribute to the growth and development of the
Company by encouraging them to achieve and surpass annual goals of the Company
and of the operations for which they are responsible. The following is a summary
description of each of these plans. All capitalized terms, unless otherwise
defined herein, have the meanings ascribed to them in the employee benefit plan
to which they relate.
PROFIT SHARING RETIREMENT PLAN
The Profit Sharing Retirement Plan represents a consolidation, effective as
of January 1, 1995, of the former Profit Sharing Retirement Plan II and the
Profit Sharing Retirement Plan. The Profit Sharing Retirement Plan II was itself
a consolidation, effective January 1, 1992, of the former TSC Profit Sharing
Retirement Plan and the SAIC COMSYSTEMS Profit Sharing Retirement Plan.
Participants in the Profit Sharing Retirement Plan are not permitted to direct
investment of their account balances into Company Stock or a Company Stock Fund.
However, participants in the former Profit Sharing Retirement Plan II who have a
portion of their account balances invested in a Company Stock Fund maintained
within the Plan are permitted to leave that portion of their account balances
invested in the Company Stock Fund, but may not add to that investment option
with any transfers out of other investment options or with respect to any new
allocations of Company contributions to the Profit Sharing Retirement Plan.
CODA
The CODA became effective on January 1, 1983 and was approved by the
stockholders of the Company at the 1983 Annual Meeting of Stockholders.
ELIGIBILITY AND PARTICIPATION
Generally, all employees (as defined in the CODA) are eligible to
participate in the CODA upon commencing employment, except for employees in
groups or units designated as ineligible. As of December 31, 1994, there were
approximately 19,500 participants in the CODA.
CONTRIBUTIONS AND ALLOCATIONS
The CODA permits a participant to elect to defer a portion of such
participant's compensation for the Plan Year and to have such deferred amount
contributed directly by the Company to the participant's CODA account. Amounts
deferred by participants, including rollovers from qualified plans, totalled
approximately $47,599,000 for the Plan Year ended December 31, 1994. Under the
terms of the CODA, deferred amounts are treated as contributions made by the
Company. The maximum amount of compensation that a participant may elect to
defer is determined by the Committee, but in no event may the deferral exceed
$7,000 per year (adjusted for cost-of-living under rules prescribed by the
Secretary of the Treasury). For 1995, the limitation is $9,240. In addition to
amounts deferred by participants, the Company may, but is not obligated to, make
a matching contribution to the CODA accounts of those participants who have
elected to defer a portion of their compensation equal to a percentage or
percentages of the amounts which such participants have elected to defer. This
Company matching contribution is allocated to the matching contribution accounts
of those participants
12
<PAGE>
(i) who have elected to defer a portion of their compensation, (ii) who are not
employees of a group or unit designated as ineligible to receive a matching
contribution and (iii) who have attained the age of 21, and have completed 12
months of employment and 850 Hours of Service with the Company during one of the
applicable 12-month computational periods. For the Plan Year ended December 31,
1994, the Company contributed 30% of the first $2,000 of a participant's
compensation deferred under the CODA and 15% of such deferred compensation above
$2,000. The Company provides no matching contribution on amounts deferred in
excess of 10% of compensation. The aggregate amount of matching contributions
contributed to the CODA on behalf of all participants for the Plan Year ended
December 31, 1994 was approximately $9,063,000. The Company may also make
additional contributions to the CODA in order to comply with Section 401(k) of
the Code. For the Plan Year ended December 31, 1994, the Company made additional
Company contributions of $1,914,000 to the Deferred Fund to enable the plan to
meet the Section 401(k) discrimination test. The Company's contribution to the
CODA is paid in cash unless the Board of Directors determines to make the
contribution in shares of Class A Common Stock or another form.
Company contributions to the CODA are made by the due date (including
extensions) for the Company's federal income tax return for the applicable year
except contributions resulting from amounts deferred by participants, which must
be made within 30 days of deferral. The Company's practice has been to make
matching contributions quarterly based on current participant bi-weekly
deferrals. Any additional Company contribution, if required, is made after the
end of the Plan Year.
A participant's elective deferrals to CODA will reduce his or her
compensation, on a dollar-for-dollar basis, for purposes of receiving
allocations under the Company's Profit Sharing Retirement Plan and the Employee
Stock Ownership Plan, as applicable.
An Eligible Employee may transfer a rollover contribution from another
qualified retirement plan to the trust fund maintained for the CODA pursuant to
applicable regulations and Committee procedures. A participant in the CODA who
has made a deferral election may terminate or alter the rate of his or her
deferrals at any time under the terms of the CODA.
INVESTMENT OF FUNDS
The Committee is authorized to establish a choice of investment
alternatives, including securities of the Company, in which Company
contributions to the CODA (including that portion of compensation which
participants elect to defer) may be invested. The investment alternatives
established by the Committee and currently available to participants in the CODA
consist of the Company Stock Fund and nine Vanguard Mutual Funds managed by the
Vanguard Group of Investment Companies ("Vanguard"), located in Valley Forge,
Pennsylvania. The Company's matching contributions for the Plan Year ended
December 31, 1994 were (and the matching contributions for the Plan Year ending
December 31, 1995 are currently intended to be) invested in the Company's Stock
Fund, which contributions may not be exchanged for another investment
alternative. Participants may elect at such time, in such manner and subject to
such restrictions as the Committee may specify, to have contributions (other
than matching contributions) allocated or apportioned among the different
investment alternatives. Separate CODA accounts are established for each
investment alternative selected by a participant and each such account is valued
separately. The Committee, in its sole discretion, may permit participants to
transfer amounts from one investment alternative to one or more other investment
alternatives at such time, in such manner and subject to such restrictions as
the Committee may specify. No commissions are payable with respect to
acquisitions or dispositions of Vanguard fund shares.
Investments in the Company Stock Fund (other than the non-exchangeable
matching contribution described in the preceding paragraph) may be exchanged
into other investment choices only on a Trade Date. Balances from Vanguard
investments may not be exchanged into the Company Stock Fund. It is the current
policy of the Committee to keep all amounts related to the Company's Stock Fund
invested in Class A Common Stock, except for estimated cash reserves which are
primarily used
13
<PAGE>
to provide future benefit distributions, future investment exchanges and other
cash needs as determined by the Committee. Residual cash remaining after
accounting for estimated cash reserves generally will be used to purchase Class
A Common Stock. If cash reserves in the Company Stock Fund are insufficient at
any given time to provide benefit distributions and/or investment exchanges,
shares held by the Company Stock Fund will be offered to the Company for
purchase. If the Company declines to purchase the shares, the Committee intends
to offer the shares for sale in the Limited Market. Exchanges out of the Company
Stock Fund may be deferred until such time, if ever, that sufficient cash is
available to make required benefit distributions and provide for investment
exchanges. Accordingly, investment exchanges of participants' investments held
in the Company Stock Fund may be restricted. See "Market Information -- The
Limited Market."
The following table summarizes, as of the dates indicated, the investment
performance of the Company Stock Fund and of each of Vanguard's nine mutual
funds available for investment for the last five years, or in the case of the
Intermediate Term Corporate Portfolio, since it was established in 1993. The
summary is based on an initial investment of $100 in each investment alternative
as of December 31, 1989, except for the Intermediate Term Corporate Portfolio
which is as of December 31, 1993.
COMPANY STOCK FUND
<TABLE>
<CAPTION>
UNIT PERCENT INCREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 103.20 3.2
December 31, 1991......................................................... 116.31 12.7
December 31, 1992......................................................... 127.01 9.2
December 31, 1993......................................................... 140.85 10.9
December 31, 1994......................................................... 161.84 14.9
</TABLE>
GNMA PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE/DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 110.30 10.3
December 31, 1991......................................................... 128.83 16.8
December 31, 1992......................................................... 137.72 6.9
December 31, 1993......................................................... 145.85 5.9
December 31, 1994......................................................... 144.39 -1.0
</TABLE>
INDEX TRUST -- 500 PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE/DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 96.70 -3.3
December 31, 1991......................................................... 125.90 30.2
December 31, 1992......................................................... 135.22 7.4
December 31, 1993......................................................... 148.61 9.9
December 31, 1994......................................................... 150.39 1.2
</TABLE>
14
<PAGE>
PRIME PORTFOLIO
<TABLE>
<CAPTION>
UNIT PERCENT INCREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 108.30 8.3
December 31, 1991......................................................... 114.91 6.1
December 31, 1992......................................................... 119.16 3.7
December 31, 1993......................................................... 122.73 3.0
December 31, 1994......................................................... 127.76 4.1
</TABLE>
SHORT-TERM FEDERAL PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE/DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 109.30 9.3
December 31, 1991......................................................... 122.63 12.2
December 31, 1992......................................................... 130.24 6.2
December 31, 1993......................................................... 139.35 7.0
December 31, 1994......................................................... 138.10 -.9
</TABLE>
WELLESLEY INCOME FUND
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE/DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 103.80 3.8
December 31, 1991......................................................... 126.22 21.6
December 31, 1992......................................................... 137.20 8.7
December 31, 1993......................................................... 157.37 14.7
December 31, 1994......................................................... 150.45 -4.4
</TABLE>
WINDSOR FUND
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE/DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 84.50 -15.5
December 31, 1991......................................................... 108.67 28.6
December 31, 1992......................................................... 126.60 16.5
December 31, 1993......................................................... 151.16 19.4
December 31, 1994......................................................... 150.86 -.2
</TABLE>
15
<PAGE>
INTERNATIONAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE/DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 87.90 -12.1
December 31, 1991......................................................... 92.03 4.7
December 31, 1992......................................................... 86.69 -5.8
December 31, 1993......................................................... 125.45 44.7
December 31, 1994......................................................... 126.45 .8
</TABLE>
U.S. GROWTH PORTFOLIO
<TABLE>
<CAPTION>
PERCENT
UNIT INCREASE/DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1989......................................................... $ 100.00
December 31, 1990......................................................... 104.60 4.6
December 31, 1991......................................................... 153.55 46.8
December 31, 1992......................................................... 157.85 2.8
December 31, 1993......................................................... 155.48 -1.5
December 31, 1994......................................................... 161.54 3.9
</TABLE>
INTERMEDIATE TERM CORPORATE PORTFOLIO
(ESTABLISHED NOVEMBER 1, 1993)
<TABLE>
<CAPTION>
PERCENT
UNIT DECREASE
VALUATION AS OF VALUE FOR YEAR
- -------------------------------------------------------------------------- --------- -----------------
<S> <C> <C>
December 31, 1993......................................................... $ 100.00
December 31, 1994......................................................... 95.80 -4.2
</TABLE>
VESTING
Under the CODA as currently in effect, each participant is, at all times,
100% vested in amounts deferred to his or her CODA account. Effective as of
January 1, 1995, the Company's matching contribution for employees hired after
such date does not vest at all prior to the time such participant is credited
with three Years of Service, and thereafter vests at the rate of 25% per Year of
Service for years three through six, so that each participant's interest in his
or her Company matching account becomes fully vested after the participant is
credited with six Years of Service. A participant's interest in such account
also becomes fully vested, notwithstanding the fact that the participant has not
yet been credited with six Years of Service, at the time of such participant's
attainment of age 59 1/2, permanent disability, judicial declaration of mental
incompetence or death, while employed by the Company. The Company's matching
contribution for existing employees as of January 1, 1995 remains fully vested.
LOANS
Loans are available to participants from the CODA account. Loans under all
of the Company's and its subsidiaries' qualified retirement plans have a
combined maximum limit of $50,000 per participant reduced by the excess of the
participant's highest aggregate outstanding loan balance(s) during the preceding
12-month period over the aggregate loan balance(s) outstanding on the date of a
new loan. Loans are further limited to 50% of a participant's vested interest in
his or her accounts in all of the Company's qualified retirement plans (loans
from the CODA may not exceed the vested value in the CODA less vested amounts
invested in the Company Stock Fund). Loans must (i) bear a reasonable rate of
interest, (ii) be adequately secured, (iii) state the date upon which the loan
must be
16
<PAGE>
repaid, which in any event may not exceed five years from the date on which the
loan is made, unless the proceeds are used for the purchase of a principal
residence, in which case repayment may not exceed 25 years and (iv) be amortized
with level payments, made not less frequently than quarterly, over the term of
the loan. The Committee currently requires that loans be repaid through payroll
deductions. The loan documents provide that 50% of the participant's vested
account balances in all of the Company's qualified retirement plans are security
for the loan and the CODA (as well as the other Company retirement plans in
which the participant has a loan), therefore, has a lien against such balances.
A loan will result in a withdrawal of the borrowed amounts from the
participant's interest in the Funds against which the loan is made. Principal
and interest payments on the loan are allocated to the account(s) of the
borrowing participant in accordance with the current investment choices of the
participant.
DISTRIBUTIONS AND WITHDRAWALS
If a participant's employment with the Company terminates on or after the
date on which the participant attains the age of 59 1/2, the participant is
entitled to receive a single distribution of his or her entire interest in his
or her CODA account and vested interest in the matching contribution account as
soon as practicable following the date of such termination. In the event a
participant dies while employed by the Company, the Committee will direct the
Trustee to make a single distribution of the participant's entire interest in
his or her CODA account and matching contribution account to the participant's
spouse. Alternatively, if such spouse has given proper consent or if the
participant has no spouse, the Committee will direct the Trustee to make a
single distribution of the deceased participant's entire interest to the
Beneficiary designated by the participant. In the event the Committee determines
that the participant has suffered a permanent disability while employed by the
Company, the Committee will direct the Trustee to make a single distribution of
the participant's entire interest in his or her CODA account and matching
contribution account to the disabled participant.
If a participant's employment with the Company terminates, other than by
reason of permanent disability or death, prior to the date on which the
participant attains the age of 59 1/2, the participant's entire interest in his
or her CODA account and vested interest in the matching contribution account
generally will be paid in a single distribution as soon as practicable following
the date of such termination. If his or her vested interest is more than $3,500,
the participant may elect to receive distribution of his or her account(s) (i)
approximately 120 days after the end of the year in which his or her fifth
consecutive Break in Service occurs, (ii) any time following his or her
termination of employment and before five consecutive Breaks in Service or (iii)
at age 62.
If a participant who was only partially vested in his or her matching
contribution account is reemployed before having five consecutive Breaks in
Service, he or she may reinstate his or her account, including the nonvested
portion which was previously forfeited, by repaying the amount distributed to
him or her from such account before the earlier of (i) the date he or she incurs
five consecutive Breaks in Service following the date of distribution or (ii)
five years following reemployment. Except in the case of qualifying hardship, no
withdrawals may be made from a participant's CODA account prior to his or her
termination of employment unless and until he or she attains the age of 59 1/2.
Any withdrawals made thereafter may be made only once in each Plan Year. In the
absence of a qualified domestic relations order to the contrary, a participant's
interest in the CODA may not be voluntarily or involuntarily assigned or
hypothecated, except for the purpose of qualified Company retirement program
loans. The Committee has established procedures for hardship withdrawals
including (i) definition of qualifying hardships, (ii) requirements for having
first withdrawn all voluntary after-tax contributions from any other Company
retirement plans and having received the maximum loans available under such
plans and (iii) requirement for a 12-month suspension from making elective
deferrals into the CODA following the hardship withdrawal.
All distributions, including withdrawals, from the CODA are paid in cash.
17
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
The Company's stock bonus retirement plan became effective on February 1,
1973 and was approved by the stockholders of the Company at the 1982 Annual
Meeting of Stockholders. Effective January 1, 1985, the plan was amended to
change its name to the Employee Stock Ownership Plan and to enable it to
purchase shares of Class A Common Stock with the proceeds of qualifying loans
made either to the Company or to the Employee Stock Ownership Plan. To date,
this loan feature has not been utilized. In February 1990, the Company Stock
Funds within the Company's Profit Sharing Retirement Plan and the CODA
(including the TRASOP Fund maintained within the CODA) were transferred to the
Employee Stock Ownership Plan to enable it to qualify as a "30% ESOP" and
further the Company's goal of employee stock ownership by increasing the
percentage of the Company's Class A Common Stock and Class B Common Stock
beneficially owned by current employees. In November 1992, the non-exchangeable
Company Stock Fund within the CODA was transferred to the Employee Stock
Ownership Plan to enable it to qualify as a "30% ESOP" in connection with an
Offer to Purchase for Cash, pursuant to which the Employee Stock Ownership Plan
acquired 700,444 shares of Class A Common Stock from stockholders who are not
employees, directors, consultants or members of their families in a transaction
designed to increase the beneficial ownership of current employees, directors
and consultants. See "Market Information -- The Limited Market."
ELIGIBILITY AND PARTICIPATION
Generally, all employees who have attained the age of 21, completed 12
months of employment and completed 850 Hours of Service with the Company during
one of the applicable 12-month computational periods are eligible to participate
as of the next semi-annual entry date, except employees of groups or units
designated as ineligible. As of December 31, 1994, there were approximately
14,500 participants in the Employee Stock Ownership Plan.
CONTRIBUTIONS, ALLOCATIONS AND FORFEITURES
For the Plan Year ended December 31, 1994, the Company contributed
approximately $10,516,000 to the accounts of participants in the Employee Stock
Ownership Plan. The amount of the Company's annual contribution to participants'
accounts in the Employee Stock Ownership Plan is determined by, and within the
discretion of, the Board of Directors, subject to certain limitations. See
"General Provisions of the Profit Sharing Retirement Plan, Employee Stock
Ownership Plan and CODA." Participants may not make voluntary contributions to
the Employee Stock Ownership Plan. The Company's contributions are made by the
due date (including extensions) of the Company's federal income tax return for
the applicable year. The Company's current practice has been to make pro-rata
contributions quarterly.
Company contributions to the Employee Stock Ownership Plan for each Plan
Year are allocated to the accounts of participants who are eligible to receive
such contributions, in the ratio which each such participant's eligible
compensation bears to the total eligible compensation of all such participants.
Eligible participants are participants who (i) complete 850 Hours of Service
during the Plan Year and (ii) either are employed on the last day of the Plan
Year or whose employment terminated during the Plan Year as a result of death,
retirement, disability or involuntary layoff (other than for cause).
Forfeitures, if any, of the nonvested portion of terminated participants'
accounts are allocated to the accounts of remaining participants who are
entitled to receive an allocation of the Company contribution. Forfeitures are
allocated in the ratio which each such remaining participant's eligible
compensation bears to the total eligible compensation of all such remaining
participants. However, effective January 1, 1995, allocations of Company
contributions and forfeitures will be made separately to different Fringe Rate
groups designated by the Company, such that participants in one Fringe Rate
group will receive a different allocation (as a percentage of compensation) than
participants in another Fringe Rate group.
INVESTMENT OF FUNDS
Although it is generally intended that the assets of the Employee Stock
Ownership Plan will be held in a Company Stock Fund consisting primarily of
securities of the Company, the Employee Stock
18
<PAGE>
Ownership Plan and/or such Company Stock Fund may hold other assets which may
consist of cash, qualifying employer real property or qualifying employer
securities within the meaning of Sections 407(d)(4) and (5) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or other property.
The exact number of shares of Class A Common Stock, if any, which may be
purchased by the Trustee of the Employee Stock Ownership Plan in the future will
depend on various factors, including any modifications to the Employee Stock
Ownership Plan adopted either in response to changes or modifications in the
laws and regulations governing the Employee Stock Ownership Plan or at the
discretion of the Company's management.
With respect to those Company Stock Funds transferred to the Employee Stock
Ownership Plan in February 1990 as to which participants had the right to
exchange into other investment choices under the Company's Profit Sharing
Retirement Plan or CODA, as applicable, the investment choices available under
the latter plans (see "Employee Benefit Plans -- CODA -- Investment of Funds")
are made available within the Employee Stock Ownership Plan. In addition,
participants who have attained the age of 55 and have ten or more years of
participation are entitled, pursuant to the terms of the Employee Stock
Ownership Plan and Committee procedures, to exchange a percentage of their
balances in the Company Stock Fund into the same Vanguard investment
alternatives as are available under the CODA.
The Committee, in its sole discretion, may permit participants to transfer
amounts from one investment alternative to one or more other investment
alternatives at such time, in such manner and subject to such restrictions as
the Committee may specify. Investments in the Company Stock Fund may be
exchanged into other investment choices only on a Trade Date. However, balances
from other Vanguard investments may not be exchanged into the Company Stock
Fund. Company contributions directed to the Company Stock Fund are initially
utilized as cash reserves to provide benefit distributions and/or investment
exchanges. It is the current policy of the Committee to keep all amounts related
to the Company's Stock Fund invested in Class A Common Stock, except for
estimated cash reserves which are primarily used to provide future benefit
distributions, future investment exchanges and other cash needs as determined by
the Committee. Residual cash remaining after accounting for estimated cash
reserves will generally be used to purchase Class A Common Stock. If at any
given time cash reserves in the Company Stock Fund are insufficient to provide
benefit distributions and/or investment exchanges, shares held by the Company
Stock Fund will be offered to the Company for purchase. If the Company declines
to purchase the shares, the Committee intends to offer the shares for sale in
the Limited Market. Exchanges out of the Company Stock Fund may be deferred
until such time, if ever, that sufficient cash is available to make required
benefit distributions and provide for investment exchanges. Accordingly,
investment exchanges of participant's investments held in the Company Stock Fund
may be restricted. See "Market Information -- The Limited Market."
VESTING
The Employee Stock Ownership Plan vesting schedule currently provides that a
participant's interest does not vest at all prior to the time such participant
is credited with three Years of Service, and thereafter vests at the rate of 25%
per Year of Service for years three through six, so that each participant's
interest becomes fully vested after the participant is credited with six Years
of Service. A participant's interest also becomes fully vested, notwithstanding
the fact that the participant has not yet been credited with six Years of
Service, at the time of such participant's attainment of the age of 59 1/2,
permanent disability, judicial declaration of mental incompetence or death,
while employed by the Company. A participant's interest in the TRASOP Fund or in
funds transferred from the CODA are 100% vested at all times.
LOANS
Loans are available to participants from the Employee Stock Ownership Plan.
Loans under all of the Company's and its subsidiaries' qualified retirement
plans have a combined maximum limit of $50,000 per participant reduced by the
excess of the participant's highest aggregate outstanding loan
19
<PAGE>
balance(s) during the preceding 12-month period over the aggregate loan
balance(s) outstanding on the date of a new loan. Loans are further limited to
50% of a participant's vested interest in his or her accounts in all the
Company's qualified retirement plans (loans from the Employee Stock Ownership
Plan may not exceed the vested value of the amounts in the Employee Stock
Ownership Plan less vested amounts invested in the Company Stock Fund within the
Plan). Loans must (i) bear a reasonable rate of interest, (ii) be adequately
secured, (iii) state the date upon which the loan must be repaid, which in any
event may not exceed five years, unless the proceeds are used for the purchase
of a principal residence, in which case repayment may not exceed 25 years and
(iv) be amortized with level payments, made not less frequently than quarterly,
over the term of the loan. The Committee currently requires that loans be repaid
through payroll deductions. The loan documents provide that 50% of the
participant's vested account balances in all the Company's retirement plans are
security for the loan, and the Employee Stock Ownership Plan (as well as the
other Company retirement plans in which the participant has a loan), therefore,
has a lien against such balances. A loan will result in a withdrawal of the
borrowed amounts from the participant's interest in the Funds against which the
loan is made (other than the Company Stock Fund). Principal and interest
payments on the loan are allocated to the account(s) of the borrowing
participant in accordance with the current investment choices of the
participant.
DISTRIBUTIONS AND WITHDRAWALS
If a participant's employment with the Company terminates on or after the
date on which the participant attains the age of 59 1/2, the participant is
entitled to receive a single distribution of his or her entire interest in his
or her Employee Stock Ownership Plan account as soon as practicable following
the date of such termination. In the event a participant dies while employed by
the Company, the Committee will direct the Trustee to make a single distribution
of the participant's entire interest in his or her Employee Stock Ownership Plan
account to the participant's spouse or if such spouse has given proper consent
or if the participant has no spouse to the Beneficiary designated by the
participant. In the event the Committee determines that the participant has
suffered a permanent disability while employed by the Company, the Committee
will direct the Trustee to make a single distribution of the participant's
entire interest in his or her Employee Stock Ownership Plan account to the
disabled participant.
If a participant's employment with the Company terminates, other than by
reason of permanent disability or death, prior to the date on which the
participant attains the age of 59 1/2, the participant's vested interest in his
or her Employee Stock Ownership Plan account generally will be paid in cash in a
single distribution. If the participant's vested interest in his or her account
is $3,500 or less, benefits are paid as soon as practicable after termination of
employment. If his or her vested interest in the account is more than $3,500,
the participant may elect to receive a distribution of his or her account in
cash (i) approximately 120 days after the end of the year in which his or her
fifth consecutive Break in Service occurs, (ii) any time following his or her
termination of employment and before five consecutive Breaks in Service or (iii)
at age 62.
A participant may elect to receive a distribution in the form of Class A
Common Stock (and Class B Common Stock, where applicable) in lieu of the cash
distribution alternatives described above. Such distribution will be made within
120 days of the participant's normal retirement age (age 59 1/2) or date of
actual retirement, if later. However, for employees whose employment is
terminated after February 9, 1990, with respect to any Class A Common Stock
purchased after December 31, 1986, a participant electing to receive Common
Stock shall receive the payments in five annual installments commencing within
one year after the fifth Plan Year following termination of employment.
If a participant who was only partially vested in his or her account is
reemployed before having five consecutive Breaks in Service, he or she may
reinstate his or her account, including the nonvested portion which was
previously forfeited, by repaying the amount distributed to him or her before
the earlier of (i) the date he or she incurs five consecutive Breaks in Service
following the date of distribution or (ii) five years following reemployment.
20
<PAGE>
A participant may, under rules established by the Committee, make one
withdrawal from the Employee Stock Ownership Plan after attaining age 62, even
if the participant has not terminated employment.
All distributions from the Employee Stock Ownership Plan will be made in
cash, except as noted above. In those instances in which Class A Common Stock or
Class B Common Stock is distributed to participants in lieu of cash,
participants cannot be assured that they will be able to sell their shares in
any one quarterly Trade Date or over any specific period of time or at the
Formula Price at the time of such sale. Accordingly, a participant's ability to
sell shares of Class A Common Stock or Class B Common Stock distributed out of
the Employee Stock Ownership Plan could be adversely affected by any lack of
liquidity in the Limited Market. See "Market Information -- The Limited Market."
All distributions of shares of Class A Common Stock (and Class B Common
Stock where applicable) out of the Employee Stock Ownership Plan will be subject
to the following conditions imposed by the Employee Stock Ownership Plan and/or
the Company's Certificate of Incorporation:
(a) Such shares will be subject to a right of first refusal by the
Company and the Employee Stock Ownership Plan, but will not be subject to
the Company's right of repurchase upon termination of employment or
affiliation. See "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock."
(b) In the event that such shares, at the time they are distributed out
of the Employee Stock Ownership Plan, are not "Readily Tradeable Stock" (as
that term is defined under Treasury Regulation Section 54.4975-7(b)(1)(iv))
or are subject to a "Trading Limitation" (as that term is defined under
Treasury Regulation Section 54.4975-7(b)(10)), then they will be subject to
a "put option" which gives the holder of such shares the right to require
the Company to purchase all or a portion of such shares at their fair market
value during two limited time periods. The first of these periods is the
60-day period following the date on which the shares are distributed out of
the Employee Stock Ownership Plan and the second of these periods is the
60-day period following notification by the Company of the valuation of the
Class A Common Stock and Class B Common Stock as soon as practicable after
the beginning of the Plan Year commencing after such distribution.
Accounts transferred from the CODA or Profit Sharing Retirement Plan retain
the distribution options available under the terms of the plan from which they
were transferred.
Participants are not permitted to make withdrawals under the Employee Stock
Ownership Plan prior to termination of employment except for hardship
withdrawals from the account transferred to the Employee Stock Ownership Plan
from the CODA. See "Employee Benefit Plans -- CODA -- Distributions and
Withdrawals." In the absence of a qualified domestic relations order to the
contrary, a participant's interest in the Employee Stock Ownership Plan may not
be voluntarily or involuntarily assigned or hypothecated, except for the purpose
of qualified Company retirement program loans.
GENERAL PROVISIONS OF THE PROFIT SHARING RETIREMENT PLAN, EMPLOYEE STOCK
OWNERSHIP PLAN AND CODA
The Profit Sharing Retirement Plan, Employee Stock Ownership Plan and CODA
(collectively, the "Plans") each contain the following provisions:
CONTRIBUTION LIMITATIONS
The maximum contribution for any Plan Year which the Company may make to all
Plans for the benefit of a participant (including contributions to the CODA as a
result of salary deferral elections by participants), plus forfeitures, may not
exceed the lesser of (i) $30,000 or (ii) 25% of the participant's compensation.
The $30,000 limit will be adjusted for cost of living in accordance with rules
of the Secretary of the Treasury.
21
<PAGE>
ADMINISTRATION
The Plans are administered by the Committee, whose members are appointed by
and serve at the discretion of the Company's Board of Directors. The members of
the Committee receive no compensation from the Plans for services rendered in
connection therewith. The current members of the Committee are R.E. Bernstein,
S.J. Dalich (Ex-Officio), J. Collymore, W.M. Layson, L.O. Louden, A.H. Park,
J.M. Preimesberger, W. Reed, W.A. Roper, Jr., and M.W. Tobriner (Chairman). The
address of each such person is Science Applications International Corporation,
10260 Campus Point Drive, San Diego, CA 92121, except for Messrs. Layson and
Tobriner each of whom's address is Science Applications International
Corporation, 1710 Goodridge Drive, McLean, VA 22102 and Ms. Collymore whose
address is Science Applications International Corporation, 10770 Wateridge
Circle, San Diego, CA 92121.
The Committee has the power to supervise administration and control of each
Plan's operations, including the power and authority to (i) allocate fiduciary
responsibilities, other than trustee responsibilities, among the Named
Fiduciaries, (ii) designate agents to carry out responsibilities relating to the
Plan, other than fiduciary responsibilities, (iii) employ legal, actuarial,
medical, accounting, programming and other assistance as the Committee may deem
appropriate in carrying out the Plan, (iv) establish rules and regulations for
the conduct of the Committee's business and the administration of the Plan, (v)
administer, interpret, construe and apply the Plan and determine questions
relating to eligibility, the amount of any participant's service and the amount
of benefits to which any participant or beneficiary is entitled, (vi) determine
the manner in which Plan assets are disbursed and (vii) direct the Trustee
regarding investment of Plan assets, subject to the directions of participants
when provided in the Plan.
PASS-THROUGH VOTING AND TENDERING OF CLASS A COMMON STOCK AND CLASS B COMMON
STOCK
Each participant in the Plans has the right to instruct the Trustee on a
confidential basis how to vote his or her proportionate interest in all shares
of Class A Common Stock and/or Class B Common Stock held in the various Plans.
The Plan documents provide that the Trustee will vote all allocated shares held
in the Plans as to which no voting instructions are received (except for shares
held in the TRASOP Fund accounts of participants in the Employee Stock Ownership
Plan), together with all unallocated shares held in the Plans, in the same
proportion, on a Plan-by-Plan basis, as the allocated shares for which voting
instructions have been received are voted. Shares held in the TRASOP Fund
accounts, as to which no voting instructions from participants are received,
will not be voted by the Trustee. The Committee is required to notify
participants of their pass-through voting rights prior to each meeting of
stockholders.
In the event of a tender or exchange offer for the Company's securities,
each participant in the Plans has the right, under current Plan procedures, to
instruct the Trustee on a confidential basis whether or not to tender or
exchange his or her proportionate interest in all shares of Class A Common Stock
and/or Class B Common Stock held in the various Plans. The Plan documents
provide that the Trustee will not tender or exchange any allocated shares with
respect to which no instructions are received from participants. Shares held in
the Plans which have not yet been allocated to the accounts of participants will
be tendered or exchanged by the Trustee, on a Plan-by-Plan basis, in the same
proportion as the allocated shares held in each Plan are tendered or exchanged.
The Trustee's duties with respect to voting and tendering of Class A and
Class B Common Stock are governed by the fiduciary provisions of ERISA. These
fiduciary provisions of ERISA may require, in certain limited circumstances,
that the Trustee override the votes, or decisions whether or not to tender, of
participants with respect to Class A or Class B Common Stock and to determine,
in the Trustee's best judgment, how to vote the shares or whether or not to
tender the shares.
TRUSTEE
State Street Bank and Trust Company of North Quincy, Massachusetts is the
Trustee under each of the Plans.
22
<PAGE>
Generally, the Trustee has all the rights afforded a trustee under
applicable law, although the Trustee generally may exercise those rights only at
the direction of the Committee. Subject to this limitation and those set forth
in the Plans and master trust agreement, the Trustee's rights include, but are
not limited to, the right to (i) invest and reinvest the funds held in the
Plans' trust in any investment of any kind, including qualifying employer
securities and qualifying employer real property as such investments are defined
in Section 407(d) of ERISA, and contracts issued by insurance companies,
including contracts under which the insurance company holds Plan assets in a
separate account or comingles separate accounts managed by the insurance
company, (ii) retain or sell the securities and other property held in the
Plans' trust, (iii) consent or participate in any reorganization or merger in
regard to any corporation whose securities are held in the Plans' trust (subject
in the case of the Company's securities, generally, to the participants'
pass-through voting rights and right to instruct the Trustee in the event of a
tender or exchange offer) and to pay calls or assessments imposed on the holder
thereof and to consent to any contract, lease, mortgage or purchase or sale of
any property between such corporation and any other parties, (iv) exercise all
the rights of the holder of any security held in the Plans' trust, including the
right to vote such securities (subject, in the case of the Company's securities,
generally, to the participants' pass-through voting rights), convert such
securities into other securities, acquire additional securities and exchange
such securities, (v) vote proxies and exercise any other similar rights of
ownership, subject to the Committee's right to instruct the Trustee as to how
(or the method of determining how) the proxies should be voted or such rights
should be exercised and (vi) lend to participants in the Plans such amounts as
the Committee directs.
The Trustee's compensation and all other expenses incurred in the
establishment, administration and operation of the Plans are borne by the
respective Plans unless the Company elects to pay such expenses. Costs or
expenses which are particular to a specific asset or group of assets (such as
interest and normal brokerage and other similar charges incurred in connection
with the purchase of securities by the Plans' trust) are chargeable and
allocable to the participants' accounts to which such securities are allocated
in a manner determined by the Committee.
ADMINISTRATIVE AND CUSTODIAL SERVICES
The Company has entered into an administrative services agreement with
Vanguard, pursuant to which Vanguard performs specified administrative services
for the Plans, principally related to accounting and recordkeeping. Vanguard's
fees for these administrative services are borne by the respective Plans.
ACCOUNT STATEMENTS
Each participant is furnished with a statement of his or her accounts in the
respective Plans, as of the end of each calendar quarter.
AMENDMENT AND TERMINATION
The Company has reserved the right to amend each of the Plans at any time,
for any reason and without prior notice, except that no such amendment may have
the effect of (i) generally causing any assets of the Plans' trusts to be used
for or diverted to any purpose other than providing benefits to participants and
their beneficiaries and defraying expenses of the Plans, except as permitted by
applicable law, (ii) depriving any participant or beneficiary, on a retroactive
basis, of any benefit to which they would otherwise be entitled had the
participant's employment with the Company terminated immediately prior to the
amendment or (iii) increasing the liabilities or responsibilities of a Trustee
or an Investment Manager without its written consent.
The Company has also retained the right to terminate any of the Plans at any
time and for any reason, including if the Company ceases to exist as an entity
in the event it merges into or with any other corporation. In addition, the
Company may discontinue contributions to the Plans; provided, however, that any
such discontinuation of contributions shall not automatically terminate the
Plans as to funds and assets then held by the Trustee.
23
<PAGE>
ERISA
Each of the Plans is subject to the provisions of ERISA, including reporting
and disclosure obligations, fiduciary standards, and the prohibited transaction
rules of Title I thereof. Since each of the Plans is an individual account plan
under ERISA, none of the Plans are subject to the jurisdiction of the Pension
Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA and none of the
Plans' benefits are guaranteed by the PBGC.
FEDERAL INCOME TAX CONSEQUENCES
Each of the Plans is qualified under Section 401(a) of the Code.
Qualification of the Plans under Section 401(a) of the Code has the following
federal income tax consequences:
(a) A participant will not be subject to federal income tax on Company
contributions to the Plans at the time such contributions are made.
(b) A participant will not be subject to federal income tax on any
income or appreciation with respect to such participant's accounts under the
Plans until distributions are made (or deemed to be made) to such
participant.
(c) A participant and the Company will not be subject to federal
employment taxes on Company contributions to the Plans, except as set forth
below with respect to certain Company contributions to the CODA.
(d) The Plans will not be subject to federal income tax on the
contributions to them by the Company and will not be subject to federal
income tax on any of their income or realized gains, assuming that the Plans
do not realize any unrelated business taxable income.
(e) Participation in the Plans will preclude or restrict an employee
from making deductible contributions to an Individual Retirement Account
("IRA"), depending on the employee's marital status and adjusted gross
income ("AGI") for the year. If an employee or his or her spouse is covered
by an employer-maintained retirement plan (such as any of the Plans), an IRA
deduction is available only if the participant's AGI does not exceed a
phase-out level. For married couples, the phase-out of the IRA deduction
begins at $40,000 of AGI and there is no deduction if the participant's AGI
exceeds $50,000. The phase-out for single employees is $25,000/$35,000 of
AGI. For AGI in the phase-out range, the IRA deduction limit is reduced by
the ratio of AGI in excess of $40,000 or $25,000, whichever is applicable,
to $10,000. AGI is determined before any IRA deduction, but after any
elective deferrals to the CODA. To the extent that the IRA deduction is
limited under these provisions, a non-deductible IRA contribution is
permitted (in an amount equivalent to the reduction in the deductible IRA
amount).
(f) Subject to the contribution limitations contained in the Plans, the
Company will be able to deduct the amounts that it contributes under the
Plans, with the amount of such deduction generally equaling the amount of
the contributions.
(g) Distributions from the Plans will be subject to federal income tax
under special, complex rules that apply generally to distributions from
tax-qualified retirement plans. In general, a single distribution from any
of the Plans will be taxable in the year of receipt at regular ordinary
income rates (on the full amount of the distribution, exclusive of the
amount of the participant's voluntary, non-deductible contributions made to
those Plans which previously permitted such contributions) unless the
distributee is eligible for and elects (i) to make a qualifying "rollover"
of the amount distributed to an IRA or another qualified plan or (ii) to
utilize 10-year averaging, 5-year averaging or partial capital gains
taxation of the distribution. However, the tax on any portion of a
qualifying lump sum distribution represented by "net unrealized
appreciation" in Class A or Class B Common Stock distributed shall be
deferred until a subsequent sale or taxable disposition of the shares,
unless the distributee elects not to have this deferral apply.
A "lump sum distribution," for purposes of eligibility for deferral of
tax on net unrealized appreciation, is defined as a distribution of the
employee's entire vested interest under the Plan
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within one taxable year (i) on account of the participant's death or other
separation from service or (ii) after the participant has attained age
59 1/2. For purposes of this definition, distributions from the CODA and the
Profit Sharing Retirement Plan must be aggregated. For a lump sum
distribution to be eligible for 5-year averaging, the participant also must
have been a participant in the Plan from which the distribution is made for
at least five years prior to the year of distribution and must have attained
age 59 1/2 when the distribution is received. Under a special transition
rule, an individual who had attained age 50 on January 1, 1986 and who would
otherwise be entitled to elect 5-year averaging (without regard to the age
59 1/2 requirement) may instead make a one-time election of 10-year
averaging (at 1986 rates) and may elect to have the pre-1974 portion of the
distribution taxed at 1986 capital gains rates. The special 5-year or
10-year averaging treatment, as well as partial capital gains treatment, of
lump sum distributions is applicable to a lump sum distribution from a Plan
only if all other lump sum distributions (whether or not from the same Plan
or Plans of a similar type) received during the same taxable year by the
participant are treated in the same manner. Hence, for example, if a
participant receives a lump sum distribution from the CODA, the Profit
Sharing Retirement Plan and the Employee Stock Ownership Plan in the same
taxable year, he or she could not elect to use 5-year or 10-year averaging
on the CODA and Profit Sharing Retirement Plan distributions while electing
a rollover to an IRA of the distribution from the Employee Stock Ownership
Plan.
"Early" distributions from the Plans will result in an additional 10%
tax on the taxable portion of the distribution, except to the extent the
distribution (i) is rolled over to an IRA or
other qualified plan or (ii) is used for deductible medical expenses.
"Early" distributions are in-service distributions (i.e., prior to
termination of employment) prior to the date the participant attains age
59 1/2 unless due to the permanent disability of the participant, and
distributions made following termination of service unless due to the death
of the participant or made to a participant who terminated employment during
or after the calendar year the participant attained the age of 55.
(h) A participant (or his or her spouse in the event of the
participant's death) who (i) receives a distribution from the Plans (other
than certain mandatory distributions after age 70 1/2) and (ii) wishes to
defer immediate tax upon receipt of such distribution, may transfer (i.e.,
"rollover") all or a portion thereof, exclusive of the amount of the
participant's voluntary nondeductible contributions (made to those Plans
which previously permitted the participant to make voluntary nondeductible
contributions) received in the distribution, to either an IRA or, in the
case of a participant, another qualified retirement plan. To be effective,
the "rollover" must be completed within 60 days of receipt of the
distribution. Alternatively, the participant or spouse may request a direct
rollover from the Plans to an IRA or, in the case of a participant, to
another qualified retirement plan.
A participant (or his or her spouse) who does not arrange a direct
rollover to an IRA or another qualified plan will be subject to mandatory
federal income tax withholding at a rate of 20% of the taxable distribution,
even if the participant or spouse later makes a rollover within the 60-day
period.
A participant (or his or her spouse) who makes a valid "rollover" to an
IRA will defer payment of federal income tax until such time as such
participant (or his or her spouse) actually begins to receive distributions
from the IRA. IRA earnings accumulate on a tax-deferred basis until actually
distributed; however, IRA funds may not be withdrawn without penalty until a
participant (or his or her spouse) (i) attains the age of 59 1/2, (ii)
becomes disabled or (iii) dies. The Code requires that distributions from an
IRA or a qualified retirement plan begin not later than April 1 of the
taxable year following the year in which an individual attains the age of
70 1/2, at which time periodic distributions may continue for the
participant's lifetime or for the lifetime of the participant and the
participant's spouse.
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(i) The Code imposes a 15% excise tax on "excess distributions" to an
individual from all qualified retirement plans and IRAs (whether or not
plans of the same employer). In general, an
"excess distribution" is a distribution or distributions in excess of
$112,500 in any calendar year (adjusted for cost-of-living increases). For
1995, the limit is $150,000. This limit is increased to $562,500 (also
adjusted for cost-of-living) in the case of a lump sum distribution as to
which a qualified recipient elects 5-year or 10-year averaging treatment.
For 1995, the limit is $750,000. Also, an individual was entitled to elect
on his or her 1988 federal income tax return to exclude benefits accrued as
of August 1, 1986, but these benefits are considered in determining whether
additional accrued benefits are subject to the tax.
In addition to the federal income tax consequences applicable to all of the
Plans, the Deferred Fund of the CODA is intended to be a qualified "cash or
deferred arrangement" under Section 401(k) of the Code. A participant in the
CODA who elects to defer a portion of his or her compensation and have the
Company contribute it to the CODA will not be subject to federal income tax on
the amounts contributed at the time the contributions are made. However, these
contributions will be subject to social security taxes and certain federal
unemployment taxes. Elective deferrals by a participant to his or her CODA
account is limited to $7,000 annually (adjusted for cost-of-living). This annual
limit applies on an employee-by-employee basis to all 401(k) plans (including
plans of other employers) in which the employee participates. For calendar year
1995, the adjusted limit is $9,240.
Generally, the Company will be able to deduct the amounts that it
contributes to the CODA pursuant to employee elections to defer a portion of
their compensation, as well as any matching or additional Company contributions
it makes to the Deferred Fund. The deduction will be equal to the amount of
contributions made.
With respect to loans from the CODA commencing after December 31, 1986, any
interest paid by the participant will not be deductible, regardless of the
purpose of the loan or use of the loan proceeds. Moreover, interest paid on any
loan from any of the Plans by a "key employee," as defined in Section 416(i) of
the Code, will not be deductible.
The foregoing discussion is intended only as a summary of certain relevant
federal income tax consequences and does not purport to be a complete discussion
of all of the tax consequences of participation in the Plans. Accordingly,
participants should consult their own tax advisors with respect to all federal,
state and local tax effects of participation in the Plans. Moreover, the Company
does not represent that the foregoing tax consequences will apply to any
particular participant's specific circumstances or will continue to apply in the
future and makes no undertaking to maintain the tax-qualified status of the
Plans.
BONUS COMPENSATION PLAN
GENERAL
The Company's Bonus Compensation Plan became effective on February 1, 1984
and was approved by the stockholders of the Company at the 1984 Annual Meeting
of Stockholders. The Bonus Compensation Plan was amended and restated in its
current form on April 2, 1991. The Plan provides for the distribution of bonuses
in cash or shares of Class A Common Stock or both. The Bonus Compensation Plan
is not subject to ERISA and is not intended to be qualified under Section 401(a)
of the Code.
ELIGIBILITY AND PARTICIPATION
All officers, directors and employees of the Company are eligible to
participate in and receive bonuses under the Bonus Compensation Plan.
AWARDS
Each year the Company establishes a bonus pool which is currently limited to
seven percent of aggregate compensation paid or accrued by the Company for all
persons eligible to receive bonuses under the Bonus Compensation Plan. Awards
under the Bonus Compensation Plan are generally
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made based upon the employee obtaining or achieving performance criteria and, in
some cases, contingent upon a requirement that the employee purchase a specified
number of shares of Class A Common Stock in the Limited Market at the prevailing
Formula Price. Awards of bonuses may be made in cash or shares of Class A Common
Stock or a combination of cash and shares and are made upon the recommendation
of group managers or the Chief Executive Officer of the Company, at the
discretion of the committee administering the Bonus Compensation Plan (the
"Bonus Compensation Committee"). Awards of bonuses pursuant to the Bonus
Compensation Plan are generally distributed after the end of the fiscal year to
which the bonus relates. Pursuant to the Certificate of Incorporation, all
shares of Class A Common Stock awarded under the Bonus Compensation Plan are
subject to the Company's right of first refusal and the Company's right of
repurchase upon termination of employment or affiliation. See "Description of
Capital Stock -- Common Stock -- Restrictions on Class A Common Stock." Awards
of shares of Class A Common Stock may also be subject to forfeiture, in whole or
in part, in the event of the termination of the recipient's employment or
affiliation with the Company prior to the expiration of certain vesting periods,
as determined by the Bonus Compensation Committee.
The Bonus Compensation Plan also provides for the award of special bonuses
("Spot Bonuses") to reward extraordinary effort or special achievement. Spot
Bonuses may be awarded and distributed to eligible persons at any time, in cash,
up to a maximum of $1,000, by a group manager or by the President of the
Company. Individual awards, other than Spot Bonuses, generally range in an
amount from one week's salary to 25% of a recipient's annual salary, based upon
the recipient's position with the Company; however, the Bonus Compensation Plan
does not provide for a maximum or minimum number of shares of Class A Common
Stock or an amount of cash which may be awarded to any recipient.
Pursuant to the Bonus Compensation Plan, bonuses to members of the Bonus
Compensation Committee (other than the Chief Executive Officer of the Company)
must be approved by the Chief Executive Officer and bonuses to the Chief
Executive Officer must be approved by the Board of Directors and the
Compensation Committee of the Board of Directors. Members of the Bonus
Compensation Committee are ineligible to receive awards of Class A Common Stock
while serving on the Bonus Compensation Committee. For services rendered during
the fiscal year ended January 31, 1994, a total of 7,956 individuals received an
aggregate of approximately $14,180,000 in cash bonuses and 660,000 shares of
Class A Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
Awards under the Bonus Compensation Plan of cash bonuses and shares of Class
A Common Stock that are not subject to forfeiture are taxable as ordinary income
to the recipient in the year received. Awards of shares of Class A Common Stock
that are subject to forfeiture will not be recognized for federal income tax
purposes by recipients at the time such awards are made, unless the recipient
makes an election, as discussed below, to recognize the award as income at the
time received.
The recipient of shares of Class A Common Stock that are subject to
forfeiture will recognize income at the time all or a portion of the award
becomes nonforfeitable to the extent of the value of such nonforfeitable shares
at such time. Such recipient may, however, elect to recognize, for federal
income tax purposes, the value of an award of shares of Class A Common Stock on
the date such shares are received, even though the shares remain subject to
forfeiture at that time. The election must be made within 30 days after the
award of shares.
If such an election is made, future appreciation in the value of the shares
of Class A Common Stock will not be treated as taxable compensation. However, if
the shares are forfeited after the taxable year in which such election is made,
no deduction will be allowed to the recipient. The Company is entitled to a
deduction at the time the recipient recognizes the award (or a portion thereof)
as taxable income in an amount equal to the amount recognized by the recipient
as taxable income.
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The foregoing discussion is intended only as a summary of certain federal
income tax consequences and does not purport to be a complete discussion of all
of the tax consequences of participation in the Bonus Compensation Plan.
Accordingly, recipients of awards under the Bonus Compensation Plan should
consult their own tax advisors with respect to all federal, state and local tax
effects of participation in the Bonus Compensation Plan. Moreover, the Company
does not represent that the foregoing tax consequences will apply to any
particular participant's specific circumstances.
AMENDMENT AND TERMINATION
The Bonus Compensation Plan may at any time be amended or terminated, either
by the Company's stockholders or by the Board of Directors, except that no
amendment or termination of the Bonus Compensation Plan may, without a
participant's consent, affect any bonus award previously made to such
participant.
ADMINISTRATION
The Bonus Compensation Plan is administered by the Bonus Compensation
Committee, whose members consist of three or more directors. The members of the
Bonus Compensation Committee are appointed by and serve at the discretion of the
Company's Board of Directors. Members of the Bonus Compensation Committee
receive no compensation from the Bonus Compensation Plan for services rendered
in connection therewith. The current members of the Bonus Compensation Committee
are J.R. Beyster (Chairman), M.E. Trout and J.B. Wiesler. The address of each
such person is Science Applications International Corporation, 10260 Campus
Point Drive, San Diego, CA 92121.
STOCK COMPENSATION PLANS
GENERAL
On April 9, 1994, the Company adopted the Stock Compensation Plan and the
Management Stock Compensation Plan. In connection with the Stock Compensation
Plans, the Company entered into a trust agreement ("Trust Agreement") with State
Street Bank and Trust Company, as Trustee, establishing a trust ("Trust") which
will hold the accounts of participants under the Stock Compensation Plans.
ELIGIBILITY, PARTICIPATION AND AWARDS
All officers and employees of the Company (including directors who are
employees of the Company) are eligible to receive awards under the Stock
Compensation Plans. However, only a select group of management and highly
compensated senior employees are eligible to receive awards under the Management
Stock Compensation Plan. It is intended that the participants of the Management
Stock Compensation Plan be limited to individuals that would permit the plan to
be treated as a "top hat" plan under applicable Internal Revenue Service and
Department of Labor regulations.
Each year the Company will establish a discretionary stock compensation
award pool. Awards under the Stock Compensation Plans will generally be made
upon the employee attaining or achieving performance criteria. Awards under the
Stock Compensation Plans will be determined by the Awarding Authority, which is
an individual or individuals to be appointed by the Board of Directors of the
Company. J.R. Beyster is the current Awarding Authority. The address of J.R.
Beyster is Science Applications International Corporation, 10260 Campus Point
Drive, San Diego, CA 92121.
Awards will be made in Share Units, as defined in the Stock Compensation
Plans. Each Share Unit generally corresponds to one share of Class A Common
Stock of the Company, but the employee receiving an award of Share Units will
not have a direct ownership interest in the shares of Class A Common Stock
represented by the Share Units. The Company will contribute to the Trust either
shares of Class A Common Stock, or cash with which the Trustee will purchase
Class A Common Stock, corresponding to the Share Units awarded under the Plan.
Each employee receiving an award of Share Units will have an account established
on his or her behalf in the Trust credited with the shares of Class A Common
Stock allocated to the account based on the award of Share Units.
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Each account established in the Trust under the Stock Compensation Plans
will be subject to a vesting schedule not to exceed seven years, established by
the Awarding Authority. It is contemplated that the vesting schedule will
generally provide for vesting at the rate of one-third at the end of each of the
fifth, sixth and seventh years following the date of the award. Unvested
portions of the account will be forfeited in the event of termination of
employment for whatever reason (other than death) prior to full vesting of the
account. Any forfeited account balances may be returned to the Company or
reallocated to other participants as determined by the Company.
Distribution of vested account balances will occur at the end of the
seven-year vesting period (or upon termination of employment, if earlier).
However, employees may elect, within 90 days of the date of the award, to
receive distribution of the account as it becomes vested or, alternatively, in
the case of the Management Stock Compensation Plan, to defer distribution until
termination of employment.
PROVISIONS RELATING TO THE TRUST
Although administered under a single Trust Agreement, each of the Stock
Compensation Plans is a separate plan, and the accounts of each of the Stock
Compensation Plans are maintained under a separate sub-trust with the Trustee.
The assets of the sub-trust established for each of the Stock Compensation Plans
are not available to pay benefits or satisfy liabilities of the other Plan.
The Trust is a so-called "grantor" trust or "rabbi" trust. The assets of the
Trust are available to satisfy the creditors of the Company in the event of the
bankruptcy or insolvency of the Company. Accordingly, participants in the Stock
Compensation Plans have no direct right to obtain shares of Class A Common Stock
or other assets held in the Trust in the event of such insolvency or bankruptcy
and also have no direct rights against the Company for their benefits. Rather,
participants have the limited rights of a general creditor (along with other
general creditors of the Company) whose only recourse is against the assets of
the Company, including the assets of the Trust. The assets of the Trust are not
guaranteed or insured by any party, including the Company.
FEDERAL INCOME TAX CONSEQUENCES
Because awards under the Stock Compensation Plans are represented only by an
interest in the Trust, and because the Trust is intended to be a so-called
"grantor" trust within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Code (by virtue of the fact that the assets of the Trust
are available to satisfy the creditors of the Company in the event of the
Company's bankruptcy or insolvency), the participants in the Stock Compensation
Plans should not be considered to have taxable income until their accounts are
distributed or made available to them under the terms of the Stock Compensation
Plans. This tax treatment is consistent with a series of private letter rulings
issued by the Internal Revenue Service with respect to so-called "rabbi" trusts,
including a private letter ruling issued in 1992 with respect to a rabbi trust
designed to invest primarily or exclusively in employer stock. Although the
Company believes that the analysis contained in these private letter rulings
applies to the Stock Compensation Plans, the Stock Compensation Plans are not
identical to the plans considered in the rulings, and, moreover, private letter
rulings apply only to the taxpayer who requests and receives the ruling. Because
the Company is not applying for a ruling on behalf of the Stock Compensation
Plans, there can be no definite assurance that the above-described tax treatment
will apply. The foregoing discussion is intended only as a summary of certain
relevant federal income tax consequences and does not purport to be a complete
discussion of all of the tax consequences of participation in the Stock
Compensation Plans. Accordingly, participants should consult their own tax
advisors with respect to all federal, state and local tax effects of
participation in the Stock Compensation Plans. Moreover, the Company does not
represent that the foregoing tax consequences will apply to any particular
participant's specific circumstances or will continue to apply in the future.
ERISA
It is intended that the Management Stock Compensation Plan be exempt from
the reporting and disclosure, participation and vesting, funding and fiduciary
responsibility provisions of ERISA as a plan "which is unfunded and is
maintained by an employer primarily for the purpose of providing
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deferred compensation for a select group of management or highly compensated
employees" (a so-called "top hat" plan). The Department of Labor issued an
opinion letter in 1992 indicating that a rabbi trust established to be invested
primarily in stock of the employer would not cause the related plan to be
"funded." Hence, the related plan was entitled to rely on the top hat exemption.
It is intended that the Stock Compensation Plan be exempt from ERISA because
it is not a plan which is designed to provide retirement income to employees or
which results in the deferral of income by employees for periods extending to
the termination of employment or beyond. Although the Company believes these
ERISA exemptions are available to the Stock Compensation Plans, no Department of
Labor opinion is being sought and no assurances can be made that the ERISA
exemptions will apply or continue to apply.
AMENDMENTS AND TERMINATION
The Board of Directors may amend or terminate the Stock Compensation Plans
for any reason, including, but not limited to, adverse changes in accounting
rules or tax laws or the bankruptcy, receivership or dissolution of the Company.
In the event of amendment or termination, benefits will either be paid out when
due under the terms of the Stock Compensation Plans or paid out as soon as
practicable as determined by the Stock Compensation Plans Committee in its sole
discretion.
ADMINISTRATION
The day-to-day administration of the Stock Compensation Plans is provided by
the Stock Compensation Plans Committee appointed by the Board of Directors of
the Company. D.W. Baldwin, S.P. Fisher and W. Reed are the current members of
the Stock Compensation Plans Committee. The address of each such person is
Science Applications International Corporation, 10260 Campus Point Drive, San
Diego, CA 92121. Members of the Committee are eligible to receive awards under
the Stock Compensation Plans.
EMPLOYEE STOCK PURCHASE PLANS
1993 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Stock Purchase Plan was approved by the stockholders of the Company at
the 1993 Annual Meeting of Stockholders and became effective on July 9, 1993.
The Stock Purchase Plan is intended to qualify under Section 423(b) of the Code.
The Stock Purchase Plan provides for the purchase of Class A Common Stock by
participating employees through voluntary payroll deductions. At each Trade
Date, the Trustee purchases for the account of each participant that whole
number of shares of Class A Common Stock which may be acquired from the funds
available in the participant's stock purchase account, together with the
Company's five percent contribution described below. The Stock Purchase Plan is
not subject to ERISA.
ELIGIBILITY
Generally, all of the Company's employees are eligible to participate in the
Stock Purchase Plan, except for employees in non-participating subsidiaries. No
employee, however, who owns capital stock of the Company having more than five
percent of the voting power or value of such capital stock will be able to
participate. An employee's eligibility to participate in the Stock Purchase Plan
will terminate immediately upon termination of employment with the Company.
Employees may participate in the Stock Purchase Plan by completing a payroll
deduction authorization form and providing it to the designated officials of the
Company. The minimum payroll deduction allowed is three percent of compensation
and the maximum allowable deduction is 10% of compensation. Further, no employee
is entitled to purchase an amount of Class A Common Stock having a fair market
value (measured as of its purchase date) in excess of $25,000 in any calendar
year pursuant to the Stock Purchase Plan and any other employee stock purchase
plan that may be adopted by the Company.
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PURCHASE OF SHARES
Shares of Class A Common Stock purchased under the Stock Purchase Plan may
be acquired in the Limited Market or purchased from the Company out of its
authorized but unissued shares. See "Market Information -- The Limited Market."
A maximum of 650,000 shares of Class A Common Stock (subject to adjustment in
the event of a change in the capitalization of the Company effected without
receipt of consideration by the Company) have been authorized for issuance by
the Company as newly issued shares under the Stock Purchase Plan. For the fiscal
year ended January 31, 1995, 288,627 shares of Class A Common Stock were
purchased for the accounts of 1,632 participants in the Company's Stock Purchase
Plan.
The purchase price to be paid for the shares of Class A Common Stock
acquired for the accounts of participants will be the prevailing Formula Price.
Of this amount, 95% will be paid out of the funds contributed by the participant
and five percent will be paid by the Company.
DISTRIBUTION AND WITHDRAWALS
Shares of Class A Common Stock acquired under the Stock Purchase Plan will
be distributed to each participant no later than 90 days after the end of the
Plan Year in which the acquisition occurred and in the interim will be held by
the Trustee for the account of such participant.
Pursuant to the Certificate of Incorporation, all shares of Class A Common
Stock purchased pursuant to the Stock Purchase Plan will be subject to the
Company's right of repurchase upon the participant's termination of employment
or affiliation with the Company at the then prevailing Formula Price in the case
of shares held by the participant directly, and at the Formula Price in effect
at the time of the annual distribution of shares out of the Stock Purchase Plan
in the case of shares held by the Trustee for the benefit of the participant.
All such shares will also be subject to the Company's right of first refusal in
the event that the participant desires to sell such shares other than in the
Limited Market. See "Description of Capital Stock -- Common Stock --
Restrictions on Class A Common Stock."
Participants may withdraw the money held in their stock purchase accounts at
any time prior to the acquisition of shares of Class A Common Stock therewith,
although upon doing so the participant will not be eligible to participate in
the Stock Purchase Plan until the following Plan Year after such withdrawal. No
interest will be paid on the money held in the stock purchase accounts of the
participants unless required by law.
AMENDMENT AND TERMINATION
The Board of Directors of the Company may suspend or amend the Stock
Purchase Plan in any respect, except that no amendment may (i) increase the
maximum number of shares authorized to be issued by the Company under the Plan,
(ii) increase the Company's contribution for each share purchased above five
percent of the applicable purchase price for such share, (iii) cause the Stock
Purchase Plan to fail to qualify under Section 423(b) of the Code or (iv) deny
to participating employees the right at any time to withdraw from the Stock
Purchase Plan and thereupon obtain all amounts then due to their credit in their
Stock Purchase Accounts. The Stock Purchase Plan will terminate on July 31,
1995.
ADMINISTRATION
The Stock Purchase Plan is administered by the Company's Stock Purchase Plan
Committee (the "Stock Purchase Committee"), whose members are appointed by and
serve at the discretion of the Company's Board of Directors. Members of the
Stock Purchase Committee receive no compensation from the Stock Purchase Plan
for services rendered in connection therewith. The current members of the Stock
Purchase Committee are A. Maharry, W. Reed and W.A. Roper, Jr. The address of
each such person is Science Applications International Corporation, 10260 Campus
Point Drive, San Diego, CA 92121. Members of the Stock Purchase Committee are
eligible to participate in the Stock Purchase Plan.
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TRUSTEE
The Trustee of the Stock Purchase Plan is the Company.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, no taxable income will be recognized by a
participant in the Stock Purchase Plan until the taxable year of sale or other
disposition of the shares of Class A Common Stock acquired under the Plan. When
the shares are disposed of by a participant two years or more from the date such
shares were purchased for the participant's account by the Trustee, the
participant must recognize ordinary income for the taxable year of disposition
to the extent of the lesser of (i) the excess of the fair market value of the
shares on the purchase date over the amount of the purchase price paid by the
participant (the "Discount") or (ii) the amount by which the fair market value
of the shares at disposition or death exceeds the purchase price, with any gain
in excess of such ordinary income amount being treated as a long-term capital
gain, assuming that the shares are a capital asset in the hands of the
participant. In the event of a participant's death while owning shares acquired
under the Stock Purchase Plan, ordinary income must be recognized in the year of
death in the amount specified in the foregoing sentence. When the shares are
disposed of prior to the expiration of the two-year holding period (a
"disqualifying disposition"), the participant must recognize ordinary income in
the amount of the Discount, even if the disposition is by gift or is at a loss.
In the cases discussed above (other than death), the amount of ordinary
income recognized by a participant is added to the purchase price paid by the
participant and this amount becomes the tax basis for determining the amount of
the capital gain or loss from the disposition of the shares.
Net capital gains are presently taxed at a maximum federal income tax rate
of 28%, compared to a maximum rate of 39.6% for ordinary income. However,
limitations on itemized deductions and the phaseout of personal exemptions may
result in effective marginal tax rates higher than 28% for net capital gains and
39.6% for ordinary income.
The Company will not be entitled to a deduction at any time for the shares
issued pursuant to the Stock Purchase Plan if a participant holding such shares
continues to hold his or her shares or disposes of his or her shares after the
required two-year holding period or dies while holding such shares. If, however,
a participant disposes of such shares prior to the expiration of the two-year
holding period, the Company is allowed a deduction to the extent of the amount
of ordinary income includable in gross income by such participant for the
taxable year as a result of the early disposition of the shares.
The foregoing discussion is intended only as a summary of certain relevant
federal income tax consequences and does not purport to be a complete discussion
of all of the tax consequences of participation in the Stock Purchase Plan.
Accordingly, participants should consult their own tax advisors with respect to
all federal, state and local tax effects of participation in the Stock Purchase
Plan. Moreover, the Company does not represent that the foregoing tax
consequences will apply to any participant's specific circumstances or will
continue to apply in the future and makes no undertaking to maintain the
tax-qualified status of the Stock Purchase Plan.
1995 EMPLOYEE STOCK PURCHASE PLAN
On April 14, 1995, the Board of Directors approved, subject to stockholder
approval, the 1995 Employee Stock Purchase Plan. Stockholders will be asked to
approve the 1995 Employee Stock Purchase Plan at the Company's 1995 Annual
Meeting of Stockholders. If the 1995 Employee Stock Purchase Plan is approved by
stockholders, it will become effective on July 14, 1995 and will terminate July
31, 1998. The terms of the 1995 Employee Stock Purchase Plan will be
substantially the same as those currently in effect with respect to the existing
Stock Purchase Plan, except that pursuant to the 1995 Employee Stock Purchase
Plan a maximum of 1,500,000 shares of Class A Common Stock will be authorized
for issuance pursuant thereto, the Company contribution to the purchase price
may be from 0% to 15% of the purchase price, as determined by the Stock Purchase
Committee from time to
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<PAGE>
time, and distributions of shares of Class A Common Stock acquired under the
1995 Employee Stock Purchase Plan will be made prior to any record date
established by the Company for a stockholder vote.
STOCK OPTION PLANS
1982 STOCK OPTION PLAN
GENERAL
The 1982 Stock Option Plan was approved by the Company's Board of Directors
in March 1982 and by the stockholders of the Company at the 1982 Annual Meeting
of Stockholders, and was amended by the Board of Directors in April 1987, which
amendments were approved by the stockholders in June 1987 (as so amended, the
"1982 Option Plan"). The 1982 Option Plan authorized the granting of both
incentive stock options ("ISO's") and non-qualified stock options with respect
to an aggregate of 22,500,000 shares of capital stock. Commencing in September
1987, it has been the practice of the Company to grant only non-qualified stock
options due primarily to the favorable tax benefits received by the Company upon
the exercise of such options. See "General Provisions of the Option Plans --
Federal Income Tax Consequences." As of March 10, 1995, the Company had
5,432,008 shares of Class A Common Stock reserved for issuance upon exercise of
non-qualified stock options previously granted under the 1982 Option Plan; no
ISO's are outstanding. The 1982 Option Plan terminated on, and no option may be
granted after, June 10, 1992. The 1982 Option Plan is not subject to ERISA and
is not intended to be qualified under Section 401(a) of the Code.
The exercise price of options granted under the 1982 Option Plan is
determined by the Stock Option Committee and may not be less than 100% of the
fair market value of the capital stock on the date of grant. Upon the exercise
of an option, the exercise price is fully payable, in whole or in part, in cash
or in shares of capital stock valued at the Formula Price on the date of
exercise. Any withholding required as a result of the exercise of a
non-qualified option may, at the discretion of the Stock Option Committee, be
satisfied by withholding in shares of capital stock of the Company valued at the
Formula Price on the date of exercise. All options granted pursuant to the 1982
Option Plan are non-transferable except by will or the laws of intestate
succession.
Options granted under the 1982 Option Plan may be exercised over a period
specified in the stock option agreement (which period may not exceed 10 years),
except for options granted to persons owning shares possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company
or any of its subsidiaries, which may not be exercisable for more than five
years from the date of grant. If an optionee's employment terminates as a result
of retirement or permanent disability, all options may be exercised, to the
extent exercisable at the date of termination, for three additional months, but
in no event beyond their respective expiration dates. If an optionee dies while
employed by the Company, all options, to the extent exercisable at the date of
death, may, for up to one additional year (but in no event later than their
respective expiration dates), be exercised by the optionee's estate or by the
person to whom the optionee's rights pass. Upon termination of employment for
any other reason, all options will terminate as of the date of such termination
of employment, unless otherwise provided by the Stock Option Committee at the
date of grant (but in no event shall the option be exercisable for a period
extending beyond 90 days following such termination). Currently, the practice of
the Stock Option Committee is to provide in the grant that the optionee may
exercise the option within 30 days following termination of employment, but only
to the extent that the option was exercisable as of the date of such
termination.
ELIGIBILITY AND PARTICIPATION
The 1982 Option Plan terminated on, and no options may be granted after,
June 10, 1992. As of March 10, 1995, there were 7,627 separate option agreements
with optionees outstanding under the 1982 Option Plan.
33
<PAGE>
1992 STOCK OPTION PLAN
GENERAL
The 1992 Stock Option Plan (the "1992 Option Plan") was approved by the
Board of Directors on April 10, 1992 and by the stockholders of the Company at
the 1992 Annual Meeting of Stockholders. The 1992 Option Plan provides for the
granting of non-qualified options to purchase a maximum of 12,000,000 shares of
Class A Common Stock to key employees, consultants and directors. As of March
10, 1995, the Company had 9,000,000 shares of Class A Common Stock reserved for
issuance upon the exercise of options granted or to be granted under the 1992
Option Plan. The 1992 Option Plan is not subject to ERISA and is not intended to
be qualified under Section 401(a) of the Code.
The exercise price of options granted under the 1992 Option Plan is 100% of
the fair market value of the Class A Common Stock on the date of grant. Upon the
exercise of an option, the exercise price must be paid in full in cash or in
shares of Class A Common Stock valued at the Formula Price on the date of
exercise. 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. Any
withholding required as a result of the exercise of an option may, at the
discretion of the Stock Option Committee, be satisfied by withholding in shares
of Class A Common Stock valued at the Formula Price on the date of exercise. All
options granted under the 1992 Option Plan are non-transferable except by will
or the laws of intestate succession.
Options granted under the 1992 Option Plan may be exercised over a period
specified in the option agreement (which period may not exceed 10 years). If an
optionee's employment terminates as a result of retirement or permanent total
disability, all options may be exercised, to the extent exercisable at the date
of termination, for 90 additional days, but in no event beyond their respective
expiration dates. If an optionee dies while employed by or affiliated with the
Company, all unexercised options, to the extent exercisable at the date of
death, may, for up to one additional year, or such shorter period as may be
specified in the option agreement (but not beyond their respective expiration
dates), be exercised by the optionee's estate or the person to whom the
optionee's rights pass by will or the laws of descent and distribution. Upon
termination of employment for any other reason, all options will terminate as of
the date of termination of employment or affiliation, unless such date is
extended by the Stock Option Committee (but not beyond their respective
expiration dates). Currently, the practice of the Stock Option Committee is to
provide in the grant that the optionee may exercise the option within 30 days
following termination of employment or affiliation, but only to the extent that
the option was exercisable as of the date of such termination.
ELIGIBILITY AND PARTICIPATION
The persons eligible to receive options under the 1992 Option Plan are key
employees, directors and consultants. No option may be granted to any individual
who, at the time the option is granted, owns more than 10% of the total combined
voting power of all classes of capital stock of the Company. As of March 10,
1995, there were 11,603 separate option agreements with optionees outstanding
under the 1992 Option Plan. Other than the foregoing, the 1992 Option Plan does
not provide any limit as to the number of shares that may be subject to options
granted to any one individual.
AMENDMENT AND TERMINATION
The 1992 Option Plan may be amended, suspended or terminated by the Board of
Directors, except that no such amendment may, without the approval of the
holders of outstanding shares of the Company having a majority of the general
voting power, (i) increase the maximum number of shares for which options may be
granted (other than by reason of changes in capitalization and similar
adjustments), (ii) change the provisions of the 1992 Option Plan relating to the
establishment of the exercise price (other than the provisions relating to the
manner of determination of fair market value of the Company's capital stock to
conform to any applicable requirements of the Code or regulations
34
<PAGE>
issued thereunder) or (iii) permit the granting of options to members of the
Stock Option Committee. The 1992 Option Plan by its terms will terminate on, and
no option may be granted after, July 31, 1995.
1995 STOCK OPTION PLAN
On April 14, 1995, the Board of Directors approved, subject to stockholder
approval, the 1995 Stock Option Plan (the "1995 Option Plan"). Stockholders will
be asked to approve the 1995 Option Plan at the Company's 1995 Annual Meeting of
Stockholders. If the 1995 Option Plan is approved by stockholders, it will
become effective on July 14, 1995 and will terminate on, and no option may be
granted after, July 31, 1998. The terms of the 1995 Option Plan will be
substantially similar to those currently in effect with respect to the 1992
Option Plan, except that pursuant to the 1995 Option Plan a maximum of
12,000,000 shares of Class A Common Stock will be authorized for issuance, the
aggregate number of shares subject to options granted to any individual may not
exceed 500,000 shares and ISOs as well as non-qualified stock options may be
granted.
GENERAL PROVISIONS OF THE OPTION PLANS
GENERAL
All shares issued upon exercise of options granted under the 1982 Option
Plan, the 1992 Option Plan or the 1995 Option Plan if approved by stockholders
(collectively, the "Option Plans") are subject to (i) the Company's right of
first refusal in the event that the optionee desires to sell his or her shares
other than in the Limited Market and (ii) the Company's right of repurchase upon
termination of the optionee's employment or affiliation. See "Description of
Capital Stock -- Common Stock -- Restrictions on Class A Common Stock." Only
shares of Class A Common Stock will be issued upon exercise of options. See
"Description of Capital Stock -- Common Stock -- General."
The Company follows the practice of granting stock options to employees
outright, contingent upon the employee attaining a certain level of contract
awards for the Company during a specified period or satisfying other performance
criteria and, in some cases, also contingent upon a requirement that such
individuals purchase a specified number of shares of Class A Common Stock in the
Limited Market at the prevailing Formula Price. Options generally become
exercisable on a cumulative basis over a four-year period.
If the outstanding shares of the capital stock of the Company are changed
into, or exchanged for a different number or kind of shares or securities of the
Company through reorganization, merger, recapitalization, reclassification or
similar transaction, or if the number of outstanding shares is changed through a
stock split, stock dividend, stock consolidation or similar transaction, an
appropriate adjustment (determined by the Board of Directors in its sole
discretion) will be made in the number and kind of shares and the exercise price
per share of options which are outstanding or which may be granted thereafter.
No adjustment to the number of shares reserved for issuance by the Company under
the 1982 Option Plan was made as a result of the reorganization of the Company
in 1984. As of March 10, 1995, there were 5,432,008 shares of Class A Common
Stock reserved for issuance under the 1982 Option Plan and 9,000,000 shares of
Class A Common Stock reserved for issuance under the 1992 Option Plan.
Under the 1982 Option Plan, the Stock Option Committee may accelerate the
exercisability of options in the case of an optionee whose employment is
terminated by reason of a sale or other disposition by the Company of assets in
respect of which the optionee was employed; and options will become fully
exercisable in the case of (i) approval of the Board of Directors of (a) a
consolidation or merger in which the Company is not the surviving corporation or
pursuant to which shares of capital stock would be converted into cash,
securities or other property, other than a merger in which stockholders of the
Company immediately prior thereto will have the same proportionate ownership of
capital stock of the surviving corporation immediately thereafter, or (b) a
sale, lease, exchange or
35
<PAGE>
other transfer of all or substantially all of the assets of the Company or (ii)
any person (other than the Company or any subsidiary or employee benefit plan
thereof) becoming the beneficial owner of more than 25% of the outstanding
Common Stock without the prior approval of the Board of Directors.
Under the 1992 Option Plan and the 1995 Option Plan (if approved by
stockholders), the options will become fully exercisable upon any person (other
than the Company or any subsidiary or employee benefit plan thereof) becoming
the beneficial owner of more than 25% of the outstanding capital stock without
the prior approval of the Board of Directors. The Stock Option Committee is also
given the discretion to accelerate or defer the exercise of options in other
circumstances, at the Stock Option Committee's discretion.
ADMINISTRATION
The Option Plans are administered by the Stock Option Committee whose
members consist of three or more directors or other individuals appointed by and
who serve at the discretion of the Company's Board of Directors. The members of
the Stock Option Committee are not eligible to receive options while serving on
the Stock Option Committee. The Stock Option Committee is appointed annually by
the Board of Directors, which may also fill vacancies or replace members of the
Stock Option Committee. Subject to the express provisions of the Option Plans,
the Stock Option Committee has the authority to (i) interpret the Option Plans,
(ii) prescribe, amend and rescind rules and regulations relating to the Option
Plans, (iii) determine the individuals to whom and the time or times at which
options may be granted and the number of shares to be subject to each option
granted under the Option Plans, (iv) determine the terms and conditions of the
option agreements under the Option Plans (which need not be identical), (v) with
respect to the 1995 Option Plan, determine whether to grant ISOs or
non-qualified stock options, and (vi) make all other determinations necessary or
advisable for the administration of the Option Plans. In addition, the Stock
Option Committee may, with the consent of the affected optionees and subject to
the general limitations of the Option Plans, make any adjustment in the exercise
price, the number of shares subject to, or the term of, any outstanding option
by cancellation of such option and a subsequent regranting of such option, or by
amendment or substitution of such option. Options which have been so amended,
regranted or substituted may have higher or lower exercise prices, cover a
greater or lesser number of shares of capital stock, or have longer or shorter
terms, than the prior options. The members of the Stock Option Committee receive
no compensation from the Option Plans for services rendered in connection
therewith. The current members of the Stock Option Committee are J.R. Beyster
(Chairman), M.E. Trout and J.B. Wiesler. The address of each such person is
Science Applications International Corporation, 10260 Campus Point Drive, San
Diego, CA 92121.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Options granted under the 1995 Option Plan
designated as such are intended to constitute ISOs for federal income tax
purposes. Generally, an optionee receiving an ISO will not be in receipt of
taxable income upon the grant of the ISO or upon its timely exercise. The
exercise of an ISO 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 ISO 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 ISO or the
sale of such shares by the optionee.
However, if the capital stock acquired upon the timely exercise of an ISO is
disposed of by the optionee prior to the expiration of two years from the date
of grant of the ISO 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
36
<PAGE>
and the lesser of the fair market value of the capital stock on the date the ISO
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 his or her 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.
Non-Qualified Options. All outstanding options under the 1982 Option Plan
and all options granted or to be granted under the 1992 Option Plan are
non-qualified options. Options granted under the 1995 Option Plan may be
non-qualified options or ISO's, as determined by the Committee at the time of
grant. Generally, the optionee will not be taxed upon the grant of any
non-qualified option but rather, at the time of exercise of such option, the
optionee will recognize ordinary income for federal income tax purposes in an
amount equal to the excess of the fair market value at the time of exercise of
the capital stock purchased over the exercise price. The Company will generally
be entitled to a tax deduction at such time and in the same amount that the
optionee realizes ordinary income.
If capital stock acquired upon the exercise of a non-qualified option is
later sold or exchanged, then the difference between the sale price and the fair
market value of such capital stock on the date which governs the determination
of ordinary income is generally taxable (provided the stock is a 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 ISO will be
treated as though it were a non-qualified 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 ISO is made by surrendering previously owned shares of the capital stock, the
following rules will apply:
If shares of "statutory option stock" (i.e., stock previously acquired
pursuant to the exercise of an ISO) are surrendered in payment of the exercise
price of an ISO 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 ISO 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
37
<PAGE>
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 non-qualified 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 ISO:
(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
ISO 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 non-qualified option is made by
surrendering previously owned shares of capital stock, the following rules
apply:
(a) No gain or loss will be recognized as a result of the surrender of
shares in exchange for an equal number of shares subject to the
non-qualified option, and the surrender of shares will not be treated as a
disqualifying disposition of any stock acquired through exercise of an ISO.
(b) The number of shares received equal to the shares surrendered will
have a basis equal to the shares surrendered and a holding period that
includes the holding period of the shares surrendered.
(c) Any additional shares received 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 Option Plans. Accordingly,
holders of options granted under the Option Plans should consult their own tax
advisors for specific advice with respect to all federal, state or local tax
effects before exercising any options and before disposing of any shares of
capital stock acquired upon the exercise of an option. Moreover, the Company
does not represent that the foregoing tax consequences apply to any particular
option holder's specific circumstances or will continue to apply in the future.
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<PAGE>
OUTSTANDING OPTIONS
The following table presents information as of March 10, 1995 with respect
to shares of Class A Common Stock subject to outstanding stock options granted
under each of the Option Plans. There are 7,627 and 11,603 separate option
agreements which evidence the options outstanding under the 1982 Option Plan and
1992 Option Plan, respectively.
1982 OPTION PLAN
<TABLE>
<CAPTION>
SHARES OF CLASS AVERAGE
A EXERCISE
COMMON STOCK PRICE EXPIRATION DATES
- ---------------- ------------- -------------------------------------------
<C> <C> <S>
1,042,367 $ 9.60 March 1995 through February 1996
2,825,282 $ 10.38 March 1996 through February 1997
1,564,359 $ 11.16 March 1997 through June 1997
</TABLE>
1992 OPTION PLAN
<TABLE>
<CAPTION>
SHARES OF CLASS AVERAGE
A EXERCISE
COMMON STOCK PRICE EXPIRATION DATES
- ---------------- ------------- -------------------------------------------
<C> <C> <S>
872,951 $ 11.79 August 1997 through February 1998
2,421,549 $ 12.96 March 1998 through March 1999
3,108,485 $ 14.73 April 1999 through April 2000
</TABLE>
On April 14, 1995, the Formula Price of the Class A Common Stock was $16.41.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 100,000,000 shares of Class A Common
Stock, par value $.01 per share, 5,000,000 shares of Class B Common Stock, par
value $.05 per share, and 3,000,000 shares of Preferred Stock, par value $.05
per share (the "Preferred Stock"). As of March 10, 1995, there were 45,179,231
shares of Class A Common Stock, 341,822 shares of Class B Common Stock and no
shares of Preferred Stock issued and outstanding. The Class A Common Stock and
Class B Common Stock are sometimes collectively or individually referred to as
the "Common Stock."
COMMON STOCK
GENERAL
Except as otherwise provided by law, the holders of shares of Class A Common
Stock and Class B Common Stock vote together as a single class in all matters,
with each holder of Class A Common Stock having one vote per share and each
holder of Class B Common Stock having five votes per share. The holders of
shares of Class A Common Stock and Class B Common Stock are entitled to cumulate
their votes for the election of directors. Cumulative voting entitles each
stockholder to cast the number of votes that equals the number of shares of
Class A Common Stock or five times the number of shares of Class B Common Stock
held by such stockholder multiplied by the number of directors to be elected.
Each stockholder may cast all of such votes for a single nominee or may
distribute them among any two or more nominees as such stockholder sees fit. The
Certificate of Incorporation provides for a classified Board of Directors
consisting of three classes of directors, as nearly as equal in number as
practicable. The number of authorized directors is currently fixed at 22
directors of which 8 are Class II and the remaining positions are evenly divided
between Class I and Class III directors. Each year the stockholders elect a
different class of directors to serve a three-year term. As a result of the
classification of the Board of Directors, the votes of a greater number of
shares would be required to ensure the election of a director than would be
required without such classification.
Subject to the prior rights of the holders of any Preferred Stock then
outstanding, the holders of Class A Common Stock and Class B Common Stock are
entitled to receive dividends, out of funds legally available therefor, when and
as declared by the Board of Directors and to participate equally and ratably in
the net assets of the Company available for distribution in the event of
liquidation, dissolution or winding up, after payment of any amounts due to
creditors; provided, however, that any dividend or distribution with respect to
a share of Class B Common Stock must be five times the dividend or distribution,
as the case may be, with respect to a share of Class A Common Stock.
Holders of Class A Common Stock have no conversion rights and holders of
Class A Common Stock and Class B Common Stock have no preemptive or subscription
rights. Neither class of Common Stock may be subdivided, consolidated,
reclassified or otherwise changed unless the relative powers, preferences,
rights, qualifications, limitations and restrictions applicable to the other
class of Common Stock are maintained. In any merger, consolidation or business
combination to which the Company is a party (other than a merger, consolidation
or business combination in which the Company is the surviving corporation and
which does not result in any reclassification of or change in the outstanding
shares of Common Stock), the consideration to be received with respect to each
share of Class B Common Stock must be equal to five times the consideration to
be received with respect to each share of Class A Common Stock, except that if
capital stock is distributed in any such transaction, such shares may differ as
to the rights of the holders thereof only to the extent that such rights differ
pursuant to Article FOURTH of the Certificate of Incorporation. All shares of
Class A Common Stock and Class B Common Stock presently outstanding are, and the
shares offered hereby upon full payment therefor will be, fully paid and
nonassessable.
Pursuant to the terms of the Certificate of Incorporation, the Company is
prohibited from issuing any additional shares of Class B Common Stock. Each
share of Class B Common Stock is convertible at
40
<PAGE>
any time, at the option of the holder thereof, into five shares of Class A
Common Stock, and all shares of Class B Common Stock reacquired by the Company
will be retired and will not be available for reissuance.
Article FOURTEENTH of the Certificate of Incorporation generally requires
that mergers and certain other business combinations ("Business Combinations")
between the Company and any holder of five percent or more of the Company's
outstanding voting power (a "Related Person") must be approved by the holders of
securities having 80% of the Company's outstanding voting power, as well as by
the holders of a majority of such securities that are not owned by the Related
Person. Under Delaware law, unless the Certificate of Incorporation provides
otherwise, only a majority of the Company's outstanding voting power is required
to approve certain of these transactions, such as mergers and consolidations,
while certain other of these transactions would not require stockholder
approval.
The 80% and majority of independent voting power requirements of Article
FOURTEENTH (the "Supermajority Vote Requirements") will not apply, however, to a
Business Combination with a Related Person, if (i) the transaction is approved
by the Board of Directors prior to the time the Related Person becomes a Related
Person (i.e., prior to the time the Related Person acquired beneficial ownership
of five percent or more of the Company's outstanding voting power), (ii) the
transaction is approved by at least a majority of the members of the Board of
Directors who are unaffiliated with the Related Person and who were directors
before the Related Person became a Related Person or (iii) the Business
Combination involves only the Company and one or more of its subsidiaries and
certain other conditions are satisfied.
Article FOURTEENTH also provides that in the event a Business Combination
with a Related Person subject to the Supermajority Vote Requirements is
consummated, stockholders of the Company who voted against the Business
Combination, at their option, will have the right to receive a price which is
equal to (i) the price offered by the Related Person in the Business Combination
or (ii) the greater of (a) the highest price per share paid by the Related
Person in acquiring shares of capital stock of the Company or (b) a price which
bears the same percentage relationship to the market price of the Company's
capital stock immediately preceding the announcement of the Business Combination
as the highest price paid by the Related Person for any of the Company's capital
stock bears to the market price of the Company's capital stock immediately
before the Related Person initially acquired any shares of the Company's capital
stock.
Article FOURTEENTH was adopted by the stockholders of the Company at the
1983 Annual Meeting of Stockholders and the full text of such Article appeared
as Exhibit B to the Company's Proxy Statement for that meeting. Additional
copies of Article FOURTEENTH may be obtained, upon request, by writing the
Company at 10260 Campus Point Drive, San Diego, California 92121, Attention:
Corporate Secretary.
The amendment of certain provisions of the Certificate of Incorporation and
Bylaws require the approval of not less than two-thirds of the total voting
power of all outstanding shares of voting stock of the Company. Such provisions
relate to the number of directors, the election of directors and the vote of
stockholders required to modify the provisions of the Certificate of
Incorporation and Bylaws requiring such approvals.
The Company acts as its own transfer agent for the Class A Common Stock and
Class B Common Stock.
As of March 10, 1995, there were 11,228 record holders of Class A Common
Stock and 139 record holders of Class B Common Stock.
41
<PAGE>
RESTRICTIONS ON CLASS A COMMON STOCK
All the shares of Class A Common Stock presently outstanding are, and all
shares of Class A Common Stock offered hereby will be, subject to certain
restrictions (including restrictions on their transferability) set forth in
Article FOURTH of the Certificate of Incorporation, which restrictions provide
substantially as follows:
Right of Repurchase upon Termination of Employment or Affiliation. All
shares of Class A Common Stock owned by a person who is an employee or director
of, or a consultant to, the Company (except for shares of Class A Common Stock
that are held by a stockholder who received such shares (i) in connection with
the reorganization of the Company in 1984 in exchange for shares of the Company
which immediately prior thereto were not subject to a right of repurchase upon
termination of employment or affiliation on the part of the Company, (ii) upon
exercise of a non-qualified stock option granted prior to October 1, 1981 under
the Company's 1979 Stock Option Plan which were not converted into ISO's, (iii)
in exchange for shares of Class B Common Stock that were not subject to a right
of repurchase upon termination of employment or affiliation on the part of the
Company or (iv) pursuant to a stock dividend or a stock split on the outstanding
shares of Class A Common Stock which have been theretofore issued under any of
the circumstances described in clauses (i), (ii), (iii) or this clause (iv))
will be subject to the Company's right of repurchase upon the termination of
such holder's employment or affiliation with the Company. Such right of
repurchase will also be applicable to all shares of Class A Common Stock which
such person has the right to acquire after his or her termination of employment
or affiliation pursuant to any of the Company's employee benefit plans (other
than the Employee Stock Ownership Plan or any other retirement or pension plan
adopted by the Company or any of its subsidiaries which by its terms does not
provide for the Company's right to repurchase shares issued thereunder upon
termination of employment or affiliation) or pursuant to any option or other
contractual right to acquire shares of Class A Common Stock which was
outstanding at the date of such termination of employment or affiliation.
The Company's right of repurchase is exercised by mailing a written notice
to such holder within 60 days following termination of employment or
affiliation. If the Company repurchases the shares, the price will be the
Formula Price per share (i) on the date of such termination of employment or
affiliation, in the case of shares owned by the holder at that date and shares
issuable to the holder after that date pursuant to any option or other
contractual right to acquire shares of Class A Common Stock which were
outstanding at that date or (ii) on the date such shares are distributed to the
holder, in the case of shares distributable to the holder after his or her
termination of employment or affiliation pursuant to any of the Company's
employee benefit plans. The Company will, in the event it exercises its right of
repurchase upon termination of employment or affiliation, pay for such shares in
cash within 90 days after the date referred to in (i) or (ii) above, as the case
may be.
Right of First Refusal. In the event that a holder of Class A Common Stock
desires to sell any of his or her shares to a third party other than in the
Limited Market, such person must first give notice to the Corporate Secretary of
the Company consisting of: (i) a signed statement setting forth such holder's
desire to sell his or her shares of Class A Common Stock and that he or she has
received a bona fide offer to purchase such shares; (ii) a statement signed by
the intended purchaser containing (a) the intended purchaser's full name,
address and taxpayer identification number, (b) the number of shares to be
purchased, (c) the price per share to be paid, (d) the other terms under which
the purchase is intended to be made and (e) a representation that the offer,
under the terms specified, is bona fide and (iii) if the purchase price is
payable in cash, in whole or in part, a copy of a certified check, cashier's
check or money order payable to such holder from the purchaser in the amount of
the purchase price to be paid in cash.
Upon receiving such notice, the Company will have the right, exercisable
within 14 days, to purchase all of the shares specified in the notice at the
offer price and upon the same terms as set forth in the notice. In the event the
Company does not exercise such right, the holder may sell the shares specified
in the notice within 30 days thereafter to the person specified in the notice at
the price and
42
<PAGE>
upon the terms and conditions set forth therein. The holder may not sell such
shares to any other
person or at any different price or on any different terms without first
re-offering the shares to the Company.
Transfers Other than by Sale. Except for sales in the Limited Market and as
described above, no holder of Class A Common Stock may sell, assign, pledge,
transfer or otherwise dispose of or encumber any shares of Class A Common Stock
without the prior written approval of the Company. Any attempt to do so without
such prior approval will be null and void. The Company may condition its
approval of a transfer of any shares of Class A Common Stock, other than by sale
by an employee, director or a consultant of the Company or by a person who
acquired such shares other than by purchase, directly or indirectly, from an
employee, director or consultant of the Company, upon the transferee's agreement
to hold such shares subject to the Company's right to repurchase such shares
upon the termination of employment or affiliation of the employee, director or
consultant.
Lapse or Waiver of Restrictions. All restrictions upon the shares of Class
A Common Stock will automatically terminate (i) if the Company makes an
underwritten offering of either class of its Common Stock, or securities
convertible into any class of its Common Stock, to the general public or (ii) if
the Company applies to have any class of its Common Stock, or securities
convertible into any class of its Common Stock, listed on a national securities
exchange. In addition, the Board of Directors may waive any or all of the
restrictions on shares of Class A Common Stock in such other circumstances as
the Board deems appropriate.
RESTRICTIONS ON CLASS B COMMON STOCK
Substantially all of the presently outstanding shares of Class B Common
Stock are subject to a right of first refusal on the part of the Company in the
event a stockholder desires to sell his or her shares of Class B Common Stock
other than in the Limited Market. Such right is exercisable by the Company at
the third-party offer price. In addition, all of the presently outstanding
shares of Class B Common Stock that were issued subsequent to October 1, 1981
(other than shares issued subsequent to that date which were distributed out of,
or are presently held in, the Profit Sharing Retirement Plan, Employee Stock
Ownership Plan and CODA or that were issued upon the exercise of stock options
granted prior to that date) are subject to a right of repurchase on the part of
the Company upon termination of the stockholder's employment or affiliation with
the Company. This right is generally exercisable by the Company at a price equal
to five times the Formula Price for Class A Common Stock prevailing at the time
of such termination. By their terms, all such restrictions will terminate in the
event that either class of the Common Stock is listed on any national securities
exchange or is traded on a regular basis, as determined by the Company, in the
over-the-counter market.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Board of Directors may,
from time to time, authorize the issuance of one or more series of Preferred
Stock and fix by resolution or resolutions adopted at the time of issuance the
designations, preferences and relative rights, qualifications and limitations of
each series. Each series of Preferred Stock could, as determined by the Board of
Directors at the time of issuance, rank senior to the Class A Common Stock and
Class B Common Stock with respect to dividends and redemption and liquidation
rights.
The Certificate of Incorporation authorizes the Board of Directors to
determine, among other things, with respect to each series of Preferred Stock
which may be issued: (i) the dividend rates, conditions and preferences, if any,
in respect of the Class A Common Stock and Class B Common Stock and among the
series of Preferred Stock, (ii) whether dividends would be cumulative and, if
so, the date from which dividends on the series would accumulate, (iii) whether,
and to what extent, the holders of the series would have voting rights in
addition to those prescribed by law, (iv) whether, and upon what terms, the
series would be convertible into or exchangeable for other securities, (v)
whether, and upon what terms, the series would be redeemable, (vi) the
preference, if any, to which the series would be entitled in the event of
voluntary or involuntary liquidation, dissolution or
43
<PAGE>
winding up of the Company and (vii) whether or not a sinking fund would be
provided for the redemption of the series and, if so, the terms and conditions
thereof. With regard to dividends and redemption and liquidation rights, the
Board of Directors may determine that any particular series of Preferred Stock
may rank junior to, on a parity with or senior to any other series of Preferred
Stock.
Holders of shares of Preferred Stock will have no preferential or preemptive
right to purchase any shares of the Company's capital stock. The Company has no
present intention or plan to issue any shares of Preferred Stock.
ANTI-TAKEOVER EFFECTS
The combined effect of the classification of the Board of Directors into
three different classes, the cumulative voting rights of the stockholders, the
Supermajority Vote Requirements, the provisions of the Certificate of
Incorporation and Bylaws of the Company requiring the approval of at least two-
thirds of the voting power of all outstanding shares of Common Stock for certain
amendments to the Certificate of Incorporation or Bylaws, the Company's right of
first refusal, and the Company's right of repurchase upon termination of
employment or affiliation, may discourage, delay or prevent attempts to acquire
control of the Company that are not negotiated with the Company's Board of
Directors. The provisions may, individually or collectively, have the effect of
discouraging takeover attempts that some stockholders might deem to be in their
best interests, including tender offers in which stockholders might receive a
premium for their shares over the Formula Price available in the Limited Market,
as well as making it more difficult for individual stockholders or a group of
stockholders to elect directors. However, the Board of Directors believes that
these provisions are in the best interests of the Company and its stockholders,
because such provisions may encourage potential acquirors to negotiate directly
with the Board of Directors which is in the best position to act on behalf of
all stockholders.
LEGAL OPINION
The legality of the Class A Common Stock offered hereby has been passed upon
for the Company and the Selling Stockholders by Douglas E. Scott, Esquire,
Corporate Vice President and General Counsel of the Company. As of March 31,
1995, Mr. Scott owned of record 9,697 shares of Class A Common Stock, had the
right to acquire an additional 20,700 shares pursuant to previously granted
stock options and beneficially owned a total of 3,401 shares through the
Company's retirement plans.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1995, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
44
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Information Incorporated by Reference.......... 2
The Company.................................... 2
Government Contracts........................... 3
Securities Offered by the Prospectus........... 4
Market Information............................. 8
Dividend Policy................................ 11
Use of Proceeds................................ 11
Employee Benefit Plans......................... 12
Description of Capital Stock................... 40
Legal Opinion.................................. 44
Experts........................................ 44
</TABLE>
34,000,000 SHARES
CLASS A COMMON STOCK
[LOGO]
---------------------
P R O S P E C T U S
---------------------
APRIL , 1995
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimated statement of all expenses
incurred in connection with the registration and distribution of the securities
being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 83,440*
Legal Fees and Expenses.......................................... 20,000
Printing Fees and Expenses....................................... 31,500
Accounting Fees and Expenses..................................... 17,000
Blue Sky Qualification Fees...................................... 26,000
Miscellaneous.................................................... 1,000
---------
Total........................................................ $ 178,940
---------
---------
<FN>
- ------------------------
* The Selling Stockholders have each agreed to pay their pro-rata portion of
the registration fee.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware grants each
corporation organized thereunder, such as the Registrant, the power to indemnify
its directors and officers against certain circumstances. Article FIFTEENTH of
the Registrant's Restated Certificate of Incorporation provides for
indemnification of directors and officers to the fullest extent permitted by
law. The Company also has directors and officers liability insurance, with
policy limits of $25 million, under which directors and officers of the Company
are insured against certain liabilities which they may incur in such capacities.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(a) Article FOURTH of the Registrant's Restated Exhibit 3 to the Registrant's Post- Effective
Certificate of Incorporation, as amended on Amendment No. 1 to Form S-2 as filed on August
August 21, 1987. 21, 1987 with the SEC.
4(b) Form of Non-Qualified Stock Option Agreement of Exhibit 4(c) to the Registrant's Annual Report on
the Registrant's 1992 Stock Option Plan (form Form 10-K for the fiscal year ended January 31,
dated August 1992). 1993 (the "1993 10-K").
4(c) Form of Non-Qualified Stock Option Agreement of Exhibit 4(p) to the Registrant's Annual Report on
the Registrant (Employee, Director and Form 10-K for the fiscal year ended January 31,
Consultant of the Registrant's 1982 Stock Option 1991 (the "1991 10-K").
Plan (form dated October 1990).
4(d) Form of Stock Restriction Agreement of the Exhibit 4(e) to the Registrant's Annual Report on
Registrant's Employee Stock Ownership Plan (form Form 10-K for the fiscal year ended January 31,
dated March 1, 1985). 1985 (the "1985 10-K").
4(e) Form of Stock Restriction Agreement of the Exhibit 4(b) to the 1991 10-K.
Registrant's Bonus Compensation Plan (form dated
October 1990).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(f) Form of Stock Restriction Agreement of the Exhibit 4(g) to the 1985 10-K.
Registrant's Cash or Deferred Arrangement
(TRASOP Account) (form dated March 1, 1985).
4(g) Registrant's Bonus Compensation Plan, as amended Exhibit 4(l) to the 1991 10-K.
through April 2, 1991.
4(h) Registrant's 1982 Stock Option Plan, as amended Exhibit 4(n) to the Registrant's Annual Report on
through June 9, 1989. Form 10-K for the fiscal year ended January 31,
1990.
4(i) Form of Stock Restriction Agreement of the Exhibit 4(r) to the 1991 10-K.
Registrant's Employee Stock Ownership Plan
(TRASOP Account) (form dated April 1, 1991).
4(j) Registrant's 1992 Stock Option Plan, amended Exhibit 4(g) to the Registrant's Annual Report on
through November 3, 1994. Form 10-K for the fiscal year ended January 31,
1995 (the "1995 10-K").
4(k) Registrant's 1993 Employee Stock Purchase Plan. Annex I to the Proxy Statement for the 1993
Annual Meeting of Stockholders.
4(l) Form of Stock Restriction Agreement of the Exhibit 4(v) to the 1993 10-K.
Registrant's Bonus Compensation Plan (form dated
July 1992).
4(m) Registrant's Stock Compensation Plan. Exhibit 4(l) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31,
1994 (the "1994 10-K").
4(n) Registrant's Management Stock Compensation Plan. Exhibit 10(m) to the 1994 10-K.
4(o) Form of Non-Qualified Stock Option Agreement of Exhibit 4(n) to the 1995 10-K.
the Registrant's 1992 Stock Option Plan (form
dated February 1995).
4(p) Form of Non-Qualified Stock Option Agreement of Exhibit 4(o) to the 1995 10-K.
the Registrant's 1992 Stock Option Plan (form
dated February 1995).
4(q) Form of Stock Restriction Agreement of the Exhibit 4(p) to the 1995 10-K.
Registrant's Bonus Compensation Plan (form dated
March 1995).
4(r) 1995 Employee Stock Purchase Plan (subject to Exhibit 4(q) to the 1995 10-K.
stockholder approval).
4(s) 1995 Stock Option Plan (subject to stockholder Exhibit 4(r) to the 1995 10-K.
approval).
5(a) Opinion of Douglas E. Scott, Esq. **
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
5(b) Internal Revenue Service determination letter Exhibit 5(b) to the Registrant's Form S-3 as
dated December 3, 1993, relating to the filed on April 14, 1994 with the SEC.
Company's Employee Stock Ownership Plan.
5(c) Internal Revenue Service determination letter Exhibit 5(c) to the Registrant's Form S-3 as
dated December 3, 1993, relating to the filed on April 14, 1994 with the SEC.
Company's Cash or Deferred Arrangement.
23(a) Consent of Douglas E. Scott, Esq. (contained in **
Exhibit 5 to this Registration Statement).
23(b) Consent of Price Waterhouse LLP. **
<FN>
- ------------------------
** Filed herewith.
</TABLE>
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) Rule 415 Offering
Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement, excluding information contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the Registration Statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Security and Exchange Commission Policy Regarding Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the provisions of Section 145 of the General Corporation
Law of Delaware and Article FIFTEENTH of Registrant's Certificate of
Incorporation, or otherwise, Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Registrant of the expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
(d) Deregistration of Certain Previously Registered Shares
Pursuant to Registrant's undertaking to remove from registration any of its
registered securities which remain unsold at the termination of the offering,
Registrant hereby deregisters the number of shares from the registration
statements and for the purposes indicated in the table below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO
REGISTRATION BE
NO. NAME OF PLAN OR INDIVIDUAL DEREGISTERED
- --------------- --------------------------------------------------------------------------- -----------
<S> <C> <C>
33-40079 J.H. Warner, Jr. 8,000
33-53177 Registrant (including its retirement and employee benefit plans) 343,683
33-61022 Registrant (including its retirement and employee benefit plans) 86,895
33-47244 Registrant (including its retirement and employee benefit plans) 2,969,959
33-40079 Registrant (including its retirement and employee benefit plans) 250,000
33-21145 Registrant (including its retirement and employee benefit plans) 212,497
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Diego, State of California on April 14, 1995.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
By __________/S/_J.R. BEYSTER_________
J.R. Beyster
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints J.D. Heipt, L.A. Kull and D.E. Scott, or
any one of them jointly and severally, such person's attorneys-in-fact, each
with the power of substitution, for such person in any and all capacities, to
execute any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-3 and to file the same, with all exhibits
thereto, and any other documents in connection therewith, with the Securities
and Exchange Commission under the Securities Act of 1933, and hereby ratifies
and confirms all that each of said attorneys-in-fact, or each of their
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/S/ J.R. BEYSTER
------------------------------------------- Chairman of the Board and April 14, 1995
J.R. Beyster Chief Executive Officer
/S/ W.A. ROPER, JR.
------------------------------------------- Principal Financial Officer April 14, 1995
W.A. Roper, Jr.
/S/ P.N. PAVLICS
------------------------------------------- Principal Accounting Officer April 14, 1995
P.N. Pavlics
/S/ A.L. ALM
------------------------------------------- Director April 14, 1995
A.L. Alm
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/S/ V.N. COOK
------------------------------------------- Director April 14, 1995
V.N. Cook
/S/ S.J. DALICH
------------------------------------------- Director April 14, 1995
S.J. Dalich
/S/ C.K. DAVIS
------------------------------------------- Director April 14, 1995
C.K. Davis
/S/ W.H. DEMISCH
------------------------------------------- Director April 14, 1995
W.H. Demisch
/S/ E.A. FRIEMAN
------------------------------------------- Director April 14, 1995
E.A. Frieman
/S/ J.E. GLANCY
------------------------------------------- Director April 14, 1995
J.E. Glancy
/S/ D.A. HICKS
------------------------------------------- Director April 14, 1995
D.A. Hicks
/S/ B.R. INMAN
------------------------------------------- Director April 14, 1995
B.R. Inman
/S/ D.M. KERR
------------------------------------------- Director April 14, 1995
D.M. Kerr
/S/ L.A. KULL
------------------------------------------- Director April 14, 1995
L.A. Kull
------------------------------------------- Director April , 1995
M.R. Laird
/S/ W.M. LAYSON
------------------------------------------- Director April 14, 1995
W.M. Layson
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
/S/ C.B. MALONE
------------------------------------------- Director April 14, 1995
C.B. Malone
/S/ J.W. MCRARY
------------------------------------------- Director April 14, 1995
J.W. McRary
/S/ E.A. STRAKER
------------------------------------------- Director April 14, 1995
E.A. Straker
------------------------------------------- Director April , 1995
M.R. Thurman
/S/ M.E. TROUT
------------------------------------------- Director April 14, 1995
M.E. Trout
/S/ J.H. WARNER, JR.
------------------------------------------- Director April 14, 1995
J.H. Warner, Jr.
/S/ J.A. WELCH
------------------------------------------- Director April 14, 1995
J.A. Welch
J.B. WIESLER
------------------------------------------- Director April 14, 1995
J.B. Wiesler
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(a) Article FOURTH of the Registrant's Restated Exhibit 3 to the Registrant's Post- Effective
Certificate of Incorporation, as amended on Amendment No. 1 to Form S-2 as filed on August
August 21, 1987. 21, 1987 with the SEC.
4(b) Form of Non-Qualified Stock Option Agreement of Exhibit 4(c) to the Registrant's Annual Report on
the Registrant's 1992 Stock Option Plan (form Form 10-K for the fiscal year ended January 31,
dated August 1992). 1993 (the "1993 10-K").
4(c) Form of Non-Qualified Stock Option Agreement of Exhibit 4(p) to the Registrant's Annual Report on
the Registrant (Employee, Director and Form 10-K for the fiscal year ended January 31,
Consultant of the Registrant's 1982 Stock Option 1991 (the "1991 10-K").
Plan (form dated October 1990).
4(d) Form of Stock Restriction Agreement of the Exhibit 4(e) to the Registrant's Annual Report on
Registrant's Employee Stock Ownership Plan (form Form 10-K for the fiscal year ended January 31,
dated March 1, 1985). 1985 (the "1985 10-K").
4(e) Form of Stock Restriction Agreement of the Exhibit 4(b) to the 1991 10-K.
Registrant's Bonus Compensation Plan (form dated
October 1990).
4(f) Form of Stock Restriction Agreement of the Exhibit 4(g) to the 1985 10-K.
Registrant's Cash or Deferred Arrangement
(TRASOP Account) (form dated March 1, 1985).
4(g) Registrant's Bonus Compensation Plan, as amended Exhibit 4(l) to the 1991 10-K.
through April 2, 1991.
4(h) Registrant's 1982 Stock Option Plan, as amended Exhibit 4(n) to the Registrant's Annual Report on
through June 9, 1989. Form 10-K for the fiscal year ended January 31,
1990.
4(i) Form of Stock Restriction Agreement of the Exhibit 4(r) to the 1991 10-K.
Registrant's Employee Stock Ownership Plan
(TRASOP Account) (form dated April 1, 1991).
4(j) Registrant's 1992 Stock Option Plan, as amended Exhibit 4(g) to the Registrant's Annual Report on
through November 3, 1994. Form 10-K for the fiscal year ended January 31,
1995 (the "1995 10-K").
4(k) Registrant's 1993 Employee Stock Purchase Plan. Annex I to the Proxy Statement for the 1993
Annual Meeting of Stockholders.
4(l) Form of Stock Restriction Agreement of the Exhibit 4(v) to the 1993 10-K.
Registrant's Bonus Compensation Plan (form dated
July 1992).
4(m) Registrant's Stock Compensation Plan. Exhibit 4(l) to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 31,
1994 (the "1994 10-K").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS INCORPORATED BY REFERENCE TO
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
4(n) Registrant's Management Stock Compensation Plan. Exhibit 10(m) to the 1994 10-K.
4(o) Form of Non-Qualified Stock Option Agreement of Exhibit 4(n) to the 1995 10-K.
the Registrant's 1992 Stock Option Plan (form
dated February 1995).
4(p) Form of Non-Qualified Stock Option Agreement of Exhibit 4(o) to the 1995 10-K.
the Registrant's 1992 Stock Option Plan (form
dated February 1995).
4(q) Form of Stock Restriction Agreement of the Exhibit 4(p) to the 1995 10-K.
Registrant's Bonus Compensation Plan (form dated
March 1995).
4(r) 1995 Employee Stock Purchase Plan (subject to Exhibit 4(q) to the 1995 10-K.
stockholder approval).
4(s) 1995 Stock Option Plan (subject to stockholder Exhibit 4(r) to the 1995 10-K.
approval).
5(a) Opinion of Douglas E. Scott, Esq. **
5(b) Internal Revenue Service determination letter Exhibit 5(b) to the Registrant's Form S-3 as
dated December 3, 1993, relating to the filed on April 14, 1994 with the SEC.
Company's Employee Stock Ownership Plan.
5(c) Internal Revenue Service determination letter Exhibit 5(c) to the Registrant's Form S-3 as
dated December 3, 1993, relating to the filed on April 14, 1994 with the SEC.
Company's Cash or Deferred Arrangement.
23(a) Consent of Douglas E. Scott, Esq. (contained in **
Exhibit 5 to this Registration Statement).
23(b) Consent of Price Waterhouse LLP. **
<FN>
- ------------------------
** Filed herewith.
</TABLE>
<PAGE>
EXHIBIT 5(A)
April 18, 1995
Science Applications
International Corporation
10260 Campus Point Drive
San Diego, CA 92121
Gentlemen:
I am the Corporate Vice President and General Counsel of Science
Applications International Corporation (the "Company"). As such, I have acted as
your counsel in connection with the Prospectus of the Company covering the offer
and sale by (i) the Company of up to 33,773,500 shares of its Class A Common
Stock, par value $0.01 per share (the "Class A Common Stock") (the shares of
Class A Common Stock being offered by the Company are hereinafter referred to as
the "Company Shares"), which may be offered and sold directly by the Company,
sold by stockholders through the limited market maintained by Bull, Inc. (the
sale of which may be attributed to the Company), or issued pursuant to the
Company's existing stock option plans, the proposed stock option plan and the
employee stock purchase plan being presented to stockholders for approval at the
annual meeting (the "1995 Stock Option Plan and the "1995 Employee Stock
Purchase Plan," respectively) and the Company's or its subsidiaries' other
employee benefits plans (all such plans are hereinafter referred to collectively
as the "Employee Plans"), and (ii) the Selling Stockholders (as defined in the
Prospectus) of up to an aggregate of 226,500 shares of Class A Common Stock (the
"Selling Stockholder Shares"). The Company Shares and the Selling Stockholder
Shares are being offered pursuant to a Prospectus which constitutes a part of
the Registration Statement on Form S-3 (the "Registration Statement") to be
filed with the Securities and Exchange Commission (the "Commission") on April
18, 1995 under the Securities Act of 1933, as amended (the "Securities Act").
I am generally familiar with the affairs of the Company. In addition, I have
examined and am familiar with originals or copies, certified or otherwise
identified to my satisfaction, of (i) the Registration Statement, (ii) the
Restated Certificate of Incorporation and Bylaws of the Company as currently in
effect, (iii) resolutions adopted by the Board of Directors and the Operating
Committee thereof relating to the filing of the Registration Statement and the
issuance of the Company Shares thereunder, (iv) the Employee Plans and (v) such
other documents as I have deemed necessary or appropriate as a basis for the
opinions set forth below. In my examination, I have assumed the genuineness of
all signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to me as originals, the conformity to original documents of
all documents submitted to me as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based upon and subject to the foregoing, I am of the opinion that:
1. The Company Shares that are being offered and sold directly by the
Company have been duly authorized for issuance and when certificates
therefor have been duly executed, delivered and paid for, will be legally
issued, fully paid and nonassessable.
2. Any shares of Class A Common Stock sold by stockholders through the
limited market maintained by Bull, Inc. which are attributed to the Company
have been duly authorized for issuance and legally issued and are fully paid
and nonassessable.
3. The Company Shares that are being issued pursuant to the Employee
Plans have been duly authorized for issuance (with respect to the 1995 Stock
Option Plan and 1995 Employee Stock Purchase Plan, subject to approval by
stockholders at the annual meeting), and when certificates therefor have
been duly executed, delivered and paid for in accordance with the terms of
the Employee Plans, will be legally issued, fully paid and nonassessable.
4. The Selling Stockholder Shares have been duly authorized and are
legally issued, fully paid and nonassessable.
<PAGE>
I hereby consent to the use of my name in the Registration Statement under
the caption "Legal Opinion" and to the filing of this opinion as an exhibit to
the Registration Statement. In giving such consent, I do not thereby admit that
I come within the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
[SIG]
Douglas E. Scott
Corporate Vice President
and General Counsel
2
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 31, 1995 appearing on page F-2 of Science Applications International
Corporation's Annual Report on Form 10-K for the year ended January 31, 1995. We
also consent to the incorporation by reference in such Prospectus of our report
dated March 16, 1995 appearing on page F-2 of the Annual Report of the Science
Applications International Corporation 1993 Employee Stock Purchase Plan for the
year ended January 31, 1995 appearing in the Science Applications International
Corporation Annual Report on Form 10-K. In addition, we hereby consent to the
incorporation by reference in such Prospectus of our report dated March 31, 1995
appearing on page F-2 of the Annual Report of the Science Applications
International Corporation Cash or Deferred Arrangement for the year ended
December 31, 1994 appearing in the Science Applications International
Corporation Annual Report on Form 10-K. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
San Diego, California
April 17, 1995
