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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-12771
SCIENCE APPLICATIONS INTERNATIONAL
CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 95-3630868
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
10260 CAMPUS POINT DRIVE, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 546-6000
</TABLE>
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of March 8, 1996, the aggregate market value of the voting stock held by
non-affiliates of Registrant was $458,834,548. For the purpose of this
calculation, it is assumed that the Registrant's affiliates include the
Registrant's Board of Directors and certain of the Registrant's employee benefit
plans. The Registrant disclaims the existence of any control relationship
between it and such employee benefit plans.
As of March 8, 1996, there were 46,883,544 shares of Registrant's Class A
Common Stock and 329,673 shares of Registrant's Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the Company's 1996
Annual Meeting of Stockholders are incorporated by reference in Part III of this
Form 10-K Report.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Science Applications International Corporation (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, Department of
Veterans Affairs ("VA"), Environmental Protection Agency and National
Aeronautics and Space Administration. Revenues generated from the sale of
Technical Services and Products to the U.S. Government as a prime contractor or
subcontractor accounted for approximately 83%, 86% and 88% of revenues in fiscal
years 1996, 1995 and 1994, 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 93% and 7%, respectively, for fiscal year 1996;
approximately 91% and 9%, respectively, for fiscal year 1995; and approximately
92% and 8%, respectively, for fiscal year 1994. The Company provides Technical
Services primarily in the areas of "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. For
certain financial information regarding the Company's Technical Services and
Products segments, see Note C of Notes to Consolidated Financial Statements of
the Company set forth on page F-10 of this Form 10-K.
The principal office and corporate headquarters of the Company is located
in San Diego, California at 10260 Campus Point Drive, San Diego, California
92121 and its telephone number is (619) 546-6000. All references to the Company
include, unless the context indicates otherwise, the Company and its predecessor
and subsidiary corporations. For the purposes of this Form 10-K, the term
"Company" shall refer to the Company and all of its wholly-owned subsidiaries.
TECHNICAL SERVICES
National Security
The Company currently provides a wide array of national security-related
Technical Services to its customers, including advanced research and technology
development, systems engineering and systems integration and technical,
operational and management support services. Examples of the Company's Technical
Services in the national security area include the following:
- Development and integration of command, control and intelligence
applications software, middleware, and data bases in client-server
architectures to provide situational awareness and decision-aiding to
military commanders and organizations; the range of services includes
architectural definition, systems and software engineering, systems
installation, training and site support.
- Information system engineering and support services, including
requirements analysis and acquisition support, computer system design,
information and user environment modeling and data communication systems
support.
- Defense studies and analyses for various defense and intelligence
agencies of the U.S. Government, including studies regarding
conventional and nuclear warfare issues, treaty negotiation and
verification, and the integration of military operational and
technological considerations with defense policy issues.
- Development of core technology for advanced distributed simulation and
applications for the DOD and other government and commercial customers.
- Support of numerous DOD test and evaluation requirements of ground, air,
sea and space systems; assistance to the U.S. Air Force, U.S. Navy, U.S.
Army, U.S. Marine Corps and the Office of the
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Secretary of Defense in assessing the military effectiveness and
suitability of major communication, sensor, navigation, weapon and
related systems that support primary service and/or joint service roles
and missions.
- Logistics engineering services and turnkey logistics information
management systems for a wide variety of government customers.
- Design, integration, implementation and operation of battlefield
simulation training ranges on land, air and sea.
- Systems engineering and technical assistance for cruise missiles,
unmanned aerial vehicles, future aircraft and ballistic missile
concepts; systems analysis of sensors for the detection and tracking of
aircraft and ballistic missiles; and studies regarding the survivability
of tactical aircraft and strategic missiles.
- Support to the DOD in imagery collection, processing, exploitation and
dissemination systems for digital processing, technology intelligence
communications and information management.
- Maintenance engineering and training, including field technical services
and repair, electronic system design and hands-on operational support,
primarily to the U.S. Navy.
- Independent verification and validation and software quality assurance
support services for shipboard combat systems, mission planning
functions, operational flight software command and control processors,
nuclear surety systems, soft copy imagery processing, data storage and
dissemination systems and various submarine, surface ship and command,
control and communications systems.
- Engineering, environmental, quality assurance, integration and program
support to the U.S. Army's chemical demilitarization and remediation
activity.
Environment
In the environmental area, the Company performs site assessments, remedial
investigations and feasibility studies, remedial actions, technology
evaluations, sampling, monitoring and regulatory compliance support and
training. Examples of the Company's Technical Services in the environmental area
include the following:
- Management and technical support to the DOE for the characterization of
the nation's first potential high-level waste repository, including the
preparation and coordination of environmental assessments, field
testing, technical evaluations, public information, quality assurance,
information systems and training.
- Development, demonstration and evaluation of new technologies for
hazardous waste treatment, including bioremediation and high-energy
plasma treatment systems.
- Solid and hazardous waste services to federal, state and local
governments and the private sector, including environmental assessments,
environmental impact statements, design engineering, remedial
investigations and feasibility studies, remedial actions, regulatory and
enforcement support, pollution prevention and engineering services.
- Analysis of a broad range of environmental issues associated with the
marine sciences such as ocean dumping, mineral exploration, global
change, global ocean circulation and temperature trends.
- Support associated with the development of treatment technologies,
including treatability studies, development of protocols for technology
evaluation, pollution prevention assessments, waste minimization and
technology assessments.
- Development and implementation of information systems.
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Energy
The energy-related Technical Services of the Company include safety
evaluations, security, reliability and availability engineering evaluations,
technical reviews, quality assurance, information systems, plant monitoring
systems and project management. Examples of the Company's Technical Services in
the energy area include the following:
- Engineering and support services to nuclear, electric, gas and other
utility operations in the areas of computer systems, information
processing, configuration management, risk assessment, safety analysis,
nuclear engineering, reliability and availability evaluations, simulator
upgrades, energy policy analysis and alternative energy evaluation.
- Support to DOE in planning, facility transitions, safety analysis,
transportation, waste management, quality assurance, emergency
preparedness and public outreach.
- Design, fabrication and application of alternative energy sources such
as solar generators and fuel cells.
- Information systems services to the DOE, including collection, analysis
and storage of energy information, the development of geographic
information systems and the overall management of large computer
facilities.
- Support to DOE in fusion energy research, including facility management,
computer system development and project management support in connection
with an international thermonuclear experimental reactor.
- Systems integration services to the utility industry, including design,
development and installation of plant process computer systems,
supervisory control and data acquisition (SCADA) systems, and electronic
security systems.
- Management, operation and technical services for fossil energy research
laboratories.
Other Technical Services
The Company provides Technical Services to government and commercial
customers in such other areas as health, space, transportation and commercial
information technology. The Company's health-related Technical Services include
medical information systems, technology development and adolescent counseling.
Examples of health-related and other Technical Services provided by the Company
include the following:
- Applied research, systems integration and customer support services to
both commercial and federal health care clients, including research
initiatives for the U.S. Advanced Research Projects Agency, developing
and operating a nationwide health care frame relay-based
telecommunications system for the VA and automating the information
systems for the DOD's medical treatment facilities worldwide.
- Research support services to the National Cancer Institute-Frederick
Cancer Research and Development Center, including management and
operations support, quality and safety operations, ongoing research and
research support tasks.
- Development, installation and operation of computer and
telecommunications systems for various transportation applications,
including automated toll revenue collection, rail asset and freight
management, intermodal terminal operation, advanced traffic and
congestion management, rail electrification, traffic control, air
traffic control, commercial vehicle electronic clearance, explosive and
contraband detection, and state motor vehicle registration.
- Strategic planning, operational analysis and evaluation, surface
transportation planning and engineering, software development and
reengineering, safety and human factors research, and hazardous material
transportation safety.
- Information technology and automatic data processing outsourcing
services for commercial clients.
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- Support to the U.S. Army in the biomedical area, including providing
expert analysis, research planning, program design and review, and
topical research on a variety of military medical issues, including
medical countermeasures to chemical and biological warfare, casualty
care, battlefield hazards and the U.S. Army's breast cancer research
program, as well as biomedical service and management of government
facilities.
- Scientific and computing services to federal agencies involved in global
change research, including processing, utilization and scientific
analysis of space, airborne and ground-based remotely sensed data.
- Security services for the U.S. Government and commercial customers,
including material control and accountability, computer and information
security, technical surveillance countermeasures, intrusion detection,
access control and physical plant threat assessments and vulnerability
analysis.
PRODUCTS
The Company designs, develops and manufactures high-technology products for
government and commercial customers. Examples of the Company's Products include
the following:
- Automatic equipment identification technology for rail, truck, air and
sea transportation modes.
- Ruggedized/militarized computers for various military and industrial
applications.
- A variety of flat panel displays for military applications based on
plasma and electroluminescent technology and liquid crystal display
technology.
RESOURCES
The Technical Services and Products provided by the Company utilize a wide
variety of resources. The Company anticipates the continued availability of the
resources required for the Technical Services and Products provided to
customers. A substantial portion of the computers and other equipment, materials
and subcontracted work required by the Company could be procured from alternate
supply sources. However, with respect to certain products and programs, the
Company depends on a particular source or vendor. While a temporary or permanent
disruption in the supply of these materials or services could cause
inconvenience or delay or impact the profitability of the affected programs or
products, the Company believes it would not materially affect the profitability
or operations of the Company as a whole.
The availability of skilled employees who have the necessary education
and/or experience in specialized scientific and technological disciplines
remains critical to the future growth and profitability of the Company. To date,
the Company has not experienced any significant difficulty in obtaining or
retaining the services of such employees. As an inducement, the Company
maintains a variety of benefit programs for its employees, including retirement
and bonus plans, group life, health, accident and disability insurance, and
offers its employees the opportunity to participate in the Company's employee
ownership program. See "Employees And Consultants" and "The Limited Market."
MARKETING
The Company's marketing activities are primarily conducted by its own
professional staff of engineers, scientists, analysts and other personnel. The
Company's marketing approach for its Technical Services begins with the
development of information concerning the requirements of the U.S. Government
and other potential customers for the types of Technical Services provided by
the Company. Such information is gathered in the course of contract performance
and from formal briefings, participation in professional organizations and
published literature. This information is then evaluated and exchanged among
marketing groups within the Company (organized along functional, geographic and
other lines) in order to devise and implement, subject to management review and
approval, the best means of taking advantage of available business
opportunities, including the preparation of proposals responsive to the stated
and perceived needs of customers.
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The Company's Products are marketed primarily through the Company's own
sales force, which is augmented by independent sales representatives.
COMPETITION
The businesses in which the Company is engaged are highly competitive. The
Company has a large number of competitors, some of which have been established
longer and have substantially greater financial resources and larger technical
staffs than the Company. Some of the other competitors, although smaller in
size, are more highly specialized. In addition, the U.S. Government's own
in-house capabilities and federal non-profit contract research centers are also
competitors of the Company because they perform certain types of services which
might otherwise be performed by the Company.
The primary competitive factors in the business areas in which the Company
is engaged are technical, management and marketing competence and price. The
Company's continued success is dependent upon its ability to hire and retain
highly qualified scientists, engineers, technicians, management and professional
personnel who will provide superior service and performance on a cost-effective
basis.
SIGNIFICANT CUSTOMERS
During the fiscal years ended January 31, 1996, 1995 and 1994,
approximately 84%, 88% and 89%, respectively, of the Company's contract revenues
from the Technical Services segment and approximately 72%, 68% and 72%,
respectively, of the Company's contract revenues from the Products segment, were
attributable to prime contracts with the U.S. Government or to subcontracts with
other contractors engaged in work for the U.S. Government.
In fiscal years 1996, 1995 and 1994, the U.S. Air Force accounted for
approximately 9%, 11% and 12%, respectively, of consolidated revenues, the U.S.
Army accounted for approximately 22%, 19% and 17%, respectively, of consolidated
revenues, the U.S. Navy accounted for approximately 9%, 10% and 10%,
respectively, of consolidated revenues and the DOE accounted for approximately
10%, 11% and 10%, respectively, of consolidated revenues.
During fiscal year 1996, approximately 10% of the Company's consolidated
revenues were derived from one U.S. Government contract to automate the
information systems for the DOD's medical treatment facilities worldwide. No
other single contract in the Technical Services segment accounted for 10% or
more of consolidated revenues in fiscal year 1996 and no single contract in the
Technical Services segment accounted for 10% or more of consolidated revenues in
fiscal years 1995 or 1994.
No single customer or contract in the Products segment accounted for 10% or
more of consolidated revenues in fiscal years 1996, 1995 or 1994.
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 generally 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.
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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 customers reimburse 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 reduced profits or losses for particular
firm fixed-price contracts.
During the fiscal years ended January 31, 1996, 1995 and 1994,
approximately 57%, 64% and 65%, respectively, of the Technical Services revenues
were derived from cost-reimbursement type contracts and approximately 15%, 13%
and 12%, 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 the
Products revenues in these three years were derived from firm fixed-price type
contracts.
Any costs incurred by the Company prior to the execution of a contract or
contract amendment are incurred at the Company's risk, and it is possible that
such costs will not be reimbursed by the customer. Unbilled receivables in this
category which were included in the Technical Services revenues, exclusive of
related fees, at January 31, 1996 were approximately $18,561,000. Unbilled
receivables in this category which were included in the Products revenues,
exclusive of related fees, at January 31, 1996 were approximately $2,025,000.
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 adjustment by
negotiations between the Company and U.S. Government representatives.
Substantially all of the Company's indirect contract costs have been agreed upon
through the fiscal year ended January 31, 1991. 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.
PATENTS AND PROPRIETARY INFORMATION
Although the Company owns or has made application for patents on certain
products and processes, the nature of the Technical Services and Products
provided by the Company is such that the Company does not presently consider its
competitive position to be dependent upon patent protection. The Company claims
a proprietary interest in certain of its products, software programs,
methodology and know-how. Such proprietary information is protected by
trademarks, tradenames, copyrights, trade secrets, licenses, contracts and other
means.
The U.S. Government has certain rights to data, computer codes and related
material developed by the Company under U.S. Government-funded contracts and
subcontracts. Generally, the U.S. Government may disclose such information to
third parties, including competitors. In the case of subcontracts, the prime
contractor may also have certain rights to the programs and products developed
by the Company under the subcontract.
BACKLOG
Backlog includes only the funded dollar amount of contracts in process and
does not include the dollar amount of projects for which the Company has been
given permission by the customer (i) to begin work but for which a formal
contract has not yet been entered into or (ii) to extend work under an existing
contract prior to the formal amendment or modification of the existing contract.
In these cases, either contract
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negotiations have not been completed or a contract or contract amendment has not
been executed. When a contract or contract amendment is executed, the backlog
will be increased by the difference between the dollar value of the contract or
contract amendment and the revenue recognized to date.
The backlog for the Technical Services segment at January 31, 1996 and 1995
amounted to approximately $971,000,000 and $858,000,000, respectively, and the
backlog for the Products segment at those dates amounted to approximately
$109,000,000 and $119,000,000, respectively. The Company expects that a
substantial portion of its backlog at January 31, 1996 will be recognized as
revenues prior to January 31, 1997. Some contracts associated with the backlog
are incrementally funded and may continue for more than one year.
EMPLOYEES AND CONSULTANTS
As of March 8, 1996, the Company employed approximately 21,100, including
approximately 1,400 persons on a part-time basis. The Company also utilizes the
services of consultants to provide specialized technical and other services on
specific projects.
The highly technical and complex services and products provided by the
Company are dependent upon the availability of professional, administrative and
technical personnel having high levels of training and skills. The Company has
not experienced any significant difficulty in recruiting or retaining such
personnel. Management believes the Company's orientation towards employee
ownership is a major factor in the Company's ability to attract and retain
qualified personnel. As of March 8, 1996, approximately 10,650 employees,
consultants and their family members were stockholders of record.
None of the Company's employees are represented by a labor union. To date,
no strikes or work stoppages have been experienced and the Company considers its
relations with its employees to be good.
ITEM 2. PROPERTIES.
As of March 8, 1996, the Company conducted its operations in more than 330
offices and manufacturing and laboratory facilities located in 45 states, the
District of Columbia and various foreign countries, and occupied a total of
approximately 4,900,000 square feet of space. The Company has principal
locations in the San Diego, California and the Washington, D.C. metropolitan
areas and occupies over 1,000,000 square feet of space in each of these
locations. The information set forth below is accurate as of March 8, 1996.
The Company owns and occupies six buildings totalling approximately 550,000
square feet of space situated on 22.2 acres of land owned by the Company in the
Golden Triangle area of San Diego, California and leases a 128,500 square foot
office building located on that land. The Company also leases approximately
140,000 square feet of space in the Sorrento-Mesa area of San Diego, California.
The Company has options to purchase these leased facilities.
At the principal location of the Company in the Washington, D.C.
metropolitan area (McLean, Virginia), the Company owns and occupies a building
consisting of approximately 287,000 square feet of space situated on 10 acres of
land and occupies two buildings containing a total of approximately 425,000
square feet of space. The Company has certain rights to purchase these leased
buildings. In addition, the Company owns and occupies a 62,000 square foot
building on 2.6 acres of land in Reston, Virginia.
The Company owns and occupies a 62,500 square foot building on
approximately 13 acres of land in Virginia Beach, Virginia and an 83,000 square
foot building on approximately 8.4 acres of land in Oak Ridge, Tennessee. The
Company also owns and occupies a 95,500 square foot building situated on
approximately 7.3 acres of land in Columbia, Maryland. In addition, the Company
owns and occupies a 23,700 square foot building on approximately 3.1 acres of
leased land in Richland, Washington.
The Company also leases an office building containing approximately 100,000
square feet of space in Huntsville, Alabama and an office building in Orlando,
Florida containing approximately 30,000 square feet of space. The Company has
options to purchase these buildings in the future.
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The nature of the Company's business is such that there is no practicable
way to relate occupied space to industry segments. The Company considers its
facilities suitable and adequate for its present needs. See Note K of Notes to
Consolidated Financial Statements of the Company on page F-17 of this Form 10-K
for information regarding commitments under leases.
ITEM 3. LEGAL PROCEEDINGS.
On December 18, 1995, the Company settled a civil case which was pending in
the U.S. District Court for the Southern District of California. This case was
filed on March 13, 1993 by an employee of the Company's SAIT operating unit. The
complaint sought damages on behalf of the U.S. Government under the Federal
False Claims Act. On August 3, 1994, the Department of Justice on behalf of the
U.S. Government intervened in the case. 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. To end the cost and
distraction of this ongoing litigation, the Company agreed to a settlement,
which included a payment of $2.5 million but which specifically excluded any
admission of wrongdoing.
The Company is involved in various other investigations, claims and
lawsuits arising in the normal conduct of its business, none of which, in the
opinion of the Company's management, will have a material adverse effect on its
consolidated financial position, results of operations, cash flows or its
ability to conduct business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of General Instructions to Form 10-K,
the following list is included as an unnumbered Item in Part I of this Form 10-K
in lieu of being incorporated by reference to the Company's definitive Proxy
Statement used in connection with the solicitation of votes for the Company's
1996 Annual Meeting of Stockholders (the "1996 Proxy Statement").
The following is a list of the names and ages (as of April 12, 1996) of all
Executive Officers of the Company, indicating all positions and offices with the
Company held by each such person and each such person's principal occupation or
employment during at least the past five years. All such persons have been
elected to serve until their successors are elected, or until their earlier
resignation or retirement. Except as otherwise noted, each of the persons listed
below has served in his present capacity for at least the past five years.
<TABLE>
<CAPTION>
NAME OF
EXECUTIVE OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
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<S> <C> <C>
A.L. Alm 59 Sector Vice President of the Company since 1993 and a Director of
the Company since 1989. Mr. Alm served as a Senior Vice President
of the Company from 1989 to 1993.
D.P. Andrews 51 Executive Vice President for Corporate Development since October
1995. Mr. Andrews has held various positions with the Company
since 1993, including serving as Senior Vice President for
Corporate Development from 1994 to October 1995. Prior to joining
the Company, Mr. Andrews served as Assistant Secretary of Defense
from 1989 to 1993.
J.R. Beyster 71 Chairman of the Board, Chief Executive Officer and a Director of
the Company since the Company was founded and President of the
Company until 1988.
D.A. Cox 48 Sector Vice President since January 1996. Mr. Cox has held
various positions with the Company since 1988, including serving
as a Group Senior Vice President from 1992 to January 1996.
M.A. Daniels 50 Sector Vice President of the Company since 1993. Mr. Daniels has
held various positions with the Company since 1986.
M.T. Elliott 52 Sector Vice President for the Company since January 1996. Dr.
Elliott served as Group Senior Vice President from 1995 to
January 1996. Prior to joining the Company in February 1995, Dr.
Elliott was Vice President of Operations at Unisys from 1986 to
1995.
D.H. Foley 51 Sector Vice President since 1992. Prior to joining the Company in
1991, Dr. Foley served as a Director of Special Projects for the
Defense Advanced Research Projects Agency since 1985.
J.E. Glancy 50 Corporate Executive Vice President since January 1994 and a
Director of the Company since 1994. Dr. Glancy has held various
positions with the Company since 1976, including serving as a
Sector Vice President from April 1991 to 1994.
J. Goldstein 63 Sector Vice President since January 1995. Mr. Goldstein has held
various positions with the Company since 1977, including serving
as a Group Senior Vice President from 1990 to January 1995.
J.D. Heipt 53 Senior Vice President for Administration and Secretary of the
Company since 1984. Mr. Heipt has held various positions with the
Company since 1979.
A.P. Herskowitz 55 Sector Vice President of the Company since 1993. Mr. Herskowitz
has held various positions with the Company since 1979, including
serving as a Group Senior Vice President from 1987 to 1993.
M.V. Hughes, III 51 Sector Vice President since 1991. Mr. Hughes has held various
positions with the Company since 1990.
D.W. Hyde 53 Sector Vice President of the Company since 1993. Mr. Hyde has
held various positions with the Company since 1985, including
serving as a Group Senior Vice President from 1988 to 1993.
</TABLE>
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<TABLE>
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NAME OF
EXECUTIVE OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
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<S> <C> <C>
L.A. Kull 58 President since 1988 and Chief Operating Officer since 1983. He
has also served as a Director of the Company since 1970 (except
for the years 1974 and 1975) and has held various positions with
the Company since 1970.
W.A. Owens 55 Vice Chairman of the Board and a Director since March 1996. Prior
thereto, Mr. Owens served as an Admiral in the U.S. Navy. His
last assignment was as Vice Chairman of the Joint Chiefs of
Staff.
P.N. Pavlics 35 Corporate Vice President and Controller of the Company since
1993. Mr. Pavlics has held various positions with the Company
since 1985, including serving as a Vice President of
Administration from 1989 to 1992.
L.J. Peck 48 Sector Vice President since 1994. Mr. Peck served as a Group
Senior Vice President from 1991 to 1994 and he has held various
other positions with the Company since 1978.
S.D. Rockwood 53 Sector Vice President of the Company since 1987. Dr. Rockwood has
held various positions with the Company since 1986.
W.A. Roper, Jr. 50 Senior Vice President and Chief Financial Officer of the Company
since 1990.
R.A. Rosenberg 61 Executive Vice President of the Company since 1992. Mr. Rosenberg
has held various positions with the Company since 1987.
D.E. Scott 39 Corporate Vice President and General Counsel of the Company since
1992. Mr. Scott joined the Company in 1987 where he has served as
a Corporate Counsel and Associate General Counsel in the Legal
Department.
E.A. Straker 58 Executive Vice President of the Company since 1994 and a Director
since 1992. Dr. Straker has held various positions with the
Company since 1971, including serving as a Sector Vice President
from 1986 to 1994.
J.P. Walkush 44 Sector Vice President of the Company since 1994 and a Director
since April 1996. Mr. Walkush has held various positions with the
Company since 1976.
J.H. Warner, Jr. 55 Corporate Executive Vice President of the Company since 1996 and
Director since 1988. Dr. Warner has held various positions with
the Company since 1973, including serving as Executive Vice
President from 1989 to January 1996.
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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 the Company's securities. In order to provide liquidity for its
stockholders, however, the Company has maintained a limited secondary market
(the "Limited Market") through its wholly-owned, broker-dealer 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 fair market value of the Class A Common Stock
determined pursuant to the formula and valuation process described below (the
"Formula Price") to employees, consultants and directors of the Company who have
been approved by the Board of Directors or the Operating Committee of the Board
of Directors 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 ("ESOP"), Cash or Deferred Arrangement ("CODA"), 1995 Employee
Stock Purchase Plan, Stock Compensation Plan, Management Stock Compensation
Plan, Key Executive Stock Deferral Plan and the Syntonic Technology, Inc.
Retirement Savings Plan (collectively, the "Benefit Plans) 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, ESOP,
10
<PAGE> 12
CODA and certain other retirement plans of the Company) pay Bull, Inc. a
commission equal to two percent of the proceeds from such sales. No commission
is paid by purchasers in the Limited Market.
In the event that the aggregate number of shares offered for sale in the
Limited Market on any Trade Date is greater than the aggregate number of shares
sought to be purchased by authorized buyers and the Company, offers by
stockholders 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 such stockholder, 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 years 1996 and 1995, the Company purchased 33,372 shares
and 279,668 shares, respectively, in the Limited Market. The Company's purchases
in fiscal years 1996 and 1995 accounted for 2% and 16%, respectively, of the
total shares purchased by all buyers in the Limited Market during such years.
During the 1996 and 1995 fiscal years, the trustees of the Company's CODA,
1993 Employee Stock Purchase Plan, 1995 Employee Stock Purchase Plan and the
Syntonic Technology, Inc. Retirement Savings Plan purchased an aggregate of
1,045,893 shares and 1,065,741 shares, respectively, in the Limited Market.
These purchases accounted for approximately 69% and 61% of the total shares
purchased by all buyers in the Limited Market during fiscal years 1996 and 1995,
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 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.
The Company received a no-action letter from the Securities and Exchange
Commission that authorizes the Company and the ESOP 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 ESOP to defer
the payment of federal income tax under Section 1042 of the Internal Revenue
Code of 1986, as amended, on any capital gain derived from the sale, provided
certain conditions are met.
The Company and the ESOP have completed one Tender Offer pursuant to which
the ESOP 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 fiscal year 1997. 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.
11
<PAGE> 13
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 below
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 ("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") 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 committees administering the qualified retirement plans of the Company
and certain of its subsidiaries (collectively, the "Committee") 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>
Formula Price = E + 5.66MP
---- ------
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.
12
<PAGE> 14
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, 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
July 14, 1995......................... 1.60 $ 17.79 $ 88.95
October 13, 1995...................... 1.60 $ 18.27 $ 91.35
January 12, 1996...................... 1.70 $ 19.33 $ 96.65
April 12, 1996........................ 1.80 $ 20.41 $102.05
</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.
HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
As of March 8, 1996, there were 11,856 holders of record of Class A Common
Stock and 131 holders of record of Class B Common Stock. As of such date,
approximately 89% of the Class A Common Stock and approximately 45% of the Class
B Common Stock were beneficially owned by employees and consultants of the
Company and their respective family members.
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.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The following data has been derived from consolidated audited financial
statements. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
consolidated balance sheet at January 31, 1996 and 1995 and the related
consolidated statements of income and of cash flows for the three years ended
January 31, 1996 and notes thereto appear elsewhere in this Form 10-K Report.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C> <C>
Revenues..................... $2,155,657 $1,921,880 $1,670,882 $1,504,112 $1,285,294
Cost of revenues............. 1,875,072 1,692,623 1,477,701 1,327,992 1,124,756
Selling, general and
administrative expenses.... 173,742 146,083 120,387 113,174 101,935
Interest expense............. 4,529 3,468 2,966 2,841 2,964
Provision for income taxes... 45,018 30,654 28,328 22,030 22,023
---------- ---------- ---------- ---------- ----------
Net income................... 57,296 49,052 41,500 38,075 33,616
========== ========== ========== ========== ==========
Earnings per share(1)........ $ 1.13 $ 1.01 $ .89 $ .83 $ .75
Average number of shares
outstanding, including
common stock equivalents... 51,306 49,264 47,429 46,179 44,825
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets................. $ 859,290 $ 752,584 $ 611,575 $ 523,613 $ 437,975
Working capital.............. 227,185 173,467 206,580 174,797 131,177
Long-term liabilities........ 33,151 28,955 25,060 25,851 27,036
Stockholders' equity......... 459,097 387,564 335,502 280,047 234,874
</TABLE>
- ---------------
(1) Fully diluted earnings per share are substantially the same as primary
earnings per share for the years presented. The Company has never declared
or paid cash dividends on its capital stock and no cash dividends are
presently contemplated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Revenues increased 12%, 15% and 11% in 1996, 1995 and 1994, respectively,
over the prior year. Revenues in 1996 and 1995 from the Company's principal
customer, the U.S. Government, continued to shift toward lower cost service type
contracts. This trend reflects the increasingly competitive business environment
in the Company's traditional business areas, as well as the Company's increased
success in the engineering and field services market, which typically involve
lower cost contracts.
The sale of Technical Services and Products to the U.S. Government as a
prime contractor or subcontractor accounted for 83% of revenues in 1996, 86% in
1995, and 88% in 1994. This decrease is attributable to growth in non-U.S.
Government revenues as a result of the Company's efforts to increase revenues
from state and local governments and commercial clients in certain focused
business areas. Non-U.S. Government revenues increased 34% in 1996 and 1995, and
15% in 1994, over the prior year. The revenue mix between the Technical Services
segment and the Products segment shifted slightly to 93% and 7%, respectively,
of consolidated revenues in 1996 from 91% and 9%, respectively, in 1995 and 92%
and 8% respectively, in 1994.
Within the Technical Services segment, revenues are further classified
between "National Security," "Environment," "Energy" and "Other Technical
Services." Other Technical Services includes the health,
14
<PAGE> 16
space, transportation and commercial information technology business areas.
Revenues in each of the business area classifications within the Technical
Services segment increased in 1996 over 1995.
National Security revenues decreased to 45% of total revenues in 1996 from
46% in 1995 and 50% in 1994. Although National Security revenues declined as a
percentage of total revenues, these revenues increased 8% in 1996, 7% in 1995
and 9% in 1994 over the prior year, in spite of declines in the overall defense
market during these periods. The U.S. Government maintained funding in areas in
which the Company has strong capabilities, such as research and development,
training, simulation and test and evaluation. Revenues in the Environment
business area decreased slightly as a percentage of total revenues to 13% in
1996 from 14% in 1995 and 15% in 1994. Energy revenues decreased slightly to 8%
in 1996 from 9% of total revenues in 1995 and 1994. Other Technical Services
revenues increased to 28% of total revenues in 1996 from 22% in 1995 and 17% in
1994. The continued growth in Other Technical Services reflects the Company's
expansion into the health, transportation and commercial information technology
markets and mirrors the country's shift of priorities and resources from defense
programs to civilian programs in areas such as health care and transportation.
The Company expects this trend to continue. In order for the Company to maintain
or exceed historical revenue growth rates, it will need to continue to increase
its market share in the National Security business area and/or increase its
revenues from the environment, energy, health, space, transportation and
commercial information technology business areas.
Products revenues decreased 11% in 1996, compared to an increase of 22% and
21% in 1995 and 1994, respectively, over the prior year. Products revenues are
tied to the stage of contract performance and the purchasing needs and
capabilities of the customers and thus, can fluctuate from year to year.
Revenues are generated from the efforts of the Company's technical staff as
well as the pass through of costs for materials and subcontract efforts, which
primarily occur on large, multi-year contracts. At the end of 1996, the Company
had 19,500 full-time employees compared to 16,700 and 15,400 at the end of 1995
and 1994, respectively. Material and subcontract ("M&S") revenues were $607
million in 1996, $560 million in 1995 and $458 million in 1994. As a percentage
of total revenues, M&S revenues have remained relatively constant at 28% in
1996, 29% in 1995 and 27% in 1994.
The Company's business is directly related to the receipt of contract
awards and contract performance. There were 349 contracts with annual revenues
greater than $1 million in 1996, compared with 333 and 294 such contracts in
1995 and 1994, respectively. These larger contracts represented 76% of the
Company's revenues in 1996 and 77% in 1995 and 1994. Of these contracts, 21
contracts had individual revenues greater than $10 million in 1996 compared to
20 such contracts in 1995 and 1994. The remainder of the Company's revenues are
derived from a large number of contracts with individual revenues less than $1
million. Although the Company has committed substantial resources and personnel
required to pursue larger contracts, the Company believes it also maintains a
suitable environment for the performance of smaller, highly technical research
and development contracts. These smaller programs often provide the foundation
for the Company's success on larger procurements.
The following table summarizes revenues by contract type for the last three
years:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Contract type:
Cost-reimbursement.......................................... 54 % 59 % 60 %
Time-and-materials and fixed-price level-of-effort.......... 26 % 22 % 21 %
Firm fixed-price............................................ 20 % 19 % 19 %
--- --- ---
Total......................................................... 100 % 100 % 100 %
=== === ===
</TABLE>
Cost-reimbursement contracts provide for the reimbursement of direct costs
and allowable indirect costs, plus a fee or profit component. The relative
decrease in revenues from cost-reimbursement contracts in 1996 and 1995 results
primarily from the Company's growth in non-U.S. Government revenues. The
Company's non-U.S. Government customers typically do not contract on a
cost-reimbursement basis. Time-and-materials
15
<PAGE> 17
("T&M") contracts typically provide for the payment of negotiated fixed hourly
rates for labor hours incurred plus reimbursement of other allowable direct
costs at actual cost plus allocable indirect costs. Fixed-price level-of-effort
("FP-LOE") contracts are similar to T&M contracts since ultimately revenues are
based upon the labor hours provided to the customer. Firm fixed-price contracts
require the Company to provide stipulated products, systems or services for a
fixed price. The Company assumes greater performance risk on firm fixed-price
contracts and the failure to accurately estimate ultimate costs or to control
costs during performance of the work may result in reduced profits or losses.
The cost of revenues as a percentage of revenues (excluding interest
income) was 87.0% in 1996, 88.2% in 1995 and 88.5% in 1994. The decrease in the
cost of revenues percentage represents a number of offsetting effects. The
primary trend which increased the cost of revenues percentage is faster revenue
growth in lower cost service type contracts, which typically have more of their
associated costs in cost of revenues and less costs in selling, general and
administrative ("SG&A") expenses. Trends which decreased the cost of revenues
percentage are the growth in commercial revenues, which have more of their
associated costs in SG&A as opposed to cost of revenues, and decreased overruns
from better performance on certain firm fixed-price contracts in 1996 compared
to 1995 and 1994.
SG&A expenses as a percentage of revenues (excluding interest income) were
8.1%, 7.6% and 7.2% in 1996, 1995 and 1994, respectively. SG&A is comprised of
general and administrative ("G&A"), bid and proposal ("B&P") and independent
research and development ("IR&D") expenses. While the level of B&P activity and
costs has historically fluctuated depending on the availability of bidding
opportunities and resources, B&P costs have remained constant in relation to
revenues over the past three years. During 1996, IR&D costs increased slightly
as a percentage of revenues due to a focused effort by the Company to build core
capabilities in areas which it believes are key to its future growth:
distributed interactive simulation, imagery, health, environmental and software
development. G&A expenses increased 24% over 1995 and increased as a percentage
of total revenues to 5.8% in 1996 from 5.2% in 1995 and 5.0% in 1994. This
relative increase was driven by the growth in revenues from commercial
contracts, which have more of their associated costs in G&A, and an increase in
goodwill amortization costs due to an increase in the number of business
acquisitions and equity investments in 1996 and 1995. The Company continues to
closely monitor G&A expenses as part of an on-going program to control indirect
costs.
Operating profit margins by segment are strongly correlated to the
Company's financial performance on the contracts within each segment. The
operating profit margin in the Technical Services segment increased to 4.9% in
1996 from 4.3% in 1995 and 3.8% in 1994. The National Security operating profit
margin was 5.5% in 1996, compared to 2.8% in 1995 and 3.3% in 1994. The lower
operating profit margins in 1995 and 1994 as compared to 1996 were a result of
overruns on certain firm fixed-price contracts in the National Security area.
Environment operating profit margins were 4.5%, 4.9% and 4.5%, respectively, for
1996, 1995 and 1994. Energy operating profit margins were 4.9% in 1996, 5.8% in
1995 and 5.1% in 1994. The lower operating margins in the Environment and Energy
areas in 1996 compared to 1995 and 1994 were primarily a result of U.S.
Government budget difficulties associated with the Company's customers. The
operating profit margin in Other Technical Services was 4.2% in 1996 compared to
6.3% in 1995 and 4.1% in 1994. The higher operating profit margin in 1995
compared to 1996 and 1994 was a result of better performance on certain firm
fixed-price contracts in 1995. The operating profit margin in the Products
segment was 4.6% in 1996 compared to 3.9% in 1995 and 9.3% in 1994. The lower
operating profit margins in 1996 and 1995 were attributable to overruns on
certain firm fixed-price contracts, while the higher profit margin in 1994 was
attributable to higher margins on existing product lines. In general, overall
operating profit margins for the Company in 1996 improved over 1995 and 1994 due
to better contract financial performance.
Interest expense in 1996, 1995 and 1994 primarily relates to interest on a
building mortgage, deferred compensation and borrowings outstanding under the
Company's credit loan agreements. Increase in interest expense was primarily
driven by higher average outstanding balances under the Company's credit loan
agreements in 1996 and interest accrued on the deferred compensation plans.
The provision for income taxes as a percentage of income before income
taxes was 44.0% in 1996, 38.5% in 1995 and 40.6% in 1994. The lower effective
tax rate in 1995 compared to 1996 and 1994 was primarily
16
<PAGE> 18
related to a final settlement of certain issues related to the Company's 1986
and 1987 federal and state income tax returns.
As described in the Notes to Consolidated Financial Statements, during
1996, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of,"
which did not have a material impact on the Company's financial position or
results of operations in 1996. In addition, the Company will adopt SFAS No. 123,
"Accounting for Stock-based Compensation," in 1997. Upon adoption of SFAS No.
123, the Company will continue to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and will provide pro-forma disclosures of net income and
earning per share as if the fair value-based method prescribed by SFAS No. 123
had been applied in measuring compensation expense.
On December 18, 1995, the Company settled a civil case which was pending in
the U.S. District Court for the Southern District of California. This case was
filed on March 13, 1993 by an employee of the Company's SAIT operating unit. The
complaint sought damages on behalf of the U.S. Government under the Federal
False Claims Act. On August 3, 1994, the Department of Justice on behalf of the
U.S. Government intervened in the case. 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. To end the cost and
distraction of this ongoing litigation, the Company agreed to a settlement,
which included a payment of $2.5 million but which specifically excluded any
admission of wrongdoing.
The Company is involved in various other investigations, claims and
lawsuits arising in the normal conduct of its business, none of which, in the
opinion of the Company's management, will have a material adverse effect on its
consolidated financial position, results of operations, cash flows or its
ability to conduct business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity continue to be funds provided by
operations and revolving credit loan agreements. At January 31, 1996 and 1995,
there were no borrowings outstanding under such agreements and cash and cash
equivalents and long-term investments totaled $30 million and $48 million,
respectively. Cash flows generated from operating activities decreased to $53
million in 1996 from $117 million and $86 million in 1995 and 1994,
respectively. Average receivable days outstanding increased to 65 in 1996 from
63 in 1995. The Company continues to actively monitor receivables with emphasis
placed on collection activities and the negotiation of more favorable payment
terms.
Cash flows spent on investing activities decreased to $41 million in 1996
compared to $120 million and $47 million in 1995 and 1994, respectively.
Acquisitions of businesses, net of cash acquired, resulted in a source of cash
of $1 million in 1996 compared to a use of cash of $71 million and $14 million
in 1995 and 1994, respectively. Acquisitions of businesses in 1996 were made
primarily with the issuance of Company common stock instead of cash and were
made to complement the Company's capabilities in the areas of commercial
information technology, transportation, health, energy and national security. In
addition, the Company spent $21 million to acquire both direct and indirect
equity interests in other businesses to improve the Company's capabilities in
the commercial and international arena. The Company expects to continue to
acquire businesses and equity interests for these and other purposes in the
future. Capital expenditures, excluding land and buildings, were $33 million in
1996, $20 million in 1995 and $18 million in 1994 and are expected to be
approximately $37 million for 1997. Expenditures for land and buildings were $1
million, $15 million and $9 million in 1996, 1995 and 1994, respectively, and
are expected to be approximately $13 million for 1997.
The Company used $17 million for financing activities in 1996 compared to
$22 million and $1 million in 1995 and 1994, respectively. In 1996, funds were
utilized primarily for common stock repurchases. The 1996 decrease in
utilization of funds from 1995 was primarily due to a decrease in retiring
outstanding debt
17
<PAGE> 19
associated with businesses acquired in 1996 compared to 1995. The 1995 increase
in utilization of funds from 1994 was primarily due to a reduction in sales of
the Company's common stock.
The Company's cash flows from operations plus borrowing capacity are
expected to provide sufficient funds for the Company's operations, business
acquisitions, common stock repurchases, capital expenditures and future
long-term debt requirements.
EFFECTS OF INFLATION
The majority of the Company's contracts are cost-reimbursement type
contracts or are completed within one year. As a result, the Company has been
able to anticipate increases in costs when pricing its contracts. Bids for
longer term firm fixed-price and T&M type contracts typically include labor and
other cost escalations in amounts expected to be sufficient to cover cost
increases over the period of performance. Consequently, because costs and
revenues include an inflationary increase commensurate with the general economy,
net income, as a percentage of revenues, has not been significantly impacted by
inflation.
FORWARD-LOOKING INFORMATION
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements which reflect the Company management's current views with respect to
future events and financial performance. Such statements involve risks and
uncertainties, and there are certain important factors which could cause actual
results to differ significantly from those anticipated. Some of these factors
include, but are not limited to: decrease in or the failure to increase business
with the U.S. Government; competitive pricing for Technical Services and
Products; early termination of U.S. Government contracts; losses or reduced
profits on firm fixed-price contracts; failure to obtain reimbursement for costs
incurred prior to the execution of a contract or contract modification; audits
of the Company's costs, including allocated indirect costs, by the U.S.
Government; and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the Company. Due to such uncertainties
and risks, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements of the Company attached hereto
and listed on the Index to Consolidated Financial Statements set forth on page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the executive officers of the Company, see
"Executive Officers of the Registrant" at the end of Part I of this Form 10-K.
For information with respect to the Directors of the Company, see "Election of
Directors" appearing in the 1996 Proxy Statement, which information is
incorporated by reference into this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
For information with respect to executive compensation, see the information
set forth under the captions "Directors' Compensation," "Executive Compensation"
and "Compensation Committee Interlocks and Insider Participation" in the 1996
Proxy Statement, which information (except for the information under the
sub-captions "Compensation Committee Report on Executive Compensation" and
"Stockholder Return Performance Presentation") is incorporated by reference into
this Form 10-K.
18
<PAGE> 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information with respect to the security ownership of certain
beneficial owners and management, see the information set forth under the
caption "Beneficial Ownership of the Company's Securities" in the 1996 Proxy
Statement, which information is incorporated by reference into this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information with respect to the interests of the Company's management
and others in certain transactions, see the information set forth under the
caption "Certain Relationships and Related Transactions" in the 1996 Proxy
Statement, which information is incorporated by reference into this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company are attached
hereto and listed on the Index to Consolidated Financial Statements
set forth on page F-1 of this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or the notes thereto.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -------------------------------------------------------------------------
<S> <C>
3(a) Restated Certificate of Incorporation of the Registrant, as amended July
19, 1990. Incorporated by reference to Exhibit 3(a) to Registrant's
Annual Report on Form 10-K for the fiscal year ended January 31, 1991
(the "1991 10-K").
3(b) Bylaws of the Registrant, as amended through April 10, 1992. Incorporated
by reference to Exhibit 3(b) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1992 (the "1992 10-K").
4(a)* Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan of
the Registrant (form dated August 1992). Incorporated by reference to
Exhibit 4(c) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 (the "1993 10-K").
4(b)* Form of Stock Restriction Agreement of the Registrant's Employee Stock
Ownership Plan (form dated March 1, 1985). Incorporated by reference to
Exhibit 4(e) to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1985 (the "1985 10-K").
4(c)* Form of Stock Restriction Agreement of the Registrant's Bonus
Compensation Plan (form dated October 1990). Incorporated by reference to
Exhibit 4(f) to the 1991
10-K.
4(d)* Form of Stock Restriction Agreement of the Registrant's Cash or Deferred
Arrangement (TRASOP Account) (form dated March 1, 1985). Incorporated by
reference to Exhibit 4(g) to the 1985 10-K.
4(e)* Registrant's Bonus Compensation Plan, as amended through April 2, 1991.
Incorporated by reference to Exhibit 4(l) to the 1991 10-K.
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -------------------------------------------------------------------------
<S> <C>
4(f)* Registrant's 1982 Stock Option Plan, as amended through June 9, 1989.
Incorporated by reference to Exhibit 4(n) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1990 (the "1990
10-K").
4(g)* Registrant's 1992 Stock Option Plan as amended through November 3, 1994.
Incorporated by reference to Exhibit 4(g) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1995 (the "1995
10-K").
4(h)* Form of Non-Qualified Stock Option Agreement (Employee, Director and
Consultant) -- 1982 Stock Option Plan (form dated October 1990).
Incorporated by reference to Exhibit 4(p) to the 1991 10-K.
4(i)* Form of Stock Restriction Agreement of the Registrant's Employee Stock
Ownership Plan (TRASOP Account) (form dated April 1, 1991). Incorporated
by reference to Exhibit 4(r) to the 1991 10-K.
4(j)* Form of Stock Restriction Agreement of the Registrant's Bonus
Compensation Plan (form dated July 1992). Incorporated by reference to
Exhibit 4(v) to the 1993 10-K.
4(k)* Registrant's Stock Compensation Plan, as amended through April 3, 1995.
4(l)* Registrant's Management Stock Compensation Plan, as amended through April
3, 1995.
4(m)* Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan of
the Registrant (form dated February 1995). Incorporated by reference to
Exhibit 4(n) to the 1995 10-K.
4(n)* Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan of
the Registrant (form dated February 1995). Incorporated by reference to
Exhibit 4(o) to the 1995 10-K.
4(o)* Form of Stock Restriction Agreement of the Registrant's Bonus
Compensation Plan (form dated March 1995). Incorporated by reference to
Exhibit 4(p) to the 1995 10-K.
4(p)* 1995 Employee Stock Purchase Plan. Incorporated by reference to Annex II
to the Registrant's Proxy Statement for the 1995 Annual Meeting of
Stockholders as filed June 1995 with the SEC (the "1995 Proxy").
4(q)* 1995 Stock Option Plan. Incorporated by reference to Annex I to the 1995
Proxy.
4(r)* Registrant's Keystaff Deferral Plan, as amended through November 1, 1995.
4(s)* Registrant's Key Executive Stock Deferral Plan.
4(t)* Form of Non-Qualified Stock Option Agreement -- 1995 Stock Option Plan of
the Registrant (form dated August 1995).
4(u)* Form of Incentive Stock Option Agreement -- 1995 Stock Option Plan of the
Registrant (form dated August 1995).
4(v)* Form of Stock Restriction Agreement of the Registrant's Key Executive
Stock Deferral Plan (form dated March 1996).
10(a) Credit Agreement with Bank of America NT&SA dated as of April 7, 1995.
Incorporated by reference to Exhibit 10(a) to the Form 10-Q for the
fiscal quarter ended April 30, 1995 ("April 1995 10-Q").
10(b) Credit Agreement with Citicorp USA, Inc. dated as of April 7, 1995.
Incorporated by reference to Exhibit 10(b) to the April 1995 10-Q.
10(c) Credit Agreement with Morgan Guaranty Trust Company of New York dated as
of April 7, 1995. Incorporated by reference to Exhibit 10(c) to the April
1995 10-Q.
11 Statement re: computation of per share earnings.
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -------------------------------------------------------------------------
<S> <C>
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
28(a) Annual Report of the Registrant's Employee Stock Purchase Plan for the
plan year ended January 31, 1996.
28(b) Annual Report of the Registrant's Cash or Deferred Arrangement for the
plan year ended December 31, 1995.
</TABLE>
- ---------------
* Executive Compensation Plans and Arrangements.
(b) REPORTS ON FORM 8-K IN THE FOURTH QUARTER OF THE FISCAL YEAR ENDED
JANUARY 31, 1996:
None
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
(Registrant)
By /s/ J.R. BEYSTER
------------------------------------
J.R. Beyster
Chairman of the Board and
Chief Executive Officer
Date: April 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- ---------------
<S> <C> <C>
/s/ J.R. Chairman of the Board and April 19, 1996
BEYSTER Principal Executive Officer
- -----------------------------------------------
J.R. Beyster
/s/ W.A. ROPER, Principal Financial Officer April 19, 1996
JR.
- -----------------------------------------------
W.A. Roper, Jr.
/s/ P.N. Principal Accounting Officer April 19, 1996
PAVLICS
- -----------------------------------------------
P.N. Pavlics
/s/ A.L. Director April 19, 1996
ALM
- -----------------------------------------------
A.L. Alm
COOK/s/ V.N. Director April 19, 1996
- -----------------------------------------------
V.N. Cook
/s/ C.K. Director April 19, 1996
DAVIS
- -----------------------------------------------
C.K. Davis
/s/ W.H. DEMISCH Director April 19, 1996
- -----------------------------------------------
W.H. Demisch
/s/ W.A. DOWNING Director April 19, 1996
- -----------------------------------------------
W.A. Downing
/s/ E.A. Director April 19, 1996
FRIEMAN
- -----------------------------------------------
E.A. Frieman
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- ---------------
<S> <C> <C>
/s/ J.E. Director April 19, 1996
GLANCY
- -----------------------------------------------
J.E. Glancy
/s/ D.A. Director April 19, 1996
HICKS
- -----------------------------------------------
D.A. Hicks
/s/ B.R. Director April 19, 1996
INMAN
- -----------------------------------------------
B.R. Inman
/s/ L.A. Director April 19, 1996
KULL
- -----------------------------------------------
L.A. Kull
/s/ W.M. LAYSON Director April 19, 1996
- -----------------------------------------------
W.M. Layson
/s/ C.B. MALONE Director April 19, 1996
- -----------------------------------------------
C.B. Malone
/s/ J.W. Director April 19, 1996
McRARY
- -----------------------------------------------
J.W. McRary
/s/ W.A. Director April 19, 1996
OWENS
- -----------------------------------------------
W.A. Owens
/s/ E.A. Director April 19, 1996
STRAKER
- -----------------------------------------------
E.A. Straker
/s/ M.E. Director April 19, 1996
TROUT
- -----------------------------------------------
M.E. Trout
/s/ J.P. Director April 19, 1996
WALKUSH
- -----------------------------------------------
J.P. Walkush
/s/ J.H. WARNER, Director April 19, 1996
JR.
- -----------------------------------------------
J.H. Warner, Jr.
/s/ J.A. Director April 19, 1996
WELCH
- -----------------------------------------------
J.A. Welch
/s/ J.B. Director April 19, 1996
WIESLER
- -----------------------------------------------
J.B. Wiesler
/s/ A.T. Director April 19, 1996
YOUNG
- -----------------------------------------------
A.T. Young
</TABLE>
23
<PAGE> 25
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS...................................................... F-2
FINANCIAL STATEMENTS
Consolidated Statement of Income for the three years ended January 31, 1996............ F-3
Consolidated Balance Sheet at January 31, 1996 and 1995................................ F-4
Consolidated Statement of Stockholders' Equity for the three years ended January 31,
1996................................................................................. F-5
Consolidated Statement of Cash Flows for the three years ended January 31, 1996........ F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
Financial statement schedules are omitted because they are not applicable
or the required information is shown on the consolidated financial statements or
the notes thereto.
F-1
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Science Applications International Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Science Applications International Corporation and its subsidiaries
at January 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Diego, California
April 4, 1996
F-2
<PAGE> 27
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues............................................... $2,155,657 $1,921,880 $1,670,882
Costs and expenses:
Cost of revenues..................................... 1,875,072 1,692,623 1,477,701
Selling, general and administrative expenses......... 173,742 146,083 120,387
Interest expense..................................... 4,529 3,468 2,966
---------- ---------- ----------
2,053,343 1,842,174 1,601,054
---------- ---------- ----------
Income before income taxes............................. 102,314 79,706 69,828
Provision for income taxes............................. 45,018 30,654 28,328
---------- ---------- ----------
Net income............................................. $ 57,296 $ 49,052 $ 41,500
========== ========== ==========
Earnings per share..................................... $ 1.13 $ 1.01 $ .89
========== ========== ==========
Average number of shares outstanding, including common
stock equivalents.................................... 51,306 49,264 47,429
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 28
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JANUARY 31
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 22,765 $ 28,203
Restricted cash...................................................... 3,029
Receivables.......................................................... 500,201 421,790
Inventories.......................................................... 40,097 25,356
Prepaid expenses and other current assets............................ 9,182 13,647
Deferred income taxes................................................ 18,953 20,536
-------- --------
Total current assets.............................................. 594,227 509,532
Property and equipment................................................. 69,441 57,715
Land and buildings..................................................... 87,844 88,997
Intangible assets...................................................... 55,210 56,214
Other assets........................................................... 52,568 40,126
-------- --------
$859,290 $752,584
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................. $210,393 $191,429
Accrued payroll and employee benefits................................ 138,709 124,745
Income taxes payable................................................. 15,636 18,409
Current portion of long-term liabilities............................. 2,304 1,482
-------- --------
Total current liabilities......................................... 367,042 336,065
Long-term liabilities.................................................. 33,151 28,955
Stockholders' equity, per accompanying statement:
Class A common stock, $.01 par value................................. 469 452
Class B common stock, $.05 par value................................. 17 17
Additional paid-in capital........................................... 242,751 198,052
Retained earnings.................................................... 215,860 189,043
-------- --------
Total stockholders' equity........................................ 459,097 387,564
Commitments and contingencies (Note K).................................
-------- --------
$859,290 $752,584
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 29
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
CLASS A CLASS B
----------------- ---------------
100,000,000 5,000,000
SHARES SHARES
AUTHORIZED AUTHORIZED ADDITIONAL
----------------- --------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------ ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1993.................... 42,719 $427 372 $ 19 $ 136,613 $142,988
Issuances of common stock.................... 3,922 39 40,196
Repurchases of common stock.................. (2,326) (23) (8) (7,873) (22,161)
Income tax benefit from employee stock
transactions.............................. 3,777
Net income................................... 41,500
------ ---- --- --- -------- --------
Balance at January 31, 1994.................... 44,315 443 364 19 172,713 162,327
Issuances of common stock.................... 2,994 30 30,138
Repurchases of common stock.................. (2,066) (21) (21) (2) (8,356) (22,336)
Income tax benefit from employee stock
transactions.............................. 3,557
Net income................................... 49,052
------ ---- --- --- -------- --------
Balance at January 31, 1995.................... 45,243 452 343 17 198,052 189,043
Issuances of common stock.................... 4,115 41 49,012
Repurchases of common stock.................. (2,449) (24) (11) (11,456) (30,479)
Income tax benefit from employee stock
transactions.............................. 7,143
Net income................................... 57,296
------ ---- --- --- -------- --------
Balance at January 31, 1996.................... 46,909 $469 332 $ 17 $ 242,751 $215,860
====== ==== === === ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 30
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 57,296 $ 49,052 $ 41,500
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 35,203 27,738 23,127
Non-cash compensation................................. 13,224 9,898 8,831
Loss on disposal of property and equipment............ 1,385 1,583 706
Increase (decrease) in cash, excluding effects of
acquisitions, resulting from changes in:
Receivables......................................... (75,139) (42,623) (10,438)
Inventories......................................... (13,257) (4,477) 1,262
Prepaid expenses and other current assets........... 5,260 (2,129) (1,149)
Progress payments................................... 10,660 11,443 (2,243)
Deferred income taxes............................... 1,583 1,547 (9,584)
Other assets........................................ (4,872) (8,280) (740)
Accounts payable and accrued liabilities............ 4,701 44,734 15,392
Accrued payroll and employee benefits............... 12,637 16,538 18,952
Income taxes payable................................ 4,369 12,077 23
-------- -------- --------
53,050 117,101 85,639
-------- -------- --------
Cash flows from investing activities:
Expenditures for property and equipment.................. (33,112) (20,188) (18,420)
Expenditures for land and buildings...................... (1,233) (15,437) (9,012)
Acquisitions of certain business assets, net of cash
acquired.............................................. 1,475 (71,109) (14,161)
Investments in affiliates................................ (21,367)
Proceeds from disposal of property and equipment......... 332 297 566
Proceeds from sale of debt securities available for
sale.................................................. 12,478
Purchases of debt securities held to maturity............ (13,913) (6,187)
-------- -------- --------
(41,427) (120,350) (47,214)
-------- -------- --------
Cash flows from financing activities:
Decrease in notes payable and long-term liabilities...... (3,441) (8,810) (3,452)
Sales of common stock.................................... 28,339 17,421 32,651
Repurchases of common stock.............................. (41,959) (30,715) (30,057)
-------- -------- --------
(17,061) (22,104) (858)
-------- -------- --------
(Decrease) increase in cash and cash equivalents......... (5,438) (25,353) 37,567
Cash and cash equivalents at beginning of year........... 28,203 53,556 15,989
-------- -------- --------
Cash and cash equivalents at end of year................. $ 22,765 $ 28,203 $ 53,556
======== ======== ========
Supplemental schedule of noncash investing and financing
activities:
Issuance of common stock for acquisitions of certain
business assets....................................... $ 10,673 $ 5,282
======== ========
Liabilities assumed in acquisitions of certain business
assets................................................ $ 17,839 $ 25,532 $ 4,107
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 31
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements of the Company include the accounts
of Science Applications International Corporation and its subsidiaries. All
significant intercompany transactions and accounts have been eliminated in
consolidation. Investments in affiliates and corporate joint ventures owned
twenty to fifty percent are accounted for under the equity method. Other
investments are generally carried at cost.
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements as well as
the reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best available
information and actual results could differ from those estimates.
Contract revenues
The major portion of the Company's revenues results from contract services
performed for the U.S. Government or from subcontracts with other contractors
engaged in work for the U.S. Government under a variety of contracts, some of
which provide for reimbursement of cost plus fees and others which are
fixed-price or time-and-materials type contracts. Generally, revenues and fees
on contracts are recognized as services are performed, using the
percentage-of-completion method of accounting, primarily based on contract costs
incurred to date compared with total estimated costs at completion. Revenues
from the sale of manufactured products are recorded when the products are
shipped.
The Company provides for anticipated losses on contracts by a charge to
income during the period in which the losses are first identified. Unbilled
receivables are stated at estimated realizable value. Contract costs, including
indirect costs, are subject to audit and adjustment by negotiations between the
Company and government representatives. Substantially all of the Company's
indirect contract costs have been agreed upon through 1991. Contract revenues
have been recorded in amounts that are expected to be realized upon final
settlement.
Cash and cash equivalents
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less. Of the $22,765,000 total cash and cash
equivalents at January 31, 1996, $11,428,000 was invested in commercial paper.
The carrying amounts approximate fair value due to the short maturity of these
instruments.
Restricted cash
In March 1995, the Company was awarded a contract to provide support
services to the National Cancer Institute's Frederick Cancer Research and
Development Center ("Center"). The contract is for a term of one year with two
one-year options. As part of the contract, the Company is responsible for paying
for materials, equipment and other direct costs of the Center through the use of
a restricted cash account which is pre-funded by the U.S. Government.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the moving average and first-in, first-out methods.
Buildings, property and equipment
Depreciation and amortization of buildings and related improvements are
provided using the straight-line method over estimated useful lives of thirty to
forty years and ten years, respectively. Depreciation and
F-7
<PAGE> 32
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
amortization of property and equipment are provided over the estimated useful
lives of the assets, primarily using a declining-balance method. The useful
lives are three to ten years for equipment and the shorter of the useful lives
or the terms of the leases for leasehold improvements.
Additions to property and equipment together with major renewals and
betterments are capitalized. Maintenance, repairs and minor renewals and
betterments are charged to expense. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation or amortization are removed
from the accounts and any resulting gain or loss is recognized.
Debt securities
In November 1995, the Financial Accounting Standards Board issued a special
report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities," which the Company adopted and made a
one-time reassessment of the classification of its debt securities. Effective
December 1995, the Company reclassified its debt securities, which had an
amortized cost of $19,954,000 and unrealized losses of $59,000, from "held to
maturity" to "available for sale." Long-term debt securities are included in
other assets and consist of long-term municipal bonds which have been recorded
at fair market value. As of January 31, 1996 and 1995, debt securities of
$7,654,000 and $20,100,000, respectively, had a fair value of $7,622,000 and
$19,488,000, respectively, maturing in 1998. Gross unrealized losses amounted to
$32,000.
Intangible assets
Intangible assets consist primarily of goodwill. Goodwill represents the
excess of the purchase cost over the fair value of net assets acquired in an
acquisition and is amortized by a straight line method generally over five to
ten years. The Company periodically reviews goodwill to assess recoverability,
and impairments are recognized in the results of operations, as appropriate.
Amortization of intangible assets amounted to $11,044,000, $6,257,000 and
$3,007,000 in 1996, 1995, and 1994 respectively. Accumulated amortization was
$27,031,000 and $15,987,000 at January 31, 1996 and 1995, respectively.
Long-lived assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," which the Company adopted. Pursuant to
this Statement, companies are required to investigate potential impairments of
long-lived assets, certain identifiable intangibles, and associated goodwill, on
an exception basis, when there is evidence that events or changes in
circumstances have made recovery of an asset's carrying value unlikely. An
impairment loss would be recognized when the sum of the expected future net cash
flows is less than the carrying amount of the asset. Adoption of SFAS No. 121
did not have a material effect on the Company's consolidated financial position
or results of operations.
Income taxes
Income taxes are provided utilizing the liability method. The liability
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. Additionally, under the
liability method, changes in tax rates and laws will be reflected in income in
the period such changes are enacted.
Common stock and earnings per share
Class A and Class B common stock are collectively referred to as common
stock in the Notes to Consolidated Financial Statements unless otherwise
indicated.
F-8
<PAGE> 33
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Computations of earnings per share are based on the weighted average number
of shares of common stock outstanding, increased by the effect of dilutive
options using the modified treasury stock method. Fully diluted earnings per
share was substantially the same as primary earnings per share in 1996, 1995 and
1994.
A general public market for the Company's common stock does not exist.
Periodic determinations of the fair market value of the common stock are made by
the Board of Directors pursuant to a stock price formula and valuation process
which includes an appraisal prepared by an independent appraisal firm. The Board
of Directors reserves the right to alter the formula and valuation process.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation." SFAS No. 123 will be adopted by
the Company as required for its fiscal 1997 financial statements and is not
expected to have a material effect on the Company's consolidated financial
position or results of operations. Upon adoption of SFAS No. 123, the Company
will continue to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
will provide pro forma disclosures of net income and earnings per share as if
the fair value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense.
Other financial instruments
It is the Company's policy not to enter into derivative financial
instruments for speculative purposes. During 1996, the Company, as a buyer,
entered into foreign currency forward exchange contracts to protect against
currency exchange risks associated with certain firm and identifiable foreign
currency commitments entered into in the ordinary course of business. At January
31, 1996, the Company had approximately $5,682,000 of foreign currency forward
exchange contracts in Spanish pesetas, British pounds sterling and French francs
outstanding with net unrealized losses of $131,000. These contracts were
executed with creditworthy banks for terms of seven years or less.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
long-term investments. The Company invests its excess cash principally in U.S.
Government and municipal debt securities and commercial paper and has
established guidelines relative to diversification and maturities in an effort
to maintain safety and liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest rates.
Concentrations of credit risk with respect to receivables are limited
because the Company's primary customers are various agencies of the U.S.
Government as well as commercial customers engaged in work for the U.S.
Government. As of January 31, 1996, there were no significant concentrations of
receivables with these commercial customers.
NOTE B -- ACQUISITIONS AND INVESTMENTS IN AFFILIATES:
Acquisitions of certain business assets and companies have been accounted
for by the purchase method of accounting. The operations of the companies and
businesses acquired have been included in the accompanying consolidated
financial statements from their respective dates of acquisition. The excess of
the purchase price over fair value of the net assets acquired has been included
in intangible assets as goodwill. The aggregate effect of the purchased
acquisitions was not material; therefore, pro forma financial information is not
required.
During 1996, the Company acquired for cash both direct and indirect equity
interests. The total acquisition cost of these investments exceeded the
underlying equity in net assets by $15,551,000, which is
F-9
<PAGE> 34
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
generally being amortized over ten years. The carrying value of the Company's
investments as of January 31, 1996 was $25,016,000.
NOTE C -- BUSINESS SEGMENT INFORMATION:
The Company's principal business involves the application of scientific
expertise, together with computer and systems technology, to solve complex
technical problems for government agencies and industrial customers. The skills
of the professional staff encompass a variety of scientific and technical
disciplines and the management structure is based upon broad technological
groupings, not necessarily related to any particular industry, line of business,
geographical area, market or class of customer.
For purposes of analyzing and understanding the Company's financial
statements, its operations have been classified into two broad segments:
Technical Services and Products. The Technical Services segment is further
classified between the National Security, Environment, Energy and Other business
areas. Other business areas include health, space, transportation and commercial
information technology.
Technical services consist of applied and basic research; analysis and
development of new and existing policies, concepts, systems and programs; design
and development of computer software; systems engineering; systems integration;
test and evaluation of new products or systems; technical operational and
management support; environmental engineering; and engineering support to
existing facilities, laboratories and systems.
Products include custom designed and standard hardware and software
products such as data display devices, "ruggedized" personal computers, sensors
and nondestructive imaging instruments. These products typically incorporate
Company-developed hardware and software as well as hardware and software
manufactured by others.
F-10
<PAGE> 35
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Industry segment information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Contract revenues:
Technical Services --
National Security......................... $ 966,864 $ 891,181 $ 830,581
Environment............................... 274,316 264,511 253,937
Energy.................................... 166,271 169,732 156,694
Other..................................... 593,756 423,362 287,622
Products..................................... 153,163 171,206 140,741
Interest income................................ 1,287 1,888 1,307
---------- ---------- ----------
Total revenues................................. $2,155,657 $1,921,880 $1,670,882
========== ========== ==========
Operating profit:
Technical Services --
National Security......................... $ 52,859 $ 25,356 $ 27,252
Environment............................... 12,294 12,962 11,341
Energy.................................... 8,175 9,824 7,985
Other..................................... 25,219 26,526 11,768
Products..................................... 7,009 6,618 13,141
---------- ---------- ----------
105,556 81,286 71,487
Interest income................................ 1,287 1,888 1,307
Interest expense............................... (4,529) (3,468) (2,966)
---------- ---------- ----------
Income before income taxes..................... $ 102,314 $ 79,706 $ 69,828
========== ========== ==========
Identifiable assets:
Technical Services --
National Security......................... $ 217,216 $ 181,444 $ 160,752
Environment............................... 70,156 72,867 66,492
Energy.................................... 33,329 43,730 37,453
Other..................................... 212,562 156,650 83,716
Products..................................... 60,690 38,627 40,694
---------- ---------- ----------
593,953 493,318 389,107
Corporate and other assets..................... 265,337 259,266 222,468
---------- ---------- ----------
Total assets................................... $ 859,290 $ 752,584 $ 611,575
========== ========== ==========
</TABLE>
Because of the nature of the Company's business, sales between segments are
not material. Segment operating results reflect general corporate expense
allocations because all such expenses are allocated to individual cost
objectives by the Company, as required by Government Cost Accounting Standards.
Identifiable assets of the respective industry segments consist of receivables,
inventories and goodwill. All other assets are either corporate in nature, are
not identifiable with particular segments or are not material. Capital
expenditures and depreciation and amortization are not identified as to industry
segments for similar reasons.
During 1996, 1995 and 1994, approximately 83%, 86% and 88%, respectively,
of the Company's contract revenues were attributable to prime contracts with the
U.S. Government or to subcontracts with other contractors engaged in work for
the U.S. Government. Foreign operations and revenues directly attributable to
F-11
<PAGE> 36
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
foreign customers are not material. During 1996, approximately 10% of the
Company's consolidated revenues were derived from one U.S. Government contract
in the Other Technical Services business area, which is a contract to automate
the information systems for the Department of Defense's medical treatment
facilities worldwide.
NOTE D -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
<TABLE>
<CAPTION>
JANUARY 31
--------------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Contracts-in-process, less progress payments of $1,077 and
$1,971 at January 31, 1996 and 1995, respectively......... $ 11,372 $ 6,794
Raw materials................................................ 28,725 18,562
-------- --------
$ 40,097 $ 25,356
======== ========
Property and equipment at cost:
Computers and other equipment................................ $146,354 $132,629
Office furniture and fixtures................................ 19,861 18,136
Leasehold improvements....................................... 13,570 12,004
-------- --------
179,785 162,769
Less accumulated depreciation and amortization............... 110,344 105,054
-------- --------
$ 69,441 $ 57,715
======== ========
Land and buildings at cost:
Buildings and improvements................................... $ 77,117 $ 75,884
Land......................................................... 20,919 20,919
Land held for future use..................................... 702 702
-------- --------
98,738 97,505
Less accumulated depreciation and amortization............... 10,894 8,508
-------- --------
$ 87,844 $ 88,997
======== ========
Accounts payable and accrued liabilities:
Accounts payable and other accrued liabilities............... $154,095 $135,831
Collections in excess of revenues on uncompleted contracts... 56,298 55,598
-------- --------
$210,393 $191,429
======== ========
Accrued payroll and employee benefits:
Salaries, bonuses and amounts withheld from employees'
compensation.............................................. $ 77,309 $ 70,401
Accrued vacation............................................. 47,111 41,285
Accrued contributions to employee benefit plans.............. 14,289 13,059
-------- --------
$138,709 $124,745
======== ========
</TABLE>
F-12
<PAGE> 37
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- RECEIVABLES:
Receivables consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Receivables, primarily U.S. Government, less allowance for
doubtful accounts of $1,878 and $1,214 at January 31, 1996
and 1995, respectively:
Billed....................................................... $359,087 $310,429
Unbilled, less progress payments of $41,667 and $30,113 at
January 31, 1996 and 1995, respectively................... 114,206 77,749
Contract retentions.......................................... 26,908 23,570
Refundable income taxes...................................... 10,042
-------- --------
$500,201 $421,790
======== ========
</TABLE>
Unbilled receivables at January 31, 1996 and 1995 include $20,586,000 and
$13,776,000, respectively, related to costs incurred on projects for which the
Company has been requested by the customer to begin work under a new contract or
extend work under an existing contract, but for which formal contracts or
contract modifications have not been executed. The balance of unbilled
receivables consist of costs and fees billable on contract completion or other
specified events, the majority of which is expected to be billed and collected
within one year. The majority of the retention balance is expected to be
collected beyond one year.
NOTE F -- NOTES PAYABLE:
The Company has substantially equivalent unsecured revolving credit loan
agreements with three banks with commitments totaling $105,000,000 which allow
borrowings on a revolving basis until March 31, 2000. The agreements enable
borrowings at various interest rates, at the Company's option, based on prime,
money market, certificate of deposit, or interbank offshore borrowing rates.
Annual facility fees are 1/8 of 1% of the total commitment during the revolving
credit term.
There were no balances outstanding under the credit loan agreements at
January 31, 1996, 1995 and 1994. As of January 31, 1996, the entire $105,000,000
was available under the most restrictive debt covenants of the credit loan
agreements. The maximum amounts outstanding were $43,000,000, $12,800,000 and
$19,200,000 in 1996, 1995 and 1994, respectively. The average amount outstanding
was $9,380,000, $197,000 and $541,000 during 1996, 1995 and 1994, respectively.
The weighted average interest rate in 1996, 1995 and 1994 was 6.4%, 4.9% and
3.5% respectively, based upon average daily balances.
NOTE G -- EMPLOYEE BENEFIT PLANS:
In 1995, the Company merged two of its profit sharing retirement plans into
one principal Profit Sharing Retirement Plan in which eligible employees
participate. Participants' interests vest 25% per year in the third through
sixth year of service. Participants also become fully vested upon reaching age
59 1/2, permanent disability or death. Contributions charged to income under the
plans were $23,355,000, $27,420,000 and $20,471,000 for 1996, 1995 and 1994,
respectively.
The Company has an Employee Stock Ownership Plan (the "Plan") in which
eligible employees participate. Cash contributions to the Plan are based upon
amounts determined annually by the Board of Directors and are allocated to
participants' accounts based on their annual compensation. The Company
recognizes compensation expense as the fair value of the Company common stock or
cash in the year of contribution. The vesting requirements for the Plan are the
same as for the Profit Sharing Retirement Plan. Shares of Company common stock
distributed from the Plan bear a limited put option that, if exercised, would
F-13
<PAGE> 38
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
require the Company to repurchase the shares at their then current fair value.
At January 31, 1996, the Plan held 15,630,000 shares of Class A common stock and
30,000 shares of Class B common stock with a combined fair value of
$305,028,000. Contributions charged to income under the Plan were $10,259,000,
$10,516,000 and $15,096,000, for 1996, 1995 and 1994, respectively.
The Company has one principal Cash or Deferred Arrangement (CODA) which
allows eligible participants to defer a portion of their income through
contributions. Such deferrals are fully vested, are not taxable to the
participant until distributed from the CODA upon termination, retirement,
permanent disability or death and may be matched by the Company. The Company's
matching contributions to the CODA of $11,535,000, $10,977,000 and $7,673,000
were charged to income in 1996, 1995 and 1994, respectively. Effective January
1, 1995, the Company's matching contributions to employees hired on or after
such date will be subject to the same vesting requirements as for the Profit
Sharing Retirement Plan, while the Company's matching contributions for
employees hired prior to such date remain fully vested.
The Company has a Bonus Compensation Plan which provides for bonuses to
reward outstanding performance. Bonuses are paid in the form of cash, fully
vested shares of Class A common stock or vesting shares of Class A common stock.
Awards of vesting shares of Class A common stock made prior to July 10, 1992,
vest at the rate of 10%, 20%, 30% and 40% after one, two, three and four years,
respectively, from the date of award. Awards of vesting shares of Class A common
stock made after July 10, 1992, vest at the rate of 20%, 20%, 20% and 40% after
one, two, three and four years, respectively. The amounts charged to income
under this plan were $25,868,000, $23,831,000 and $20,111,000 for 1996, 1995 and
1994, respectively.
In 1995, the Company adopted the Stock Compensation Plan and the 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, which share units generally correspond to shares of Class A common
stock which are held in trust for the benefit of participants. Participants'
interests in these share units vest on a seven year schedule at the rate of
one-third at the end of each of the fifth, sixth and seventh years following the
date of the award. The amount charged to income under these plans were $686,000
and $160,000 for 1996 and 1995, respectively.
The Company also has an Employee Stock Purchase Plan which allows eligible
employees to purchase shares of the Company's Class A common stock, with the
Company currently contributing 5% of the existing fair market value. There are
no charges to income under this plan.
NOTE H -- INCOME TAXES:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Payable currently:
Federal............................................. $36,281 $29,138 $31,482
State and foreign................................... 9,040 8,110 7,408
Deferred:
Federal............................................. (158) (5,300) (8,650)
State and foreign................................... (145) (1,294) (1,912)
------- ------- -------
$45,018 $30,654 $28,328
======= ======= =======
</TABLE>
F-14
<PAGE> 39
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes. Deferred
tax assets (liabilities) are comprised of the following temporary differences:
<TABLE>
<CAPTION>
JANUARY 31
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Income recognition:
Contractually billable method................................ $ 9,371 $ 16,657
Completed contract method.................................... 2,164 2,127
Accrued vacation pay........................................... 16,878 15,240
Deferred compensation.......................................... 8,884 6,628
Vesting stock bonuses.......................................... 5,658 4,591
Other.......................................................... 6,019 3,677
-------- --------
Total deferred tax assets................................. 48,974 48,920
-------- --------
Employee benefit plan contributions............................ (9,461) (9,356)
Depreciation and amortization.................................. (3,184) (4,026)
Cash to accrual basis conversion for certain subsidiaries...... (983) (2,221)
Other.......................................................... (1,741) (1,875)
-------- --------
Total deferred tax liabilities............................ (15,369) (17,478)
-------- --------
Net deferred tax asset......................................... $ 33,605 $ 31,442
======== ========
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate (35%) to income before income
taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amount computed at statutory rate..................... $35,810 $27,897 $24,440
State income taxes, net of federal tax benefit........ 5,597 4,303 3,573
Revision of prior years' tax estimates................ (371) (4,134) (251)
Nondeductible meals and entertainment................. 2,409 2,150 772
Other................................................. 1,573 438 (206)
------- ------- -------
$45,018 $30,654 $28,328
======= ======= =======
</TABLE>
Other assets include deferred income taxes of $14,652,000 and $10,906,000
at January 31, 1996 and 1995, respectively. Income taxes paid in 1996, 1995 and
1994 amounted to $32,785,000, $35,600,000 and $38,392,000, respectively. The
effective rates for 1995 and 1994 have been reduced as a result of ongoing
resolutions of certain issues relating to prior year federal and state income
tax returns as well as a favorable settlement of 1986 and 1987 tax years.
F-15
<PAGE> 40
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- LONG-TERM LIABILITIES:
Long-term liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
-------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Mortgage payable collateralized by real property................. $12,438 $12,551
Deferred compensation............................................ 17,224 14,042
Other............................................................ 5,793 3,844
------- -------
35,455 30,437
Less current portion............................................. 2,304 1,482
------- -------
$33,151 $28,955
======= =======
</TABLE>
In connection with the purchase of land and a building in 1991, the Company
assumed a mortgage note of $12,800,000. Terms of the note include an 8.88%
interest rate and monthly payments of principal and interest of $102,000 until
July 1, 1997 when the remaining principal balance becomes due.
The Company maintains a Keystaff Deferral Plan for the benefit of key
executives and directors, pursuant to which eligible participants may elect to
defer a portion of their compensation. The Company makes no contributions to the
accounts of participants under this plan but does credit participant accounts
for deferred compensation amounts and for interest earned on such deferred
compensation. Interest is accrued based on the Moody's Seasoned Corporate Bond
Rate (8.76% in 1996). Deferred balances will generally be paid upon the later of
ten years of plan participation or retirement, unless participants elect an
early pay-out. Effective January 4, 1996, the Company adopted the Key Executive
Stock Deferral Plan for the benefit of directors and certain key executives.
Eligible participants may elect to defer a portion of their compensation into a
trust established by the Company which invests in shares of Class A common
stock. The Company makes no contributions to the accounts of participants.
Deferred balances will generally be paid upon retirement or termination of
affiliation. There were no deferred amounts outstanding under this plan as of
January 31, 1996.
The carrying amount of the Company's long-term liabilities approximates
fair value. The fair value of the Company's long-term liabilities is estimated
based on the current rates offered to the Company for similar debt of the same
remaining maturities.
Maturities of long-term liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 (IN THOUSANDS)
-----------------------------------------------------------------------
<S> <C>
1997................................................................... $ 2,304
1998................................................................... 15,341
1999................................................................... 1,144
2000................................................................... 812
2001................................................................... 375
2002 and after......................................................... 15,479
-------
$ 35,455
=======
</TABLE>
NOTE J -- COMMON STOCK AND OPTIONS:
The Company has options outstanding under three stock option plans, the
1995 Stock Option Plan (the 1995 Plan), which was adopted effective July 14,
1995, the 1992 Stock Option Plan (the 1992 Plan) and the 1982 Stock Option Plan
(the 1982 Plan). Under the 1995, 1992 and 1982 Plans, options are granted at
prices
F-16
<PAGE> 41
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
not less than the fair market value at the date of grant and for terms not
greater than ten years. Options granted prior to July 10, 1992 generally become
exercisable 10%, 20%, 30% and 40% after one, two, three and four years,
respectively, from the date of grant. Options granted after July 10, 1992
generally become exercisable 20%, 20%, 20% and 40% after one, two, three and
four years, respectively, from the date of grant. No options have been granted
under the 1992 Plan after July 31, 1995 and the 1982 Plan after July 10, 1992,
the dates the plans terminated, respectively. The Company makes no charge to
income in connection with these plans.
As of January 31, 1996, 23,564,000 shares of Class A common stock were
reserved for issuance upon exercise of options which are outstanding or which
may be granted. As of January 31, 1996, options for 4,467,000 shares of Class A
common stock were exercisable and 11,247,000 shares of Class A common stock were
available for future grants.
A summary of changes in outstanding options under the plans during the
three years ended January 31, 1996, is as follows:
<TABLE>
<CAPTION>
SHARES OF
CLASS A
COMMON STOCK
OPTION PRICES UNDERLYING
PER SHARE OPTIONS
---------------- --------------
(IN THOUSANDS)
<S> <C> <C>
January 31, 1993....................................... $ 7.04 to $11.83 10,539
Options granted...................................... 12.01 to 13.12 2,580
Options canceled..................................... 7.04 to 13.12 (442)
Options exercised.................................... 7.04 to 11.83 (1,988)
------
January 31, 1994....................................... 8.19 to 13.12 10,689
Options granted...................................... 14.19 to 15.07 3,201
Options canceled..................................... 8.19 to 15.07 (646)
Options exercised.................................... 8.19 to 13.12 (1,591)
------
January 31, 1995....................................... 9.32 to 15.07 11,653
Options granted...................................... 15.72 to 18.27 3,383
Options canceled..................................... 9.32 to 18.27 (493)
Options exercised.................................... 9.32 to 15.07 (2,226)
------
January 31, 1996....................................... $ 9.76 to $18.27 12,317
======
</TABLE>
The Company has agreed to make available for issuance, purchase or options
approximately 1,500,000 shares of Class A common stock to employees, prospective
employees and consultants, generally contingent upon commencement of employment
or the occurrence of certain events. The selling price of shares and the
exercise price of options are to be the fair market value at the date such
shares are made available or options are granted.
NOTE K -- COMMITMENTS AND CONTINGENCIES:
The Company occupies most of its facilities under operating leases. Most of
the leases require the Company to pay maintenance and operating expenses such as
taxes, insurance and utilities and also contain renewal options extending the
leases from one to twenty years. Certain of the leases contain purchase options
and provisions for periodic rate escalations to reflect cost-of-living
increases. Certain equipment, primarily computer-related, is leased under
short-term or cancelable leases. Rental expenses for facilities and equipment
totaled $63,282,000, $58,538,000 and $57,213,000 in 1996, 1995 and 1994,
respectively.
F-17
<PAGE> 42
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum rental commitments, primarily for facilities, under all
non-cancelable operating leases in effect at January 31, 1996, are payable as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 (IN THOUSANDS)
-----------------------------------------------------------------------
<S> <C>
1997................................................................... $ 44,175
1998................................................................... 25,987
1999................................................................... 19,099
2000................................................................... 12,461
2001................................................................... 6,794
2002 and after......................................................... 7,945
--------
$116,461
========
</TABLE>
The Company leases a general purpose office building and has guaranteed a
$12,250,000 loan on behalf of the building owner. Certain financial ratios and
balances required by the guarantee have been maintained.
Other commitments at January 31, 1996 include outstanding letters of credit
aggregating $22,443,000, principally related to guarantees on contracts with
commercial and foreign customers, and outstanding surety bonds aggregating
$117,933,000, principally related to performance and payment type bonds.
On December 18, 1995, the Company settled a civil case which was pending in
the U.S. District Court for the Southern District of California. This case was
filed on March 13, 1993 by an employee of the Company's SAIT operating unit. The
complaint sought damages on behalf of the U.S. Government under the Federal
False Claims Act. On August 3, 1994, the Department of Justice on behalf of the
U.S. Government intervened in the case. 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. To end the cost and
distraction of this ongoing litigation, the Company agreed to a settlement,
which included a payment of $2,500,000 but which specifically excluded any
admission of wrongdoing.
The Company is involved in various other investigations, claims and
lawsuits arising in the normal conduct of its business, none of which, in the
opinion of the Company's management, will have a material adverse effect on its
consolidated financial position, results of operations, cash flows or its
ability to conduct business.
NOTE L -- SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Charges to costs and expenses for depreciation and amortization of
buildings, property and equipment were $25,956,000, $21,481,000 and $20,120,000
for 1996, 1995 and 1994, respectively.
The Company expensed $10,258,000, $8,490,000 and $5,689,000 of independent
research and development costs during 1996, 1995 and 1994, respectively.
Total interest paid in 1996, 1995 and 1994 amounted to $2,746,000,
$1,514,000 and $1,449,000 respectively.
F-18
<PAGE> 1
EXHIBIT 4(K)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
STOCK COMPENSATION PLAN
Effective as of April 3, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PURPOSE 1
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Awarding Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.8 Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.9 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Share Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II PARTICIPATION AND AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Designation by Awarding Authority . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Awarding Authority to Make Awards . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Awards to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Vesting and Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Trust Fund Established . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Company, Committee and Trustee
Not Responsible for Adequacy of Fund . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV ACCOUNTING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Committee to Maintain Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Accounting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Invasion of Trust by Creditors . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Trust Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
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<TABLE>
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ARTICLE V RIGHTS IN ACQUIRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Power to Vote Stock Rests with Trustee . . . . . . . . . . . . . . . . . . . . . 4
5.2 Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.3 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE VI DISTRIBUTION OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Time of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Form of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.3 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.4 Distribution to Guardian . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.5 Withholding of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII ACCELERATION OF DISTRIBUTION AND VESTING . . . . . . . . . . . . . . . . . . . . . . 6
7.1 Termination of Employment or Death . . . . . . . . . . . . . . . . . . . . . . . 6
7.2 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3 Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VIII PLAN TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1 Termination and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IX PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.1 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.2 Committee Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.3 Plan Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.4 Reliance Upon Documents and Opinions . . . . . . . . . . . . . . . . . . . . . . 9
9.5 Requirement of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.6 Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.1 Restrictions on Plan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.2 No Enlargement of Employee Rights . . . . . . . . . . . . . . . . . . . . . . . . 11
10.3 Rights of Repurchase and
First Refusal for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.4 Mailing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.5 Inability to Locate Participant or Beneficiary . . . . . . . . . . . . . . . . . 12
10.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.7 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.8 Illegality of Particular Provision . . . . . . . . . . . . . . . . . . . . . . . 12
10.9 Receipt or Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.10 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<PAGE> 4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
STOCK COMPENSATION PLAN
PURPOSE
This Plan is an unfunded compensation arrangement established
effective on April 3, _1996 by Science Applications International Corporation
("SAIC") to make deferred awards of company stock to selected employees.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in the Plan they shall have the
meaning specified below, unless the context indicates clearly to the contrary.
1.1 Account. The bookkeeping account established for an Employee
pursuant to Article IV to record the number of Share Units awarded to the
Employee and the vesting thereof.
1.2 Award. The award of Share Units in the Trust to an Employee
pursuant to the Plan.
1.3 Awarding Authority. The individual or group of individuals
appointed by the Board to make Awards pursuant to the Plan.
1.4 Beneficiary. The person or persons properly designated by the
Participant, in accordance with Section 6.3, to receive the benefits provided
herein upon death of the Participant.
1.5 Board. The Board of Directors of Science Applications
International Corporation.
1.6 Committee. The committee appointed by the Board to administer
the Plan. Members of the Committee shall be eligible to receive Awards under
the Plan at the discretion of the Awarding Authority.
1.7 Company. Science Applications International Corporation, a
Delaware corporation, and any subsidiary thereof, the participation in this
Plan of the Employees of which is approved by the Awarding Authority.
1.8 Company Stock. The Class A Common Stock of Science
Applications International Corporation.
- 1 -
<PAGE> 5
1.9 Distribution. Payment of the vested balance in a
Participant's Account from the Trust to the Participant or the Participant's
Beneficiary.
1.10 Employee. A salaried employee of the Company.
1.11 Participant. An Employee designated by the Committee to
receive an Award under the Plan.
1.12 Plan. The Science Applications International Corporation
Stock Compensation Plan as set forth herein and as amended from time to time by
the Board.
1.13 Share Unit. The interest of a Participant in a share of
Company Stock held in the Participant's Account in the Trust.
1.14 Trust. The Science Applications International Corporation
Stock Compensation Plan Trust established by the Company to hold all assets
awarded to Participants under the Plan.
1.15 Trustee. State Street Bank or such successor trustee as shall
be appointed pursuant to the Trust.
ARTICLE II
PARTICIPATION AND AWARDS
2.1 Designation by Awarding Authority. The Awarding Authority in
its sole discretion shall designate those Employees who are to receive Awards
under the Plan. The Awarding Authority's designation of an Employee for a
particular Award shall not require the Awarding Authority to make any further
Awards to such Employee.
2.2 Awarding Authority to Make Awards. The Awarding Authority
shall make Awards under the Plan by determining a number of Share Units to be
credited to those Employees whom the Awarding Authority has selected for
participation in the Plan corresponding to a specified number of shares of
Company Stock allocated in the Trust to such Employees, and by establishing an
Account in favor of such Employees in accordance with Article IV to hold such
Share Units. A separate Account shall be established for each Award. Each
Account shall be subject to a vesting schedule specified by the Awarding
Authority. The amount, timing and vesting of each Award shall be decided in
the Awarding Authority's sole discretion, and the Awarding Authority may apply
different terms to Awards made to different Employees as well as to different
Awards made to the same Employee.
2.3 Awards to be Held in Trust. Within a reasonable period of
time following the date of an Award, SAIC shall contribute to the Trust Company
Stock or an amount of money sufficient to purchase shares of Company Stock
corresponding to the Share Units made in such
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<PAGE> 6
Award. The Trustee shall apply such contribution toward the purchase of
Company Stock in accordance with the directions of the Committee and the terms
of the Trust. To the extent any such Award is made to an Employee of an
affiliate of SAIC, SAIC may charge the cost of the corresponding Trust
contribution to such affiliate as agreed between SAIC and the affiliate.
2.4 Vesting and Forfeiture. Each Account shall be subject to a
vesting schedule, not to exceed seven (7) years, established by the Awarding
Authority. Vesting shall cease upon termination of the Participant's
employment with the Company for any reason other than the death of the
Participant. For purposes of the Plan, an Employee's leave of absence
exceeding thirty (30) days other than (i) a leave of absence caused by the
Employee's disability, as defined under the terms of any of the Company's
short-term or long-term disability plans, (ii) a qualified military leave as
determined by the Committee, or (iii) a family or medical leave covered by
federal or state family/medical leave acts, shall be considered a termination
of employment effective on the thirtieth day of such leave of absence. An
Employee's change in status to that of consulting employee shall also be
considered a termination of employment for purposes of the Plan. In the event
of death of a Participant, all of the Participant's Account(s) shall become
immediately vested. The unvested portion of a Participant's Accounts upon a
termination of employment shall be immediately forfeited by the Participant,
and the shares of Company Stock represented by such unvested portion shall be
returned to the Company or reallocated in accordance with the Committee's
directions and the terms of the Trust.
ARTICLE III
TRUST FUND
3.1 Trust Fund Established. The Company has established the Trust
pursuant to a trust agreement under which the Trustee will hold and administer
in trust all assets deposited with the Trustee in accordance with the terms of
this Plan. The Board shall have the authority to select and remove the Trustee
to act under the Trust agreement, and to enter into new or amended trust
agreements as it deems advisable.
3.2 Company, Committee and Trustee Not Responsible for Adequacy of
Trust Fund. Neither the Company, Committee nor Trustee shall be liable or
responsible for the adequacy of the Trust Fund to meet and discharge any or all
payments and liabilities hereunder. All Plan benefits will be paid only from
the Trust assets, and neither the Company, the Committee nor the Trustee shall
have any duty or liability to furnish the Trust with any funds, securities or
other assets except as expressly provided in Section 2.3 hereof.
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<PAGE> 7
ARTICLE IV
ACCOUNTING PROCEDURES
4.1 Committee to Maintain Accounts. The Committee shall open and
maintain a separate Account with respect to each Award made under the Plan for
purposes of keeping a record of the assets held in Trust for each Participant
and for recording the vesting status of each Award.
4.2 Accounting Procedures. The Committee shall establish and may
amend from time to time accounting procedures for the purpose of making
allocations, Distributions, valuations and adjustments to Accounts provided for
in this Article IV. A Participant or Beneficiary shall have no contractual or
other right to have a particular accounting procedure or convention apply, or
continue to apply, and the Committee shall be free to alter any such procedure
or convention without obligation to any Participant or Beneficiary.
4.3 Invasion of Trust by Creditors. If assets of the Trust should
be reduced due to action of the Company's Creditors, as provided in the Trust
document, the Committee shall reduce each Account on a pro rata basis to
reflect such reduction in Trust assets, and the Company shall have no
obligation to replace such lost assets.
4.4 Trust Expenses. Expenses of the Trust which are not paid by
the Company shall be applied to reduce each Account on a pro rata basis.
ARTICLE V
RIGHTS IN ACQUIRED STOCK
5.1 Power to Vote Stock Rests With Trustee. The power to vote any
stock held by the Trustee shall rest solely with the Trustee, who shall vote
such stock in the same proportion that the other shareholders vote their shares
of Company Stock. For purposes of this Section 5.1, Company Stock shall
include both Class A and Class B Common Stock.
5.2 Tender Offers. In the case of a tender offer for the Company
Stock, the Trustee shall tender the shares of Company Stock held by the Trust
only if more than fifty percent (50%) of the shares of Company Stock held
outside the Trust are tendered by the shareholders.
5.3 Dividends. All dividends on Company Stock held in Trust shall
be held by the Trustee and reinvested as directed by the Committee. The
Committee shall allocate such dividends among the Accounts pro rata to the
shares allocated to each Account.
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<PAGE> 8
ARTICLE VI
DISTRIBUTION OF ACCOUNTS
6.1 Time of Distribution. Subject to the acceleration provisions
of Article VII, a Participant's Account shall be Distributed as follows:
(a) If the Participant files an election in a manner
prescribed by the Committee within ninety (90) days following the date of the
Award contained in the Account, the Participant's Account shall be distributed
as it becomes vested, with each payment to be made within a reasonable period
of time following the date of vesting of the portion of the Account to be paid.
(b) If the Participant fails to make the election
described in subsection (a), the Participant's Account shall be distributed in
full within a reasonable period of time following the seventh anniversary of
the date of the Award contained in such Account.
6.2 Form of Distribution. Distributions shall be made in the form
of Company Stock or cash, or part Company Stock and part cash, as the Committee
shall determine in its sole discretion.
6.3 Beneficiary Designation.
(a) Upon forms provided by the Committee, each
Participant shall designate in writing the Beneficiary or Beneficiaries whom
such Participant desires to receive the benefits of this Plan, if any, payable
in the event of such Participant's death. A Participant may from time to time
change his or her designated Beneficiary or Beneficiaries without the consent
of such Beneficiary or Beneficiaries by filing a new designation in writing
with the Committee; provided, however, that if a married Participant wishes to
designate an individual other than his or her spouse as Beneficiary, such
designation shall not be effective unless consented to in writing by the
spouse. Notwithstanding the foregoing, spousal consent shall not be necessary
if it is established to the satisfaction of the Committee that there is no
spouse of the Participant or that the required consent cannot be obtained
because the spouse cannot be located or is legally incompetent. The Company
may rely upon the designation of Beneficiary or Beneficiaries last filed by the
Participant in accordance with the terms of this Plan.
(b) If the designated Beneficiary does not survive the
Participant, or if there is no valid Beneficiary designation, amounts payable
under the Plan shall be paid to the Participant's spouse, or if there is no
surviving spouse, then to the duly appointed and currently acting personal
representative of the Participant's estate. If there is no personal
representative of the Participant's estate duly appointed and acting in that
capacity within sixty (60) days after the Participant's death, then all
payments due under the Plan shall be payable to the person or persons who can
verify by affidavit or court order to the satisfaction of the Committee that
they are legally entitled to receive the benefits specified hereunder pursuant
to the laws of intestate
- 5 -
<PAGE> 9
succession or other statutory provision in effect at the Participant's death in
the state in which the Participant resided.
6.4 Distribution to Guardian. If the Committee shall find that
any person to whom any payment is payable under this Plan is unable to care for
his or her affairs because of illness or accident, or is a minor, a payment due
(unless a prior claim therefor shall have been made by a duly appointed
guardian or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any custodian, conservator or other
fiduciary responsible for the management and control of such person's financial
affairs in such manner and proportions as the Committee may determine. Any
such payment shall be a complete discharge of the liabilities of the Trust
under this Plan.
6.5 Withholding of Taxes. To the extent any Distribution from the
Trust is subject to withholding taxes, the Committee may require, as a
condition to the payment of such Distribution, that the Participant or
Beneficiary who is eligible for the Distribution:
(a) make payment to the Company in the form of a check
for such withholding taxes; or
(b) consent to the withholding of shares of Company Stock
by the Trustee sufficient in value to satisfy such withholding taxes, in which
case such shares shall be delivered to the Company which shall make the
appropriate tax withholding.
The Committee may offer either or both of these options to the Participant or
Beneficiary in the Committee's sole discretion.
ARTICLE VII
ACCELERATION OF DISTRIBUTION AND VESTING
7.1 Termination of Employment or Death. Unless sooner distributed
in accordance with Section 6.1, the vested portion of a Participant's Accounts
shall be distributed from the Trust as soon as practicable following
termination of the Participant's employment with the Company for any reason,
including death. Termination of employment shall include certain leaves of
absence and changes in status as specified in Section 2.4. The Participant and
Beneficiary shall forfeit any unvested portion of the Accounts at the time of
such termination or death.
7.2 Change in Control. Every Account shall become fully vested
and shall be immediately distributed to the Participants to whom such Accounts
belong, upon the occurrence of a Change in Control (as hereinafter defined) of
the Company. A Change in Control shall be deemed to occur upon any "person"
(as defined in Section 3(a)(9) of the Securities Exchange Act of 1934), other
than the Company, any subsidiary or any employee benefit plan or trust
maintained by the Company or subsidiary becoming the beneficial owner (as
defined in Rule
- 6 -
<PAGE> 10
13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of
more than 25% of the Company Stock outstanding at such time, without the prior
approval of the Board. For purposes of the foregoing, a subsidiary is any
corporation in an unbroken chain of corporations beginning with the Company if
each of the corporations, other than the last corporation in such chain, owns
at least fifty percent (50%) of the total voting power in one of the other
corporations in such chain.
7.3 Hardship. Notwithstanding the provisions of Section 6.1
hereof, a Participant shall be entitled to request a hardship Distribution of
all or any portion of the vested portion of his or her Account(s). A
Participant must make a written request for a hardship Distribution, stating
the reasons such withdrawal is necessary because of a financial hardship. The
Committee, in its sole discretion, shall determine whether or not to grant the
hardship Distribution of such Participant's Account(s) and, in so doing, may
rely on the Participant's statements, and a hardship Distribution may be
approved without further investigation unless the Committee has reason to
believe such statements are false.
ARTICLE VIII
PLAN TERMINATION AND AMENDMENT
8.1 Termination and Amendments. The Plan shall continue until all
amounts have been distributed in accordance with the terms of the Plan.
Notwithstanding the foregoing sentence, the Board retains the right to amend or
terminate the Plan 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 a Plan amendment or termination, benefits will
either be paid out when due under the terms of the Plan or as soon as possible
as determined by the Committee in its sole discretion. To the extent feasible,
the Committee shall use its best efforts to avoid adversely affecting the
rights of any existing Participants in the Plan, but the Committee shall be
under no specific duty or obligation in this regard.
ARTICLE IX
PLAN ADMINISTRATION
9.1 Committee. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan and the authority granted hereunder to
the Awarding Authority, the Committee shall have exclusive power to determine
the manner and time of Awards and payment of benefits to the extent herein
provided and to exercise any other discretionary powers granted to the
Committee pursuant to the Plan. The decisions or determinations by the
Committee shall be final and binding upon all parties, including shareholders,
Participants and other Employees. The Committee shall have the authority to
interpret the Plan, to make factual findings and determinations, to adopt and
revise rules and regulations relating to the Plan and to make any
- 7 -
<PAGE> 11
other determinations which it believes necessary or advisable for the
administration of the Plan. The Committee's discretion in these matters shall
be as broad and unfettered as permitted by law.
9.2 Committee Powers. The Committee shall have all powers
necessary to supervise the administration of the Plan and control its
operations. In addition to any powers and authority conferred on the Committee
elsewhere in the Plan or by law, the Committee shall have, by way of
illustration and not by way of limitation, the following powers and authority:
(a) To designate agents to carry out responsibilities
relating to the Plan;
(b) To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in carrying out the
provisions of this Plan;
(c) To administer, interpret, construe and apply this
Plan and to decide all questions which may arise or which may be raised under
this Plan by any Employee, Participant, Beneficiary or other person whomsoever,
including but not limited to all questions relating to eligibility to
participate in the Plan, determination of Awards and the amount of benefits to
which any Participant may be entitled;
(d) To establish rules and procedures from time to time
for the conduct of its business and for the administration and effectuation of
its responsibilities under the Plan;
(e) To establish claims procedures, and to make forms
available for filing of such claims, and to provide the name of the person or
persons with whom such claims should be filed. The Committee shall establish
procedures for action upon claims initially made and the communication of a
decision to the claimant promptly and, in any event, not later than sixty (60)
days after the date of the claim; the claim may be deemed by the claimant to
have been denied for purposes of further review described below in the event a
written decision is not furnished to the claimant within such sixty (60) day
period. Every claim for benefits which is denied shall be denied by written
notice setting forth in a manner calculated to be understood by the claimant
(1) the specific reason or reasons for the denial, (2) specific reference to
any provisions of this Plan on which denial is based, (3) description of any
additional material or information necessary for the claimant to perfect his
claim with an explanation of why such material or information is necessary, and
(4) an explanation of the procedure for further reviewing the denial of the
claim under the Plan. The Committee shall establish a procedure for review of
claim denials, such review to be undertaken by the Committee. The review given
after denial of any claim shall be a full and fair review with the claimant or
his duly authorized representative having one hundred eighty (180) days after
receipt of denial of his claim to request such review, having the right to
review all pertinent documents and the right to submit issues and comments in
writing. The Committee shall establish a procedure for issuance of a decision
by the Committee not later than sixty (60) days after receipt of a request for
review from a claimant unless special circumstances, such as the need to hold a
hearing, require a longer period of time, in which case a decision shall be
rendered as soon as possible but not
- 8 -
<PAGE> 12
later than one hundred twenty (120) days after receipt of the claimant's
request for review. The decision on review shall be in writing and shall
include specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific reference to any provisions of this
Plan on which the decision is based; and
(f) To perform or cause to be performed such further acts
as it may deem to be necessary, appropriate, or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the
exercise of authority conferred upon it by this Plan shall be conclusive and
binding upon the Participants and their beneficiaries. All discretionary
powers conferred upon the Committee shall be absolute.
9.3 Plan Expenses. Members of the Committee shall serve as such
without compensation from the Plan, but may receive compensation from the
Company for so serving. All Plan administration expenses shall be borne by the
Company or the Trust as determined by the Committee in its sole discretion.
9.4 Reliance Upon Documents and Opinions.
(a) The members of the Committee, the Board, and the
Company shall be entitled to rely upon any:
(i) Tables, valuations, computations, estimates,
certificates, opinions and reports furnished by any consultant, or
firm or corporation which employs one or more consultants or advisors;
and
(ii) Computations, estimates and reports furnished
by any consultants or consulting firms.
(b) The members of the Committee, the Board, and the
Company shall be fully protected and shall not be liable in any manner
whatsoever for anything done or action taken or suffered in reliance upon any
such consultant, firm, or corporation which employs one or more consultants or
counsel.
(c) Any and all such things done or such actions taken or
suffered by the Committee, the Board, and the Company in so relying shall be
conclusive and binding on all Employees, Participants, Beneficiaries and any
other persons whomsoever, except as otherwise provided by law.
(d) The Committee may, but is not required to, rely upon
all records of the Company with respect to any matter or thing whatsoever, and
may likewise treat such records as conclusive with respect to all Employees,
Participants, Beneficiaries and any other persons whomsoever, except as
otherwise provided by law.
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<PAGE> 13
9.5 Requirement of Proof. The Committee, the Board, or the
Company may require satisfactory proof of any matter under this Plan from or
with respect to any Employee, Participant or Beneficiary, and no such person
shall acquire any rights or be entitled to receive any benefits under this Plan
until such proof shall be furnished as so required.
9.6 Limitation on Liability. No employee or director of the
Company and no other person shall be subject to any liability by reason of or
arising from his or her participation in the establishment or administration or
operation of the Plan unless he or she acts fraudulently or in bad faith.
9.7 Indemnification.
(a) To the extent permitted by law, the Company shall
indemnify each member of the Awarding Authority, of the Committee, and any
other employee or director of the Company who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
proceeding, whether civil, criminal, administrative, or investigative, by
reason of his or her conduct in the performance in connection with the
establishment or administration of the Plan or any amendment or termination of
the Plan.
(b) This indemnification shall apply against expenses
including, without limitation, attorneys fees and any expenses of establishing
a right to indemnification hereunder, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with such proceeding,
except in relation to matters as to which he or she has acted fraudulently or
in bad faith in the performance of such duties.
(c) The termination of any proceeding by judgment, order,
settlement, conviction, upon a plea of nolo contendere or its equivalent shall
not, in and of itself, create a presumption that the person acted fraudulently
or in bad faith in the performance of his or her duties.
(d) Expenses incurred in defending any such proceeding
may be advanced by the Company prior to the final disposition of such
proceeding, upon receipt of an undertaking by or on behalf of the recipient to
repay such amount, unless it shall be determined ultimately that the recipient
is entitled to be indemnified as authorized in this Section 9.7.
(e) The right of indemnification set forth in this
Section 9.7 shall be in addition to any other right to which any Awarding
Authority member, Committee member or other person may be entitled as a matter
of law, by corporate bylaws or otherwise.
- 10 -
<PAGE> 14
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Restrictions on Plan Interest.
(a) A Participant's interest in this Plan shall be
limited to his or her Account in the Trust and he or she shall have no other
interest in any assets of the Company nor any right as against the Company,
Awarding Authority or Committee for payment of benefits under this Plan.
(b) None of the benefits, payments, proceeds, claims or
rights hereunder of any Participant or Beneficiary shall be subject to any
claim of any creditor of such Participant or Beneficiary and in particular the
same shall not be subject to attachment, garnishment, or other legal process by
any creditor of such Participant or Beneficiary.
(c) A Participant or Beneficiary shall not have any right
to alienate, anticipate, commute, pledge, encumber, or assign any of the
benefits or payments or proceeds which he or she may expect to receive,
contingently or otherwise, under the Plan.
(d) A Participant's and Beneficiary's interest in this
Plan and his or her Account in the Trust are subject to the claims of the
Company's creditors as provided in the Trust. Each Participant and Beneficiary
shall, however, be considered a general creditor of the Company with respect to
the assets held in his or her Account in the Trust, so that if the Company
should become insolvent, the Participant or Beneficiary will have a claim
against the Trust assets equal to that of the Company's other general creditors
(regardless of whether such assets are removed from the trust by a trustee in
bankruptcy).
10.2 No Enlargement of Employee Rights.
(a) This Plan is strictly a voluntary undertaking on the
part of the Company and shall not be deemed to constitute a contract between
the Company and any Employee, or to be consideration for, or an inducement to,
or a condition of, the employment of any Employee.
(b) An Employee's employment with the Company is not for
any specified term and may be terminated by such Employee or by the Company at
any time for any reason, with or without cause. Nothing in this Plan or in any
agreement pursuant to this Plan shall confer upon any Employee or Participant
any right to continue in the employ of or affiliation with the Company nor
constitute any promise or commitment by the Company regarding future positions,
future work assignments, future compensation or any other term or condition of
employment or affiliation.
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<PAGE> 15
(c) No person shall have any right to any benefits under
this Plan, except to the extent expressly provided herein.
(d) The Plan is not intended to nor shall it be deemed to
be a Plan providing retirement income or resulting in the deferral of income by
employees for periods extending to the termination of covered employment or
beyond.
10.3 Rights of Repurchase and First Refusal for the Company. Any
Company Stock distributed from the Plan shall be subject to a right of
repurchase and right of first refusal by the Company. The terms and conditions
of the right of repurchase and right of first refusal shall be those applied to
Company Stock by the Certificate of Incorporation of Science Applications
International Corporation, as in effect from time to time.
10.4 Mailing of Payments. All payments under the Plan shall be
delivered in person or mailed to the last address of the Participant (or, in
the case of the death of the Participant to that of any other person entitled
to such payments under the terms of the Plan). Each Participant shall be
responsible for furnishing the Committee with his or her correct current
address and the correct current name and address of his or her Beneficiary.
10.5 Inability to Locate Participant or Beneficiary. In the event
that the Committee is unable to locate a Participant or Beneficiary to whom
benefits are payable hereunder after mailing a notice to the Participant's or
Beneficiary's last known address, and such inability lasts for a period of
three (3) years, then any remaining benefits payable hereunder shall be
forfeited to the Company and no Participant or Beneficiary shall have any right
to further benefits from the Plan, even if subsequently located.
10.6 Governing Law. All legal questions pertaining to the Plan
shall be determined in accordance with the laws of the State of California.
10.7 Records. The records of the Company with respect to the Plan
shall be conclusive on all Participants, Beneficiaries, and all other persons
whomsoever.
10.8 Illegality of Particular Provision. If any particular
provision of this Plan shall be found to be illegal or unenforceable, such
provision shall not affect the other provisions thereof, but the Plan shall be
construed in all respect as if such invalid provision were omitted.
10.9 Receipt or Release. Any payment to any Participant or
Beneficiary in accordance with the provisions of this Plan shall, to the extent
thereof, be in full satisfaction of all claims against the Awarding Authority,
the Committee and the Company, and the Committee may require such Participant
or Beneficiary, as a condition precedent to such payment, to execute a receipt
and release to such effect.
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<PAGE> 16
10.10 Arbitration. The Committee's written decision on review of a
denial of benefits, as provided in Section 9.2(e), shall be final, conclusive
and binding on all Participants, Beneficiaries and Employees of the Company.
Notwithstanding the foregoing, any person disputing such a written decision
shall submit such dispute to binding Arbitration pursuant to the rules of the
American Arbitration Association, to be held in San Diego County. The losing
party in such arbitration proceedings shall bear the costs of arbitration, and
each party shall bear its own attorneys' fees.
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<PAGE> 1
EXHIBIT 4(1)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
MANAGEMENT STOCK COMPENSATION PLAN
Effective as of April 3, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Awarding Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.7 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.8 Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.9 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Share Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II PARTICIPATION AND AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Designation by Awarding Authority . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Awarding Authority to Make Awards . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Awards to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Vesting and Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Trust Fund Established . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Company, Committee and Trustee
Not Responsible for Adequacy of Trust Fund . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV ACCOUNTING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Committee to Maintain Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Accounting Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Invasion of Trust by Creditors . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Trust Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V RIGHTS IN ACQUIRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Power to Vote Stock Rests with Trustee . . . . . . . . . . . . . . . . . . . . . 4
5.2 Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.3 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE VI DISTRIBUTION OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Time of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Form of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.3 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.4 Distribution to Guardian . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.5 Withholding of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VII ACCELERATION OF DISTRIBUTION AND VESTING . . . . . . . . . . . . . . . . . . . . . . 6
7.1 Termination of Employment or Death . . . . . . . . . . . . . . . . . . . . . . . 6
7.2 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3 Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VIII PLAN TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1 Termination and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IX PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.1 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.2 Committee Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.3 Plan Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.4 Reliance Upon Documents and Opinions . . . . . . . . . . . . . . . . . . . . . . 9
9.5 Requirement of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.6 Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.1 Restrictions on Plan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.2 No Enlargement of Employee Rights . . . . . . . . . . . . . . . . . . . . . . . . 11
10.3 Rights of Repurchase and
First Refusal for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.4 Mailing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.5 Inability to Locate Participant or Beneficiary . . . . . . . . . . . . . . . . . 12
10.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.7 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.8 Illegality of Particular Provision . . . . . . . . . . . . . . . . . . . . . . . 12
10.9 Receipt or Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.10 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
- ii -
<PAGE> 4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
MANAGEMENT STOCK COMPENSATION PLAN
PURPOSE
This Plan is an unfunded compensation arrangement established
effective on April 3, 1996, by Science Applications International Corporation
("SAIC") to make deferred awards of company stock to selected management and
highly compensated employees.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in the Plan they shall have the
meaning specified below, unless the context indicates clearly to the contrary.
1.1 Account. The bookkeeping account established for an Employee
pursuant to Article IV to record the number of Share Units awarded to the
Employee and the vesting thereof.
1.2 Award. The award of Share Units in the Trust to an Employee
pursuant to the Plan.
1.3 Awarding Authority. The individual or group of individuals
appointed by the Board to make Awards pursuant to the Plan.
1.4 Beneficiary. The person or persons properly designated by the
Participant, in accordance with Section 6.3, to receive the benefits provided
herein upon death of the Participant.
1.5 Board. The Board of Directors of Science Applications
International Corporation.
1.6 Committee. The committee appointed by the Board to administer
the Plan. Members of the Committee shall be eligible to receive Awards under
the Plan at the discretion of the Awarding Authority.
1.7 Company. Science Applications International Corporation, a
Delaware corporation, and any subsidiary thereof, the participation in this
Plan of the Employees of which is approved by the Awarding Authority.
1.8 Company Stock. The Class A Common Stock of Science
Applications International Corporation.
- 1 -
<PAGE> 5
1.9 Distribution. Payment of the vested balance in a
Participant's Account from the Trust to the Participant or the Participant's
Beneficiary.
1.10 Employee. A management or highly compensated employee of the
Company, as determined by the Committee.
1.11 Participant. An Employee designated by the Committee to
receive an Award under the Plan.
1.12 Plan. The Science Applications International Corporation
Stock Compensation Plan for Management Employees as set forth herein and as
amended from time to time by the Board.
1.13 Share Unit. The interest of a Participant in a share of
Company Stock held in the Participant's Account in the Trust.
1.14 Trust. The Science Applications International Corporation
Stock Compensation Plan Trust established by the Company to hold all assets
awarded to Participants under the Plan.
1.15 Trustee. State Street Bank or such successor trustee as shall
be appointed pursuant to the Trust.
ARTICLE II
PARTICIPATION AND AWARDS
2.1 Designation by Awarding Authority. The Awarding Authority in
its sole discretion shall designate those Employees who are to receive Awards
under the Plan. The Awarding Authority's designation of an Employee for a
particular Award shall not require the Awarding Authority to make any further
Awards to such Employee.
2.2 Awarding Authority to Make Awards. The Awarding Authority
shall make Awards under the Plan by determining a number of Share Units to be
credited to those Employees whom the Awarding Authority has selected for
participation in the Plan corresponding to a specified number of shares of
Company Stock allocated in the Trust to such Employees, and by establishing an
Account in favor of such Employees in accordance with Article IV to hold such
Share Units. A separate Account shall be established for each Award. Each
Account shall be subject to a vesting schedule specified by the Awarding
Authority. The amount, timing and vesting of each Award shall be decided in
the Awarding Authority's sole discretion, and the Awarding Authority may apply
different terms to Awards made to different Employees as well as to different
Awards made to the same Employee.
- 2 -
<PAGE> 6
2.3 Awards to be Held in Trust. Within a reasonable period of
time following the date of an Award, SAIC shall contribute to the Trust Company
Stock or an amount of money sufficient to purchase shares of Company Stock
corresponding to the Share Units made in such Award. The Trustee shall apply
such contribution toward the purchase of Company Stock in accordance with the
directions of the Committee and the terms of the Trust. To the extent any such
Award is made to an Employee of an affiliate of SAIC, SAIC may charge the cost
of the corresponding Trust contribution to such affiliate as agreed between
SAIC and the affiliate.
2.4 Vesting and Forfeiture. Each Account shall be subject to a
vesting schedule, not to exceed seven (7) years, established by the Awarding
Authority. Vesting shall cease upon termination of the Participant's
employment with the Company for any reason other than the death of the
Participant. For purposes of the Plan, an Employee's leave of absence
exceeding thirty (30) days other than (i) a leave of absence caused by the
Employee's disability, as defined under the terms of any of the Company's
short-term or long-term disability plans, (ii) a qualified military leave as
determined by the Committee, or (iii) a family or medical leave covered by
federal or state family/medical leave acts, shall be considered a termination
of employment effective on the thirtieth day of such leave of absence. An
Employee's change in status to that of consulting employee shall also be
considered a termination of employment for purposes of the Plan. In the event
of the death of a Participant, all of the Participant's Accounts shall become
immediately vested. The unvested portion of a Participant's Accounts upon
termination of employment shall be immediately forfeited by the Participant,
and the shares of Company Stock represented by such unvested portion shall be
returned to the Company or reallocated in accordance with the Committee's
directions and the terms of the Trust.
ARTICLE III
TRUST FUND
3.1 Trust Fund Established. The Company has established the Trust
pursuant to a trust agreement under which the Trustee will hold and administer
in trust all assets deposited with the Trustee in accordance with the terms of
this Plan. The Board shall have the authority to select and remove the Trustee
to act under the Trust agreement, and to enter into new or amended trust
agreements as it deems advisable.
3.2 Company, Committee and Trustee Not Responsible for Adequacy of
Trust Fund. Neither the Company, Committee nor Trustee shall be liable or
responsible for the adequacy of the Trust Fund to meet and discharge any or all
payments and liabilities hereunder. All Plan benefits will be paid only from
the Trust assets, and neither the Company, the Committee nor the Trustee shall
have any duty or liability to furnish the Trust with any funds, securities or
other assets except as expressly provided in Section 2.3 hereof.
- 3 -
<PAGE> 7
ARTICLE IV
ACCOUNTING PROCEDURES
4.1 Committee to Maintain Accounts. The Committee shall open and
maintain a separate Account with respect to each Award made under the Plan for
purposes of keeping a record of the assets held in Trust for each Participant
and for recording the vesting status of each Award.
4.2 Accounting Procedures. The Committee shall establish and may
amend from time to time accounting procedures for the purpose of making
allocations, Distributions, valuations and adjustments to Accounts provided for
in this Article IV. A Participant or Beneficiary shall have no contractual or
other right to have a particular accounting procedure or convention apply, or
continue to apply, and the Committee shall be free to alter any such procedure
or convention without obligation to any Participant or Beneficiary.
4.3 Invasion of Trust by Creditors. If assets of the Trust should
be reduced due to action of the Company's Creditors, as provided in the Trust
document, the Committee shall reduce each Account on a pro rata basis to
reflect such reduction in Trust assets, and the Company shall have no
obligation to replace such lost assets.
4.4 Trust Expenses. Expenses of the Trust which are not paid by
the Company shall be applied to reduce each Account on a pro rata basis.
ARTICLE V
RIGHTS IN ACQUIRED STOCK
5.1 Power to Vote Stock Rests With Trustee. The power to vote any
stock held by the Trustee shall rest solely with the Trustee, who shall vote
such stock in the same proportion that the other shareholders vote their shares
of Company Stock. For purposes of this Section 5.1, Company Stock shall
include both Class A and Class B Common Stock.
5.2 Tender Offers. In the case of a tender offer for the Company
Stock, the Trustee shall tender the shares of Company Stock held by the Trust
only if more than fifty percent (50%) of the shares of Company Stock held
outside the Trust are tendered by the shareholders.
5.3 Dividends. All dividends on Company Stock held in Trust shall
be held by the Trustee and reinvested as directed by the Committee. The
Committee shall allocate such dividends among the Accounts pro rata to the
shares allocated to each Account.
- 4 -
<PAGE> 8
ARTICLE VI
DISTRIBUTION OF ACCOUNTS
6.1 Time of Distribution. Subject to the acceleration provisions
of Article VII, a Participant's Account shall be Distributed as follows:
(a) The vested portion of the Participant's Account shall
be distributed within a reasonable period of time following the date (i) it
becomes vested, or (ii) the Participant's employment with the Company
terminates (including upon a leave of absence or change in status as specified
in Section 2.4), as elected by the Participant in a manner prescribed by the
Committee within ninety (90) days following the date of the Award contained in
the Account. Such election shall be irrevocable.
(b) If the Participant fails to make the election
described in subsection (a), the Participant's Account shall be distributed in
full within a reasonable period of time following the seventh anniversary of
the date of the Award contained in such Account.
6.2 Form of Distribution. Distributions shall be made in the form
of Company Stock or cash, or part Company Stock and part cash, as the Committee
shall determine in its sole discretion.
6.3 Beneficiary Designation.
(a) Upon forms provided by the Committee, each
Participant shall designate in writing the Beneficiary or Beneficiaries whom
such Participant desires to receive the benefits of this Plan, if any, payable
in the event of such Participant's death. A Participant may from time to time
change his or her designated Beneficiary or Beneficiaries without the consent
of such Beneficiary or Beneficiaries by filing a new designation in writing
with the Committee; provided, however, that if a married Participant wishes to
designate an individual other than his or her spouse as Beneficiary, such
designation shall not be effective unless consented to in writing by the
spouse. Notwithstanding the foregoing, spousal consent shall not be necessary
if it is established to the satisfaction of the Committee that there is no
spouse of the Participant or that the required consent cannot be obtained
because the spouse cannot be located or is legally incompetent. The Company
may rely upon the designation of Beneficiary or Beneficiaries last filed by the
Participant in accordance with the terms of this Plan.
(b) If the designated Beneficiary does not survive the
Participant, or if there is no valid Beneficiary designation, amounts payable
under the Plan shall be paid to the Participant's spouse, or if there is no
surviving spouse, then to the duly appointed and currently acting personal
representative of the Participant's estate. If there is no personal
representative of the Participant's estate duly appointed and acting in that
capacity within sixty (60) days after the Participant's death, then all
payments due under the Plan shall be payable to the person or persons who can
verify by affidavit or court order to the satisfaction of the Committee that
they
- 5 -
<PAGE> 9
are legally entitled to receive the benefits specified hereunder pursuant to
the laws of intestate succession or other statutory provision in effect at the
Participant's death in the state in which the Participant resided.
6.4 Distribution to Guardian. If the Committee shall find that
any person to whom any payment is payable under this Plan is unable to care for
his or her affairs because of illness or accident, or is a minor, a payment due
(unless a prior claim therefor shall have been made by a duly appointed
guardian or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any custodian, conservator or other
fiduciary responsible for the management and control of such person's financial
affairs in such manner and proportions as the Committee may determine. Any
such payment shall be a complete discharge of the liabilities of the Trust
under this Plan.
6.5 Withholding of Taxes. To the extent any Distribution from the
Trust is subject to withholding taxes, the Committee may require, as a
condition to the payment of such Distribution, that the Participant or
Beneficiary who is eligible for the Distribution:
(a) make payment to the Company in the form of a check
for such withholding taxes; or
(b) consent to the withholding of shares of Company Stock
by the Trustee sufficient in value to satisfy such withholding taxes, in which
case such shares shall be delivered to the Company which shall make the
appropriate tax withholding.
The Committee may offer either or both of these options to the Participant or
Beneficiary in the Committee's sole discretion.
ARTICLE VII
ACCELERATION OF DISTRIBUTION AND VESTING
7.1 Termination of Employment or Death. Unless sooner distributed
in accordance with Section 6.1, and notwithstanding any provision to the
contrary in Section 6.1, the vested portion of a Participant's Accounts shall
be distributed from the Trust as soon as practicable following termination of
the Participant's employment with the Company for any reason, including death.
Termination of employment shall include certain leaves of absence and changes
in status as specified in Section 2.4. The Participant and Beneficiary shall
forfeit any unvested portion of the Accounts at the time of such termination or
death.
7.2 Change in Control. Every Account shall become fully vested
and shall be immediately distributed to the Participants to whom such Accounts
belong, upon the occurrence of a Change in Control (as hereinafter defined) of
the Company. A Change in Control shall be deemed to occur upon any "person"
(as defined in Section 3(a)(9) of the Securities Exchange Act
- 6 -
<PAGE> 10
of 1934), other than the Company, a subsidiary or any employee benefit plan or
trust maintained by the Company or a subsidiary becoming the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than 25% of the Company Stock outstanding at such time,
without the prior approval of the Board. For purposes of the foregoing, a
subsidiary is any corporation in an unbroken chain of corporations beginning
with the Company if each of the corporations, other than the last corporation
in such chain, owns at least fifty percent (50%) of the total voting power in
one of the other corporations in such chain.
7.3 Hardship. Notwithstanding the provisions of Section 6.1
hereof, a Participant shall be entitled to request a hardship Distribution of
all or any portion of the vested portion of his or her Account(s). A
Participant must make a written request for a hardship Distribution, stating
the reasons such withdrawal is necessary because of a financial hardship. The
Committee, in its sole discretion, shall determine whether or not to grant the
hardship Distribution of such Participant's Account(s) and, in so doing, may
rely on the Participant's statements, and a hardship Distribution and vesting
acceleration may be approved without further investigation unless the Committee
has reason to believe such statements are false.
ARTICLE VIII
PLAN TERMINATION AND AMENDMENT
8.1 Termination and Amendments. The Plan shall continue until all
amounts have been distributed in accordance with the terms of the Plan.
Notwithstanding the foregoing sentence, the Board retains the right to amend or
terminate the Plan 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 a Plan amendment or termination, benefits will
either be paid out when due under the terms of the Plan or as soon as possible
as determined by the Committee in its sole discretion. To the extent feasible,
the Committee shall use its best efforts to avoid adversely affecting the
rights of any existing Participants in the Plan, but the Committee shall be
under no specific duty or obligation in this regard.
ARTICLE IX
PLAN ADMINISTRATION
9.1 Committee. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan and the authority granted hereunder to
the Awarding Authority, the Committee shall have exclusive power to determine
the manner and time of Awards and payment of benefits to the extent herein
provided and to exercise any other discretionary powers granted to the
Committee pursuant to the Plan. The decisions or determinations by the
Committee shall be final and binding upon all parties, including shareholders,
Participants and other Employees. The Committee shall have the authority to
interpret the Plan, to make factual findings and
- 7 -
<PAGE> 11
determinations, to adopt and revise rules and regulations relating to the Plan
and to make any other determinations which it believes necessary or advisable
for the administration of the Plan. The Committee's discretion in these
matters shall be as broad and unfettered as permitted by law.
9.2 Committee Powers. The Committee shall have all powers
necessary to supervise the administration of the Plan and control its
operations. In addition to any powers and authority conferred on the Committee
elsewhere in the Plan or by law, the Committee shall have, by way of
illustration and not by way of limitation, the following powers and authority:
(a) To designate agents to carry out responsibilities
relating to the Plan;
(b) To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in carrying out the
provisions of this Plan;
(c) To administer, interpret, construe and apply this
Plan and to decide all questions which may arise or which may be raised under
this Plan by any Employee, Participant, Beneficiary or other person whomsoever,
including but not limited to all questions relating to eligibility to
participate in the Plan, determination of Awards and the amount of benefits to
which any Participant may be entitled;
(d) To establish rules and procedures from time to time
for the conduct of its business and for the administration and effectuation of
its responsibilities under the Plan;
(e) To establish claims procedures, and to make forms
available for filing of such claims, and to provide the name of the person or
persons with whom such claims should be filed. The Committee shall establish
procedures for action upon claims initially made and the communication of a
decision to the claimant promptly and, in any event, not later than sixty (60)
days after the date of the claim; the claim may be deemed by the claimant to
have been denied for purposes of further review described below in the event a
written decision is not furnished to the claimant within such sixty (60) day
period. Every claim for benefits which is denied shall be denied by written
notice setting forth in a manner calculated to be understood by the claimant
(1) the specific reason or reasons for the denial, (2) specific reference to
any provisions of this Plan on which denial is based, (3) description of any
additional material or information necessary for the claimant to perfect his
claim with an explanation of why such material or information is necessary, and
(4) an explanation of the procedure for further reviewing the denial of the
claim under the Plan. The Committee shall establish a procedure for review of
claim denials, such review to be undertaken by the Committee. The review given
after denial of any claim shall be a full and fair review with the claimant or
his duly authorized representative having one hundred eighty (180) days after
receipt of denial of his claim to request such review, having the right to
review all pertinent documents and the right to submit issues and comments in
writing. The Committee shall establish a procedure for issuance of a decision
by the Committee not later than sixty (60) days after receipt of a request for
review from a claimant unless special circumstances, such as the need to hold a
hearing, require a
- 8 -
<PAGE> 12
longer period of time, in which case a decision shall be rendered as soon as
possible but not later than one hundred twenty (120) days after receipt of the
claimant's request for review. The decision on review shall be in writing and
shall include specific reasons for the decision written in a manner calculated
to be understood by the claimant with specific reference to any provisions of
this Plan on which the decision is based; and
(f) To perform or cause to be performed such further acts
as it may deem to be necessary, appropriate, or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the
exercise of authority conferred upon it by this Plan shall be conclusive and
binding upon the Participants and their beneficiaries. All discretionary
powers conferred upon the Committee shall be absolute.
9.3 Plan Expenses. Members of the Committee shall serve as such
without compensation from the Plan, but may receive compensation from the
Company for so serving. All Plan administration expenses shall be borne by the
Company or the Trust as determined by the Committee in its sole discretion.
9.4 Reliance Upon Documents and Opinions.
(a) The members of the Committee, the Board, and the
Company shall be entitled to rely upon any:
(i) Tables, valuations, computations, estimates,
certificates, opinions and reports furnished by any consultant, or
firm or corporation which employs one or more consultants or advisors;
and
(ii) Computations, estimates and reports furnished
by any consultants or consulting firms.
(b) The members of the Committee, the Board, and the
Company shall be fully protected and shall not be liable in any manner
whatsoever for anything done or action taken or suffered in reliance upon any
such consultant, firm, or corporation which employs one or more consultants or
counsel.
(c) Any and all such things done or such actions taken or
suffered by the Committee, the Board, and the Company in so relying shall be
conclusive and binding on all Employees, Participants, Beneficiaries and any
other persons whomsoever, except as otherwise provided by law.
(d) The Committee may, but is not required to, rely upon
all records of the Company with respect to any matter or thing whatsoever, and
may likewise treat such records as conclusive with respect to all Employees,
Participants, Beneficiaries and any other persons whomsoever, except as
otherwise provided by law.
- 9 -
<PAGE> 13
9.5 Requirement of Proof. The Committee, the Board, or the
Company may require satisfactory proof of any matter under this Plan from or
with respect to any Employee, Participant or Beneficiary, and no such person
shall acquire any rights or be entitled to receive any benefits under this Plan
until such proof shall be furnished as so required.
9.6 Limitation on Liability. No employee or director of the
Company and no other person shall be subject to any liability by reason of or
arising from his or her participation in the establishment or administration or
operation of the Plan unless he or she acts fraudulently or in bad faith.
9.7 Indemnification.
(a) To the extent permitted by law, the Company shall
indemnify each member of the Awarding Authority, of the Committee, and any
other employee or director of the Company who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
proceeding, whether civil, criminal, administrative, or investigative, by
reason of his or her conduct in the performance in connection with the
establishment or administration of the Plan or any amendment or termination of
the Plan.
(b) This indemnification shall apply against expenses
including, without limitation, attorneys fees and any expenses of establishing
a right to indemnification hereunder, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with such proceeding,
except in relation to matters as to which he or she has acted fraudulently or
in bad faith in the performance of such duties.
(c) The termination of any proceeding by judgment, order,
settlement, conviction, upon a plea of nolo contendere or its equivalent shall
not, in and of itself, create a presumption that the person acted fraudulently
or in bad faith in the performance of his or her duties.
(d) Expenses incurred in defending any such proceeding
may be advanced by the Company prior to the final disposition of such
proceeding, upon receipt of an undertaking by or on behalf of the recipient to
repay such amount, unless it shall be determined ultimately that the recipient
is entitled to be indemnified as authorized in this Section 9.7.
(e) The right of indemnification set forth in this
Section 9.7 shall be in addition to any other right to which any Awarding
Authority member, Committee member or other person may be entitled as a matter
of law, by corporate bylaws or otherwise.
- 10 -
<PAGE> 14
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Restrictions on Plan Interest.
(a) A Participant's interest in this Plan shall be
limited to his or her Account in the Trust and he or she shall have no other
interest in any assets of the Company nor any right as against the Company,
Awarding Authority or Committee for payment of benefits under this Plan.
(b) None of the benefits, payments, proceeds, claims or
rights hereunder of any Participant or Beneficiary shall be subject to any
claim of any creditor of such Participant or Beneficiary and in particular the
same shall not be subject to attachment, garnishment, or other legal process by
any creditor of such Participant or Beneficiary.
(c) A Participant or Beneficiary shall not have any right
to alienate, anticipate, commute, pledge, encumber, or assign any of the
benefits or payments or proceeds which he or she may expect to receive,
contingently or otherwise, under the Plan.
(d) A Participant's and Beneficiary's interest in this
Plan and his or her Account in the Trust are subject to the claims of the
Company's creditors as provided in the Trust. Each Participant and Beneficiary
shall, however, be considered a general creditor of the Company with respect to
the assets held in his or her Account in the Trust, so that if the Company
should become insolvent, the Participant or Beneficiary will have a claim
against the Trust assets equal to that of the Company's other general creditors
(regardless of whether such assets are removed from the trust by a trustee in
bankruptcy).
10.2 No Enlargement of Employee Rights.
(a) This Plan is strictly a voluntary undertaking on the
part of the Company and shall not be deemed to constitute a contract between
the Company and any Employee, or to be consideration for, or an inducement to,
or a condition of, the employment of any Employee.
(b) An Employee's employment with the Company is not for
any specified term and may be terminated by such Employee or by the Company at
any time for any reason, with or without cause. Nothing in this Plan or in any
agreement pursuant to this Plan shall confer upon any Employee or Participant
any right to continue in the employ of or affiliation with the Company nor
constitute any promise or commitment by the Company regarding future positions,
future work assignments, future compensation or any other term or condition of
employment or affiliation.
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<PAGE> 15
(c) No person shall have any right to any benefits under
this Plan, except to the extent expressly provided herein.
(d) The Plan is not intended to nor shall it be deemed to
be a Plan providing retirement income or resulting in the deferral of income by
employees for periods extending to the termination of covered employment or
beyond.
10.3 Rights of Repurchase and First Refusal for the Company. Any
Company Stock distributed from the Plan shall be subject to a right of
repurchase and right of first refusal by the Company. The terms and conditions
of the right of repurchase and right of first refusal shall be those applied to
Company Stock by the Certificate of Incorporation of Science Applications
International Corporation, as in effect from time to time.
10.4 Mailing of Payments. All payments under the Plan shall be
delivered in person or mailed to the last address of the Participant (or, in
the case of the death of the Participant to that of any other person entitled
to such payments under the terms of the Plan). Each Participant shall be
responsible for furnishing the Committee with his or her correct current
address and the correct current name and address of his or her Beneficiary.
10.5 Inability to Locate Participant or Beneficiary. In the event
that the Committee is unable to locate a Participant or Beneficiary to whom
benefits are payable hereunder after mailing a notice to the Participant's or
Beneficiary's last known address, and such inability lasts for a period of
three (3) years, then any remaining benefits payable hereunder shall be
forfeited to the Company and no Participant or Beneficiary shall have any right
to further benefits from the Plan, even if subsequently located.
10.6 Governing Law. All legal questions pertaining to the Plan
shall be determined in accordance with the laws of the State of California.
10.7 Records. The records of the Company with respect to the Plan
shall be conclusive on all Participants, Beneficiaries, and all other persons
whomsoever.
10.8 Illegality of Particular Provision. If any particular
provision of this Plan shall be found to be illegal or unenforceable, such
provision shall not affect the other provisions thereof, but the Plan shall be
construed in all respect as if such invalid provision were omitted.
10.9 Receipt or Release. Any payment to any Participant or
Beneficiary in accordance with the provisions of this Plan shall, to the extent
thereof, be in full satisfaction of all claims against the Awarding Authority,
the Committee and the Company, and the Committee may require such Participant
or Beneficiary, as a condition precedent to such payment, to execute a receipt
and release to such effect.
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<PAGE> 16
10.10 Arbitration. The Committee's written decision on review of a
denial of benefits, as provided in Section 9.2(e), shall be final, conclusive
and binding on all Participants, Beneficiaries and Employees of the Company.
Notwithstanding the foregoing, any person disputing such a written decision
shall submit such dispute to binding Arbitration pursuant to the rules of the
American Arbitration Association, to be held in San Diego County. The losing
party in such arbitration proceedings shall bear the costs of arbitration, and
each party shall bear its own attorneys' fees.
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<PAGE> 1
Exhibit 4(r)
KEYSTAFF DEFERRAL PLAN
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
(Effective November 1, 1995)
(Amended 11-10-95)
<PAGE> 2
KEYSTAFF DEFERRAL PLAN
OF
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1. Purpose
1.1 The purpose of this Plan is to provide a means to enhance the
Company's capacity to attract and retain outstanding directors
and executives in key positions by assisting them in meeting
their future financial security objectives.
2. Definitions
2.1 Whenever the following terms are used in this
document and the attached Plan Agreement, they shall
have the meaning specified below.
2.2 "Deferral Account" shall mean a bookkeeping account
established by the Company for each Participant, in
which shall be recorded the amounts deferred in
accordance with this Plan and the attached Agreement.
The Company shall credit to each Participant's
Deferral Account an amount equal to the compensation
which otherwise would have been paid had the
Participant not elected to defer compensation. Such
credits shall be made at the time compensation would
have been paid to the Participant. The Deferral
Account shall also receive quarterly earnings credits
in accordance with provisions of Section 5.
Separate Deferral Accounts shall be established to
record amounts deferred (and earnings credits
thereon) with respect to Plan Years beginning before
and after December 31, 1990, to be referred to herein
as Pre- 1991 Deferral Accounts and Post-1990 Deferral
Accounts, respectively. Except as otherwise stated
herein, references to Deferral Account(s) shall
include both the Pre-1991 and Post-1990 Deferral
Account(s).
2.3 "Anniversary Date" shall be the last day of a Plan
Year.
2.4 "Beneficiary" shall mean the person or persons, or
the estate of a Participant, entitled to receive any
benefits under this Plan upon the death of a
Participant.
(Amended 11-10-95)
1
<PAGE> 3
2.5 "Ceiling Excess Earnings" shall mean, for each
Pre-1991 Deferral Account, the difference between the
Participant's Pre-1991 Deferral Account if interest
had been credited at a rate of Moody's plus 5% in
each Plan Year and the Participant's actual current
Pre-1991 Deferral Account.
A separate calculation of Ceiling Excess Earnings
shall be made with respect to post-1990 Deferral
Account(s) using a rate of Moody's plus 3%.
2.6 "Commitment Period" shall mean that period of time
beginning with the subsequent Plan Year and extending
for a number of Plan Years as determined from time to
time by the Committee.
2.7 "Covered Compensation" shall mean a Director's
compensation, as a Director of the Company, excluding
expenses reimbursed, or an Executive's merit bonus in
each Plan Year. The Committee, in its sole
discretion, shall determine what constitutes a merit
bonus.
2.8 "Committee" shall mean the administrative Committee
appointed to manage and administer the Plan in
accordance with the provisions of this Plan.
2.9 "Company" shall mean SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION, its subsidiaries, or any
successor.
2.10 "Director" shall mean any person not in regular
full-time employment of the Company serving on the
Board of Directors of SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION.
2.11 "Early Retirement Date" shall mean the date that the
Participant attains his or her fifty-fifth (55th)
birthday.
2.12 "Effective Date" shall be January 1, 1986.
2.13 "Employer" shall mean the Company and any subsidiary
having one or more employees who are eligible to
participate in the Plan and have been selected by the
Committee to participate. Where the context
dictates, the term "Employer" as used herein refers
to the particular Employer which has entered into a
Plan Agreement with a specific Participant.
2.14 "Executive" shall mean any person in the employment
of the Company who is determined by the Committee to
be serving in an executive
(Amended 11-10-95)
2
<PAGE> 4
capacity, excluding those persons meeting the
definition set forth in Section 2.10.
2.15 "Master Plan Document" is this legal instrument
containing the provisions of the Plan.
2.16 "Moody's Seasoned Corporate Bond Rate," sometimes
referred to as "Moody's," is an economic indicator;
an arithmetic average of yields of representative
bonds: industrials, public utilities, AAA, AA, A and
BAA. For Plan purposes, Moody's Rate shall be
determined by the Committee based on financial
services or publications selected by the Committee.
2.17 "Normal Retirement Date" shall mean the date that the
Participant attains his or her sixty-fifth (65th)
birthday.
2.18 "Participant" shall mean any Executive or Director
who elects to participate in the Keystaff Deferral
Plan, signs a Plan Agreement, and is accepted into
the Plan.
2.19 "Plan" shall mean the Keystaff Deferral Plan of the
Employer which shall be evidenced by this instrument
and by each Plan Agreement.
2.20 "Plan Agreement" shall mean the written agreement(s)
entered into from time to time by and between an
Employer and a Participant. A separate Plan
Agreement shall be entered into with respect to the
Pre-1991 Deferral Account and Post-1990 Deferral
Account of a Participant.
2.21 "Plan Year" shall begin on January 1 of each year.
2.22 "Retirement" and "Retire" shall mean severance from
employment with the Employer at or after the
attainment of (i) age fifty-five (55) and ten (10)
years of Plan participation or (ii) age sixty-five
(65). The Committee shall have the sole discretion
to determine whether Retirement has occurred in the
case of an Executive who becomes a consulting
employee or who continues to be affiliated with the
Company as a consultant or under some other status.
2.23 "Termination of Employment" shall mean cessation of
regular employment, voluntarily or involuntarily, but
excluding Retirement or death, as determined by the
Committee in its sole discretion. In the case of a
Director, "Termination of Employment" shall mean the
Director's ceasing to be a Director of the Company.
The Committee shall have the
(Amended 11-10-95)
3
<PAGE> 5
sole discretion to determine (i) whether a change in
status (e.g., from employee to consultant, from
employee to consulting employee, or from director to
employee, consulting employee or consultant) shall be
considered a Termination of Employment, (ii) whether a
leave of absence shall be considered a Termination of
Employment, and (iii) when a consultant or consulting
employee will be considered to have a Termination of
Employment.
3. Eligibility
3.1 The Committee will determine which Executives and
Directors of the Company are eligible to participate
in the Plan.
4. Deferral Commitments
4.1 Deferral Elections
Each Executive and Director who wishes to participate
in the Plan must elect, prior to the first Plan Year
of the Participant's eligibility, to defer during
each year of the Commitment Period a fixed percentage
of the Participant's Covered Compensation. This
election will be irrevocable and binding upon the
Participant, except as provided in Section 4.2,
"Changes to Deferral Elections." Participants may
elect to defer up to 100% but not less than 10% of
Covered Compensation, in whole percentages, but not
less than $1,000 (before reductions, if any, under
Section 4.2.1).
With respect to the Post-1990 Deferral Account
elections, the Committee shall specify annual
election periods during which irrevocable deferral
elections by Participants shall be made.
4.2 Changes to Deferral Elections
4.2.1 The maximum allowable total deferral of Covered
Compensation for all Participants under this Plan
for any Plan Year will be determined by the
Committee. In the event that Participant deferral
elections are estimated to result in this maximum
being exceeded, the following method will be used to
reduce Participant deferral percentages so that the
total estimated deferral is less than the maximum
allowable.
a) All Executives who have elected to defer more
than 50% of Covered Compensation will be
reduced, on an equal percentage
(Amended 11-10-95)
4
<PAGE> 6
basis, but not below 50% of Covered
Compensation or $5,000, whichever is greater.
b) If after implementation of subsection (a)
above, the total deferral is still greater
than the maximum allowable total deferral,
all Executives' percentage deferrals will be
reduced on an equal percentage basis until
the maximum allowable total deferral is
achieved.
4.2.2 In the event that a Participant rescinds, in whole or
in part, his or her election to defer a percentage of
Covered Compensation in any Plan Year, the
Participant may not defer any Covered Compensation
for the balance of the Plan Year, nor in the
following Plan Year.
4.2.3 The Committee, in its sole discretion, may elect to
terminate the Plan at any time pursuant to Section 9;
in such event, deferrals will cease effective as of
the termination date.
4.3 Rollover of Balances from Current Deferred
Compensation Plan
4.3.1 Participants who hold a balance in the Company's
current Deferred Compensation Plan may elect to
transfer that balance on a bookkeeping basis into
this Plan at the beginning of the first Plan Year.
5. Earnings on Participants' Accounts
5.1 Base Earnings on Deferral
5.1.1 Covered Compensation deferred by a Participant shall
be credited to the Participant's Deferral Account as
of the date of deferral. Interest in each Plan Year
will be credited quarterly on the average Deferral
Account balance for that quarter. The rate of
interest applied to the Pre-1991 Deferral Account
shall be at a base rate equivalent to an annual rate
equal to Moody's Rate, and the rate applicable to the
Post-1990 Deferral Account shall be at a base rate
equivalent to an annual rate equal to the Moody's
Rate less 1%. In each case, the Moody's Rate in
effect on each Anniversary Date shall be used to
determine the applicable rate of interest applied
during the subsequent Plan Year.
5.2 Earnings on Rollover Balances
5.2.1 The portion of a Participant's Pre-1991 Deferral
Account resulting from the transfer of a balance from
the Company's current Deferred
(Amended 11-10-95)
5
<PAGE> 7
Compensation Plan will be credited quarterly with a
rate of interest equivalent to 60% of the interest
rate announced by Bank of America as its "prime rate"
on the previous Anniversary Date for the first four
(4) Plan Years. After the fourth Plan Anniversary
Date, this portion of the Pre-1991 Deferral Account
will be credited with interest quarterly at an
effective annual rate equal to Moody's Rate plus 9%
until the cumulative interest equals that amount of
interest which would have been credited assuming that
Moody's Rate had been used since Plan inception. At
that time, the distinction between portions of the
Pre-1991 Deferral Account from deferrals and from
transfers will cease to exist.
5.3 Additional Earnings
5.3.1 The Committee may, in its sole discretion, determine
whether and in what amount additional earnings shall
be allocated to Participants' Deferral Accounts. It
is anticipated, but not guaranteed, that for Pre-1991
Deferral Accounts, additional earnings will be
allocated beginning with the 10th Anniversary Date of
the Plan and that for Post-1990 Deferral Accounts,
additional earnings will be allocated beginning on
January 1, 2001. Whether additional earnings will be
credited and their amount will depend upon several
factors, including the Company's future tax rate and
its after-tax return on investments. Additional
earnings in any Plan Year, if any, as determined by
the Committee, will be allocated to each
Participant's Deferral Account (except as otherwise
provided in Section 6.1.3 and except for Deferral
Accounts of Participants who have had a Termination
of Employment prior to ten years of participation in
the Plan) by the ratio of the Participant's Ceiling
Excess Earnings to the sum of all Participants'
Ceiling Excess Earnings as of the end of the Plan
Year, with such additional earnings and Ceiling
Excess Earnings calculated separately for Pre- 1991
and Post-1990 Deferral Accounts.
6. Payout of Participants' Accounts
6.1 Early Withdrawal Option
6.1.1 Participants may elect a one-time early withdrawal of
up to 75% of their Pre-1991 and/or Post-1990 Deferral
Account(s) to be paid within 90 days following any
Anniversary Date starting with the seventh
Anniversary Date of Plan participation.
6.1.2 Participants shall make an annual election prior to
each Anniversary Date starting with the 6th
Anniversary Date whether to continue their deferral
(Amended 11-10-95)
6
<PAGE> 8
for one or more years or to receive the early
withdrawal payment following the subsequent
Anniversary Date.
6.1.3 Participants who elect the one-time early withdrawal
of up to 75% of their Pre-1991 and/or Post-1990
Deferral Account(s) pursuant to this Section 6.1
shall not be entitled to receive additional earnings,
if any, otherwise allocable under Section 5.3.1 to
the remaining portion of their applicable Deferral
Account(s) from which the withdrawal is made.
6.2 Termination Payouts
6.2.1 A Participant who has a Termination of Employment
prior to one year of Plan Participation shall receive
an amount equal to his or her Deferral Account, less
any credited earnings. Payment shall be make in a
lump sum within twelve months following Termination
of Employment.
6.2.2 A Participant who has a Termination of Employment
after one year of Plan Participation but prior to 10
years of Plan participation shall receive an amount
equal to his or her Deferral Account(s) at the date
of termination in a lump sum within twelve months
following Termination of Employment.
6.2.3 A Participant who has a Termination of Employment
after 10 years of Plan participation shall be subject
and entitled to the Normal Payout provisions set
forth in Section 6.4.
6.3 Survivor Payouts
6.3.1 If a Participant dies before Normal Payout commences
and the Plan Agreement is in effect at the time of
death, the Employer shall make a Survivor Payout, as
defined in Section 6.3.2, to the designated
Beneficiary.
6.3.2 The Survivor Payout shall consist of the Participant's
Deferral Account(s) at the time of death.
6.3.3 The Survivor Payout shall be paid in a lump sum to
the Beneficiary within twelve months following
verification of the Participant's death.
6.3.4 Notwithstanding subsection 6.3.3 above, a Participant
may elect on the Beneficiary form provided by the
Committee that the Survivor Payout be made over a
20-, 40-, or 60-quarter period rather than as a lump
sum.
(Amended 11-10-95)
7
<PAGE> 9
6.4 Normal Payouts
6.4.1 Normal Payouts shall commence at age sixty-five (65),
Retirement or ten (10) years of Plan participation,
whichever is the latest to occur.
6.4.2 A Participant who Retires may request that Normal
Payout commence upon such Retirement. The Committee
in its sole discretion may grant such request in the
event that the Participant demonstrates financial
need and the cash flow of the Company permits such
early commencement.
6.4.3 The Participant shall elect to receive the Normal
Payout over a 20-, 40- or 60-quarter period. The
first payment will commence within 90 days of the
quarter end following Retirement.
6.4.4 If a Participant does not elect a payout option, the
payments shall be over a 20-quarter period.
6.4.5 Normal Payout shall consist of the Participant's
Deferral Account(s) spread equally over the elected
payout period. Earnings, and additional earnings, if
applicable, as provided in Subsection 5.3.1, shall
continue to be credited to the remaining Deferral
Account(s) during the payout period and shall be
estimated so that approximately equal payments can be
made.
6.4.6 If a Participant dies during the Normal Payout
period, Normal Payout shall continue as scheduled to
the Participant's Beneficiary.
6.4.7 The election provided in Section 6.4.3 shall be made
during the initial Commitment Period of Plan
participation and shall become irrevocable at the end
of such period.
6.5 Payment for Notification of Death
6.5.1 If a Participant dies following either Retirement or
Termination of Employment, the Company will pay a
$5,000 notification payment of a lump sum to the
Participant's Beneficiary within 90 days of the
quarter end following verification of the
Participant's death.
7. Beneficiary Designation
7.1 Upon forms provided by the Committee, each
Participant shall designate in writing the
Beneficiary or Beneficiaries whom such Participant
desires
(Amended 11-10-95)
8
<PAGE> 10
to receive the benefits of this Plan, payable under
Sections 6.3, 6.4 and/or 6.5, in the event of such
Participant's death.
7.2 A Participant may from time to time change his or her
designated Beneficiary or Beneficiaries without the
consent of such Beneficiary or Beneficiaries by
filing a new designation in writing with the
Committee.
7.3 If a married Participant wishes to designate an
individual other than his or her spouse as
Beneficiary, such designation shall not be effective
(i.e., the surviving spouse shall be treated as the
sole Beneficiary) unless consented to in writing by
the spouse, which consent shall acknowledge the
effect of the designation and be witnessed by a
member of the Committee (or an individual designated
by the Committee) or acknowledged before a notary
public. Notwithstanding the foregoing, spousal
consent shall not be necessary if it is established
to the satisfaction of the Committee that there is no
spouse of the Participant or that the required
consent cannot be obtained because the spouse cannot
be located. The Company may rely upon the designation
of Beneficiary or Beneficiaries last filed by the
Participant in accordance with the terms of this
Plan.
7.4 If the designated Beneficiary does not survive the
Participant, or if there is no valid Beneficiary
designation, amounts payable under the Plan shall be
paid to the Participant's spouse, or if there is no
surviving spouse, then to the duly appointed and
currently acting personal representative of the
Participant's estate. If there is no personal
representative of the Participant's estate duly
appointed and acting in that capacity within 60 days
after the Participant's death, then all payments due
under the Plan shall be payable to the person or
persons who can verify affidavit or court order to
the satisfaction of the Committee that they are
legally entitled to receive the benefits specified
hereunder pursuant to the laws of interstate
succession or other statutory provision in effect at
the Participant's death in the state in which the
Participant resided.
7.5 In the event any amount is payable under the Plan to
a minor, payment shall not be made to the minor, but
instead shall be paid to that person's then living
parent(s) to act as custodian, or, if no parent of
that person is living, to a custodian selected by the
Committee to hold the funds for the minor under the
Uniform Transfers to Minors Act, or similar law, in
effect in the jurisdiction in which the minor
resides.
8. Acceleration Provisions
(Amended 11-10-95)
9
<PAGE> 11
8.1 Notwithstanding the provisions of Section 6 hereof, a
Participant shall be entitled to request a hardship
withdrawal of all or any portion of their Deferral
Account or acceleration of payments of their Deferral
Account if payments have already commenced under the
payout option selected by the Participant. A
Participant must make a written request to the
Committee for a hardship withdrawal or request for
accelerated payment, stating the reasons such
withdrawal or acceleration is necessary because of a
financial hardship. The Committee, in its sole
discretion, shall determine whether or not to grant
the Participant's request and, in so doing, may rely
on the Participant's statements, and a hardship
withdrawal or accelerated payment may be approved
without further investigation unless the Committee
has reason to believe such statements are false.
The Participant shall specify from which of their
Deferral Account(s) (i.e., Pre-1991 or Post-1990, or
both) the hardship withdrawal shall be taken.
8.2 The Committee, acting in its sole discretion, may
determine to accelerate, in whole or in part,
payments of some or all Deferral Account(s)
(including Deferral Account(s) as to which payments
have not yet commenced) in the event of a threatened
or actual change in control of the Company, or in the
event that a change in the legal, accounting, or tax
treatment of amounts deferred under the Plan are
altered in a manner which would potentially subject
the Company, the Participants, or both, to adverse
tax or administrative burdens.
9. Amendment and Termination of Plan
9.1 The Company may, at its absolute and sole discretion,
amend or terminate the Plan at any time.
9.2 In the event of Company-initiated Plan termination,
Participants' entire Deferral Account(s), including
credited interest, will be paid to Participants
within twelve months of the quarter end following
Plan termination.
10. Nature of Accounts
10.1 All amounts credited to the Deferral Account(s) shall
remain the sole property of the Company and shall be
usable by it as part of its general funds for any
legal purpose whatsoever. The Deferral Account(s)
shall exist only as bookkeeping entries for the
purpose of facilitating the
(Amended 11-10-95)
10
<PAGE> 12
computation of earnings credits hereunder and such
Deferral Account(s) shall not constitute trust funds,
escrow accounts, or any other form of asset
segregation in favor of anyone other than the Company.
No participant shall have any interest in any specific
asset of the Company by virtue of this Plan and each
Participant's rights under this Plan shall at all
times be limited to those of a general unsecured
creditor of the Company.
Although sometimes referred to in this Plan as
"interest," amounts credited to Deferral Account(s)
pursuant to Section 5.1, 5.2 and 5.3 may be treated
as compensation for tax and payroll withholding
purposes, pursuant to applicable Internal Revenue
Code and Treasury regulation requirements.
11. Limitation on Rights of Participants
11.1 If a Participant is an employee of the Company, such
employment is not for any specific term and may be
terminated by the Participant or Company at any time,
for any reason, with or without cause. Neither this
Plan nor any election to defer compensation hereunder
shall be held or construed to confer on any person
any legal right to be continued as an employee,
consultant or Director of the Company; nor to
constitute any promise or commitment by the Company
regarding future positions, future work assignments,
future compensation or any other term or condition of
employment or affiliation.
12. Non-Transferability
12.1 No right to payment under this Plan shall be subject
to anticipation, alienation, sale, assignment,
pledge, encumbrance, or charge and any attempt to
anticipate, alienate, sell, assign, pledge, encumber,
or charge the same shall be void. No right to
payment shall in any manner be liable for, or subject
to, the debts, contracts, liabilities or torts of the
person entitled thereto.
13. Restriction Against Assignment
13.1 The Participant or Beneficiary shall not have the
power to transfer, assign, anticipate, modify, or
otherwise encumber in any manner whatsoever any of
the payments that will become due pursuant to this
Plan, nor shall said payments be subject to
attachment, garnishment or execution, or be
transferable by operation of law in event of
bankruptcy or insolvency.
(Amended 11-10-95)
11
<PAGE> 13
14. Binding Effect
14.1 The Plan Agreement or Agreements attached hereto,
when executed, is/are solely between the Company and
the Participant. The Participant and any Beneficiary
shall have recourse only against the Company for its
enforcement, and any Plan Agreement shall be binding
upon the Beneficiary, heirs, and personal
representative of the Participant and upon the
successors and assigns of the Company.
15. Settlement of Disputes
15.1 If any disputes arise with regard to the
interpretation of any of the provisions of this Plan
or with regard to the amount of any payments due
under this Plan and the Agreement, the Committee
shall make any resolution of such disputes which it
deems, in its sole discretion, to be in the best
interest of the Company and the Participants. Any
such determinations made by the Committee shall be
final and binding on all Participants in the Plan.
15.2 The Committee shall adopt procedures, consistent with
Section 503 of the Employee Retirement Income
Security Act of 1974, with respect to notice to
Participants of claims denied under the Plan and
review of denied claims.
16. Administration
16.1 The Plan shall be administered by the Committee, as
appointed by the President of the Company.
17. Forfeiture
Any payment due to a Participant hereunder which is not claimed by the
Participant, his or her Beneficiary, his or her estate or other person
legally entitled thereto within four years after becoming payable
shall be forfeited and canceled and shall remain with the Company and
no other person shall have any right thereto or interest therein. The
Company shall have no duty under this Agreement to give notice to any
person other than the Participant or his or her designated Beneficiary
that amounts are payable hereunder.
(Amended 11-10-95)
12
<PAGE> 1
Exhibit 4(s)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
KEY EXECUTIVE STOCK DEFERRAL PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I PURPOSE AND EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3. Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4. Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.5. Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.6. Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.7. Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8. Deferral Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.9. Deferrable Amount(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10. Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11. Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.12. Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.13. Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.14. Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.15. Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.16. Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.17. Share Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.18 Termination of Affiliation . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.19. Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.20. Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
III PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Designation by Deferral Authority . . . . . . . . . . . . . . . . . . . . . 3
3.2. Deferral Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3. Amounts Subject to Deferral . . . . . . . . . . . . . . . . . . . . . . . . 3
3.4. Deferral Election Irrevocable . . . . . . . . . . . . . . . . . . . . . . . 3
3.5. Deferrals to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . 4
IV TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1. Trust Fund Established . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2. Company, Committee and Trustee Not
Responsible for Adequacy of Trust Fund . . . . . . . . . . . . . . . . . 4
4.3. Invasion of Trust by Creditors . . . . . . . . . . . . . . . . . . . . . . 4
4.4. Trust Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
V ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1. Committee to Maintain Accounts . . . . . . . . . . . . . . . . . . . . . . 4
5.2. Additional Accounting Procedures . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Limitation on Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 Vesting of Account Balances . . . . . . . . . . . . . . . . . . . . . . . . 5
VI RIGHTS IN ACQUIRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Power To Vote Stock Rests With Trustee . . . . . . . . . . . . . . . . . . 5
6.2 Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.3 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
VII DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.1. Time of Commencement of Distribution . . . . . . . . . . . . . . . . . . . 6
7.2. Form of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3. Methods of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4. Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.5. Distribution to Guardian . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.6. Withholding of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VIII ACCELERATION OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1. Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2. Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
IX SOURCE OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1. No Direct Interest in Trust Assets . . . . . . . . . . . . . . . . . . . . . 9
X PLAN TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1. Termination and Amendments . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
XI PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11.1. Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11.2. Committee Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11.3. Plan Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.4. Reliance Upon Documents and Opinions . . . . . . . . . . . . . . . . . . . 11
11.5. Requirement of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.6. Reliance on Committee Memorandum . . . . . . . . . . . . . . . . . . . . . 11
11.7. Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.8. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.1. Restrictions on Plan Interest . . . . . . . . . . . . . . . . . . . . . . 12
12.2. No Enlargement of Employee Rights . . . . . . . . . . . . . . . . . . . . 13
12.3 Rights of Repurchase and First Refusal for
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.4. Mailing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12.5. Inability to Locate Participant or Beneficiary . . . . . . . . . . . . . . 14
12.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.7. Illegality of Particular Provision . . . . . . . . . . . . . . . . . . . . 14
12.8. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.9. Tax Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.10. Receipt or Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.11 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.12 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
- iii -
<PAGE> 5
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
KEY EXECUTIVE STOCK DEFERRAL PLAN
ARTICLE I
PURPOSE AND EFFECTIVE DATE
This Plan is an unfunded, deferred compensation arrangement
established by Science Applications International Corporation ("Company") to
provide selected Employees and Directors with a method of supplementing their
retirement income by deferring a portion of their compensation and to make an
indirect investment in Company Stock through a "rabbi trust" vehicle. The Plan
is effective as of January 4, 1996.
ARTICLE II
DEFINITIONS
Whenever the following terms are used in the Plan they shall have the
meaning specified below, unless the context indicates clearly to the contrary.
2 .1. Account. The Account maintained for bookkeeping purposes by
the Committee with respect to each Participant to evidence the Participant's
Deferrals of Deferrable Amounts hereunder and to record the number of Share
Units credited as a result of such Deferrals.
2 .2. Beneficiary. The person or persons properly designated by the
Participant, in accordance with Section 7.3, to receive the benefits provided
herein upon death of the Participant.
2 .3. Board. The Board of Directors of Science Applications
International Corporation.
2 .4. Committee. The committee composed of such members as shall be
appointed from time to time by the Board to administer the Plan.
2 .5. Company. Science Applications International Corporation, a
Delaware corporation, and any subsidiary thereof which has been approved by the
Deferral Authority for participation in this Plan by its Employees.
2 .6. Company Stock. The Class A Common Stock of Science
Applications International Corporation.
- 1 -
<PAGE> 6
2 .7. Deferral. The amount of Deferrable Amounts a Participant has
deferred in accordance with Section 3.2 or which is designated as a Deferral
under this Plan in connection with an Employee's offer letter for employment
with the Company.
2 .8. Deferral Authority. The individual or group of individuals
appointed by the Board to determine which Employees are eligible to make
Deferrals and to participate in the Plan.
2 .9. Deferrable Amount(s). The bonus, if any, payable to an
Employee or Director, in accordance with Company procedures under the Company's
1984 Bonus Compensation Plan, Directors' fees or other payments as determined
by the Committee. In no way does the adoption or operation of this Plan
obligate the Company to pay any bonus or continue any compensation program.
2 .10 Director. A member of the Board, other than a Director
Emeritus.
2 .11. Distribution Date. The date when distributions begin under
the Plan, as specified in Section 7.1.
2 .12. Employee. A management or highly compensated employee of the
Company.
2 .13. Participant. An Employee or Director designated by the
Deferral Authority for participation in the Plan who timely files an election
to participate and makes or receives Deferrals hereunder.
2 .14. Plan. The Science Applications International Corporation Key
Executive Stock Deferral Plan, as set forth herein and as amended from time to
time.
2 .15. Plan Year. January 1 through December 31.
2 .16. Retirement Date. The date of an Employee's termination of
employment from the Company or a Director's ceasing to be an active Director as
determined by the Committee, on or after attaining age 59 1/2.
2 .17. Share Unit. The interest of a Participant in a share of
Company Stock held in the Participant's Account in the Trust.
2 .18. Termination of Affiliation. Any termination of employment
with the Company by an Employee, as determined by the Committee, whether by
reason of death, disability, voluntary resignation, layoff, discharge or
otherwise, prior to attaining age 59 1/2 and, in the case of a Director,
ceasing to be an active Director prior to attaining age 59 1/2. The Committee
shall have the discretion to establish rules and make determinations as to what
constitutes a Termination of Affiliation includes, without limitation, change
of status (e.g., part-time, consulting Employee, etc.) or leave of absence.
- 2 -
<PAGE> 7
2 .19. Trust. The Science Applications International Corporation Key
Executive Stock Deferral Trust established by the Company to hold assets used
by the Company to provide for benefits to Participants and Beneficiaries under
the Plan.
2 .20. Trustee. State Street Bank and Trust Company or such
successor trustee as shall be appointed pursuant to the Trust instrument.
ARTICLE III
PARTICIPATION
3 .1. Designation by Deferral Authority. The Deferral Authority in
its sole discretion shall designate those Employees or Directors who are to be
eligible to participate in the Plan with respect to Deferrals for a particular
Plan Year or with respect to a particular Deferrable Amount or Amounts.
Designating an individual as eligible to participate in the Plan for a
particular Plan Year or with respect to a particular Deferrable Amount shall
not require the Deferral Authority to designate such individual for any
subsequent Plan Year or with respect to any subsequent Deferrable Amounts.
3 .2. Deferral Elections. An eligible Employee or Director shall
not become a Participant in the Plan unless and until he or she has executed
and delivered to the Committee a Deferral election form and/or any other forms
or agreements as may be prescribed by the Committee, and the Committee shall
have accepted such Deferral election and/or additional forms or agreements.
Participation in the Plan and any elections made by a Participant, including
Deferral elections and elections as to form of distribution under Article VII,
is conditioned on the Participant executing an agreement with the Company, on a
form prescribed by the Committee, relating to the Company's right of repurchase
of Company Stock and such other matters as the Committee shall prescribe. To
participate for a particular Plan Year, the Employee or Director must submit
his or her Deferral election form and any other forms or agreements prescribed
by the Committee during the applicable Deferral election period established by
the Committee. In addition to amounts deferred pursuant to a Deferral
election, additional Deferrals may be credited to a Participant's Account
pursuant to the terms of an offer letter with an Employee made at the time of
commencement of employment with the Company, as determined and approved by the
Deferral Authority in its sole discretion.
3 .3. Amounts Subject to Deferral. The total Deferrals elected for
a particular Plan Year may be in an amount up to a specified percentage of
Deferrable Amounts, such maximum percentage to be up to one hundred percent
(100%) as determined by the Deferral Authority.
3 .4. Deferral Election Irrevocable. Any Deferral election by a
Participant shall be irrevocable.
- 3 -
<PAGE> 8
3 .5. Deferrals to be Held in Trust. Within a reasonable period of
time following the date on which a Deferrable Amount would have been paid to a
Participant but for the Deferral hereunder, the Company shall contribute, to
the Trust, Company Stock or money in an amount sufficient to purchase shares of
Company Stock equal in value (based on the then prevailing Formula Price as
determined under the Company's Certificate of Incorporation) to the Deferral.
The Trustee shall apply such contribution toward the purchase of Company Stock
in accordance with the directions of the Committee and the terms of the Trust
and the Participant shall be credited with the applicable number of Share
Units.
ARTICLE IV
TRUST FUND
4 .1. Trust Fund Established. The Company has established the Trust
pursuant to a trust agreement under which the Trustee will hold and administer
in trust all assets deposited with the Trustee in accordance with the terms of
this Plan. The Board shall have the authority to select and remove the Trustee
to act under the Trust agreement, and to enter into new or amended trust
agreements as it deems advisable.
4 .2. Company, Committee and Trustee Not Responsible for Adequacy of
Trust Fund. Neither the Company, Board, Deferral Authority, Committee nor
Trustee shall be liable or responsible for the adequacy of the Trust Fund to
meet and discharge any or all payments and liabilities hereunder. All Plan
benefits will be paid only from the Trust assets, and neither the Company,
Board, Deferral Authority, Committee nor Trustee shall have any duty or
liability to furnish the Trust with any funds, securities or other assets
except as expressly provided in Section 3.6 hereof.
4 .3. Invasion of Trust by Creditors. If assets of the Trust should
be reduced due to action of the Company's creditors, as provided in the Trust
document, the Committee shall reduce each Account on a pro rata basis to
reflect such reduction in Trust assets, and the Company shall have no
obligation to replace such lost assets.
4 .4. Trust Expenses. Expenses of the Trust which are not paid by
the Company shall be applied to reduce each Account on a pro rata basis.
ARTICLE V
ACCOUNTS
5 .1. Committee to Maintain Accounts. The Committee shall open and
maintain a separate Account for each Participant to record the Deferrals made
by the Participant and the assets held in the Trust with respect to such
Participant as well as to allocate Trust expenses.
- 4 -
<PAGE> 9
5 .2. Additional Accounting Procedures. The Committee shall
establish and may amend from time to time additional accounting procedures for
the purpose of making allocations, distributions, valuations and adjustments to
Accounts, and to allocate Trust earnings expenses and losses to such accounts.
A Participant or Beneficiary shall have no contractual or other right to have a
particular accounting procedure or convention apply, or continue to apply, and
the Committee shall be free to alter any such procedure or convention without
notice or obligation to any Participant or Beneficiary.
5 .3. Limitation on Benefits. Benefits payable to a Participant or
Beneficiary under the Plan shall be limited to the vested Account balance
credited to such Participant or Beneficiary.
5 .4. Vesting of Account Balances. A Participant's Account balance
shall be one hundred percent (100%) vested except with respect to the portion
of the Account balance attributable to vesting bonuses awarded under the
Company's 1984 Bonus Compensation Plan. Such portion of a Participant's
Account balance shall become vested (and the nonvested portion forfeited) at
the time or times the bonus would have become vested (and the nonvested portion
forfeited) under the 1984 Bonus Compensation Plan without regard to deferral
under this Plan. The shares of Company Stock represented by such forfeited
portion shall be returned to the Company or reallocated in accordance with the
Committee's directions and the terms of the Trust.
ARTICLE VI
RIGHTS IN ACQUIRED STOCK
6 .1. Power to Vote Stock Rests With Trustee. The power to vote any
stock held by the Trustee shall rest solely with the Trustee, who shall vote
such stock in the same proportion that the other shareholders vote their shares
of Company Stock. For purposes of this Section 6.1, Company Stock shall
include both Class A and Class B Common Stock.
6 .2. Tender Offers. In the case of a tender offer for the Company
Stock, the Trustee shall tender the shares of Company Stock held by the Trust
only if more than fifty percent (50%) of the shares of Company Stock held
outside the Trust are tendered by the shareholders.
6 .3. Dividends. All dividends on Company Stock held in Trust shall
be held by the Trustee and reinvested as directed by the Committee. The
Committee shall allocate such dividends among the Accounts pro rata to the
shares allocated to each Account.
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<PAGE> 10
ARTICLE VII
DISTRIBUTIONS
7 .1. Time of Commencement of Distribution. Subject to the
acceleration provisions of Article VIII, the balance credited to a
Participant's Account shall be distributed, or commence to be distributed, to
the Participant on the first to occur of the following events:
(a) the Participant's Retirement Date; or
(b) the date of the Participant's Termination of
Affiliation with the Company.
7 .2. Form of Distribution.
Each distribution shall be made in the form of Company Stock
unless the Committee determines, in its sole discretion, that distribution of
Company Stock is impossible or creates adverse impact on the Company, in which
case the Committee may determine to make the distribution in cash. A
Participant shall have no right to request a cash distribution.
7 .3 Methods of Distribution.
(a) Lump Sum on Death. If a Participant dies having an
Account balance (regardless of whether distributions have begun under the
Plan), the remaining balance in the Participant's Account shall be paid in the
form of a lump sum to the Beneficiary or Beneficiaries designated in accordance
with Section 7.4, or as otherwise provided in Sections 7.4 and 7.5, within a
reasonable period following the date when the Committee receives notice of the
Participant's death.
(b) Election for Retirement Distributions. Subject to
the acceleration provisions in Article VIII, distributions made following a
Participant's Retirement Date shall be made to the Participant in accordance
with a valid election made by the Participant under this subsection (b). The
Participant may elect in a manner prescribed by the Committee to have his or
her Account paid in one of the following forms:
(1) A lump sum payment of the entire Account
Balance; or
(2) A series of annual payments over a five or
ten year period. Each installment shall
include one- fifth or one-tenth, as
applicable, of the number of shares of
Company Stock distributable to the
Participant.
Each election shall be made on forms specified by the Committee and shall be
irrevocable when made.
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<PAGE> 11
(c) Other Distributions. Distributions other than those
specified in (a) or (b) above shall be made as a lump sum within a reasonable
period of time following a Participant's Termination of Affiliation.
(d) Default Distribution. If the Participant fails to
make a valid election as described in subsection (b), the Participant's Account
shall be distributed in full as a lump sum payment within a reasonable period
of time following the Distribution Date.
7 .4. Beneficiary Designation.
(a) Upon forms provided by the Committee, each
Participant shall designate in writing the Beneficiary or Beneficiaries whom
such Participant desires to receive the benefits of this Plan, if any, payable
in the event of such Participant's death. A Participant may from time to time
change his or her designated Beneficiary or Beneficiaries without the consent
of such Beneficiary or Beneficiaries by filing a new designation in writing
with the Committee; provided, however, that if a married Participant wishes to
designate an individual other than his or her spouse as Beneficiary, such
designation shall not be effective unless consented to in writing by the
spouse. Notwithstanding the foregoing, spousal consent shall not be necessary
if it is established to the satisfaction of the Committee that there is no
spouse of the Participant or that the required consent cannot be obtained
because the spouse cannot be located or is legally incompetent. The Company
may rely upon the designation of Beneficiary or Beneficiaries last filed by the
Participant in accordance with the terms of this Plan.
(b) If the designated Beneficiary does not survive the
Participant, or if there is no valid Beneficiary designation, amounts payable
under the Plan shall be paid to the Participant's spouse, or if there is no
surviving spouse, then to the duly appointed and currently acting personal
representative of the Participant's estate. If there is no personal
representative of the Participant's estate duly appointed and acting in that
capacity within sixty (60) days after the Participant's death, then all
payments due under the Plan shall be payable to the person or persons who can
verify by affidavit or court order to the satisfaction of the Committee that
they are legally entitled to receive the benefits specified hereunder pursuant
to the laws of intestate succession or other legal provision in effect at the
Participant's death in the jurisdiction having authority over disposition of
the Participant's estate.
7 .5. Distribution to Guardian. If the Committee shall find that
any person to whom any payment is payable under this Plan is unable to care for
his or her affairs because of illness or accident, or is a minor, a payment due
(unless a prior claim therefor shall have been made by a duly appointed
guardian or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any custodian, conservator or other
fiduciary responsible for the management and control of such person's financial
affairs in such manner and proportions as the Committee may determine. Any
such payment shall, to the extent thereof, discharge of the liabilities of the
Company to the Participant or Beneficiary under this Plan.
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<PAGE> 12
7 .6. Withholding of Taxes. To the extent any distribution is
subject to withholding taxes, the Committee may require, as a condition to the
payment of such distribution, that the Participant or Beneficiary who is
eligible for the distribution:
(a) make payment to the Company in the form of a check
for such withholding taxes; or
(b) consent to the withholding of taxes from such
distribution by the Trustee, in which case the withheld amounts shall be
delivered to the Company which shall pay over the withheld taxes as required by
law.
The Committee may offer either or both of these options to the Participant or
Beneficiary in the Committee's sole discretion.
ARTICLE VIII
ACCELERATION OF DISTRIBUTION
8 .1. Change in Control. All Accounts shall be immediately
distributed to the Participants to whom such Accounts belong, upon the
occurrence of a Change in Control (as hereinafter defined) of the Company. A
Change in Control shall be deemed to occur upon any "person" (as defined in
Section 3(a)(9) of the United States Securities Exchange Act of 1934 (the "34
Act")), other than the Company, any subsidiary or any employee benefit plan or
trust maintained by the Company or subsidiary becoming the beneficial owner (as
defined in Rule 13d-3 under the 34 Act), directly or indirectly, of more than
25% of the Company Stock outstanding at such time, without the prior approval
of the Board. For purposes of the foregoing, a subsidiary is any corporation
in an unbroken chain of corporations beginning with the Company if each of the
corporations, other than the last corporation in such chain, owns at least
fifty percent (50%) of the total voting power in one of the other corporations
in such chain.
8 .2. Hardship. Notwithstanding the provisions of Section 7.1 and
7.3 hereof, a Participant shall be entitled to request a hardship distribution
of all or any portion of his or her Account. A Participant or legal
representative of the Participant must make a written request for a hardship
distribution, stating the reasons such withdrawal is necessary because of a
financial hardship. The Committee, in its sole discretion, shall determine
whether or not to grant the hardship distribution of such Participant's Account
and, in so doing, may rely on the Participant's statements, and a hardship
distribution may be approved without further investigation unless the Committee
has reason to believe such statements are false.
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<PAGE> 13
ARTICLE IX
SOURCE OF PAYMENT
9 .1. No Direct Interest in Trust Assets. All distributions
hereunder shall be paid solely from the Trust. No special or separate funds
shall be established and no other segregation of assets shall be made to assure
the payment of benefits hereunder. A Participant shall have no right, title,
or interest whatever in or to any investments which the Company may make
through the Trust to meet its obligations hereunder. Nothing contained in this
Plan, and no action taken pursuant to its provisions, shall create or be
construed to create any kind of a fiduciary relationship between the Company
and a Participant or any other person.
ARTICLE X
PLAN TERMINATION AND AMENDMENT
10.1. Termination and Amendments. The Plan shall continue until all
amounts credited to the Participants' Accounts have been distributed in
accordance with the terms of the Plan. Notwithstanding the foregoing sentence,
the Company retains the right to amend or terminate the Plan for any reason,
including but not limited to adverse changes in tax laws or the bankruptcy,
receivership or dissolution of the Company. In the event of a Plan
termination, benefits will either be paid out when due under the terms of the
Plan or as soon as possible as determined by the Committee in its sole
discretion. To the extent feasible, the Committee shall use its best efforts
to avoid adversely affecting the rights of any existing Participants in the
Plan, but the Committee shall be under no specific duty or obligation in this
regard.
ARTICLE XI
PLAN ADMINISTRATION
11.1. Committee. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan and the authority granted to the Deferral
Authority, the Committee shall have exclusive power to determine the manner and
time of Deferrals and payment of benefits to the extent herein provided and to
exercise any other discretionary powers granted to the Committee pursuant to
the Plan. The decisions or determinations by the Committee shall be final and
binding upon all parties, including shareholders, Participants, Beneficiaries
and other Employees. The Committee shall have the authority to interpret the
Plan, to make factual findings and determinations, to adopt and revise rules
and regulations relating to the Plan and to make any other determinations which
it believes necessary or advisable for the administration of the Plan. The
Committee's discretion shall be as broad and unfettered as permitted by law.
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<PAGE> 14
11.2. Committee Powers. The Committee shall have all powers
necessary to supervise the administration of the Plan and control its
operations. In addition to any powers and authority conferred on the Committee
elsewhere in the Plan or by law, the Committee shall have, by way of
illustration and not by way of limitation, the following powers and authority;
(a) To designate agents to carry out responsibilities
relating to the Plan;
(b) To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in carrying out the
provisions of this Plan;
(c) To administer, interpret, construe and apply this
Plan and to decide all questions which may arise or which may be raised under
this Plan by any Employee, Participant, Beneficiary or other person whatsoever,
including but not limited to all questions relating to eligibility to
participate in the Plan, and the amount of benefits to which any Participant
may be entitled;
(d) To establish rules and procedures from time to time
for the conduct of its business and for the administration and effectuation of
its responsibilities under the Plan; and
(e) To establish claims procedures, and to make forms
available for filing of such claims, and to provide the name of the person or
persons with whom such claims should be filed. The Committee shall establish
procedures for action upon claims initially made and the communication of a
decision to the claimant promptly and, in any event, not later than sixty (60)
days after the date of the claim; the claim may be deemed by the claimant to
have been denied for purposes of further review described below in the event a
decision is not furnished to the claimant within such sixty (60) day period.
Every claim for benefits which is denied shall be denied by written notice
setting forth in a manner calculated to be understood by the claimant (1) the
specific reason or reasons for the denial, (2) specific reference to any
provisions of this Plan on which denial is based, (3) description of any
additional material or information necessary for the claimant to perfect his
claim with an explanation of why such material or information is necessary, and
(4) an explanation of the procedure for further reviewing the denial of the
claim under the Plan. The Committee shall establish a procedure for review of
claim denials, such review to be undertaken by the Committee. The review given
after denial of any claim shall be a full and fair review with the claimant or
his duly authorized representative having one hundred eighty (180) days after
receipt of denial of his claim to request such review, having the right to
review all pertinent documents and the right to submit issues and comments in
writing. The Committee shall establish a procedure for issuance of a decision
by the Committee not later than sixty (60) days after receipt of a request for
review from a claimant unless special circumstances, such as the need to hold a
hearing, require a longer period of time, in which case a decision shall be
rendered as soon as possible but not later than one hundred twenty (120) days
after receipt of the claimant's request for review. The decision on review
shall be in writing and shall include specific reasons for the decision written
in a manner calculated to be understood by the claimant with specific reference
to any provisions of this Plan on which the decision is based.
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<PAGE> 15
(f) To perform or cause to be performed such further acts
as it may deem to be necessary, appropriate, or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the exercise of
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants and their beneficiaries. All discretionary powers conferred
upon the Committee shall be absolute.
11.3. Plan Expenses. Members of the Committee shall serve as such
without compensation from the Plan, but may receive compensation from the
Company for so serving. All Plan administration expenses shall be borne by the
Company or the Trust as determined by the Committee in its sole discretion.
11.4. Reliance Upon Documents and Opinions. The members of the
Committee, the Deferral Committee, the Board, and the Company shall be entitled
to rely upon any tables, valuations, computations, estimates, certificates,
opinions and reports furnished by any consultant, or firm or corporation which
employs one or more consultants or advisors. The Committee may, but is not
required to, rely upon all records of the Company with respect to any matter or
thing whatsoever, and may likewise treat such records as conclusive with
respect to all Employees, Participants, Beneficiaries and any other persons
whomsoever, except as otherwise provided by law.
11.5. Requirement of Proof. The Committee, the Deferral Committee,
the Board, or the Company may require satisfactory proof of any matter under
this Plan from or with respect to any Employee, director, consultant,
Participant or Beneficiary, and no such person shall acquire any rights or be
entitled to receive any benefits under this Plan until such proof shall be
furnished as so required.
11.6. Reliance on Committee Memorandum. Any person dealing with the
Committee may rely on and shall be fully protected in relying on a certificate
or memorandum in writing signed by any Committee member so authorized, or by a
quorum of the members of the Committee, as constituted as of the date of such
certificate or memorandum, as evidence of any action taken or resolution
adopted by the Committee.
11.7. Limitation on Liability. No employee or director of the
Company shall be subject to any liability by reason of or arising from his or
her participation in the establishment or administration or operation of the
Plan unless he or she acts fraudulently or in bad faith.
11.8. Indemnification.
(a) To the extent permitted by law, the Company shall
indemnify each member of the Deferral Authority, the Committee, and any other
employee or director of the Company who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed proceeding, whether
civil, criminal, administrative, or investigative, by reason of his
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<PAGE> 16
or her conduct in the performance in connection with the establishment or
administration of the Plan or any amendment or termination of the Plan.
(b) This indemnification shall apply against expenses
including, without limitation, attorneys fees and any expenses of establishing
a right to indemnification hereunder, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with such proceeding,
except in relation to matters as to which he or she has acted fraudulently or
in bad faith in the performance of such duties.
(c) The termination of any proceeding by judgment, order,
settlement, conviction, upon a plea of nolo contendere or its equivalent shall
not, in and of itself, create a presumption that the person acted fraudulently
or in bad faith in the performance of his or her duties.
(d) Expenses incurred in defending any such proceeding
may be advanced by the Company prior to the final disposition of such
proceeding, upon receipt of an undertaking by or on behalf of the recipient to
repay such amount, unless it shall be determined ultimately that the recipient
is entitled to be indemnified as authorized in this Section 11.8.
(e) The right of indemnification set forth in this Section
11.8 shall be in addition to any other right to which any Committee member or
other person may be entitled as a matter of law, by corporate bylaws or
otherwise.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. Restrictions on Plan Interest.
(a) A Participant's interest in this Plan shall be
limited to his or her Account in the Trust and he or she shall have no other
interest in any assets of the Company nor any right as against the Company,
Deferral Authority or Committee for payment of benefits under this Plan.
(b) None of the benefits, payments, proceeds, claims or
rights hereunder of any Participant or Beneficiary shall be subject to any
claim of any creditor of such Participant or Beneficiary and in particular the
same shall not be subject to attachment, garnishment, or other legal process by
any creditor of such Participant or Beneficiary.
(c) A Participant or Beneficiary shall not have any right
to alienate, anticipate, commute, pledge, encumber, or assign any of the
benefits or payments or proceeds which he or she may expect to receive,
contingently or otherwise, under the Plan.
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<PAGE> 17
(d) A Participant's and Beneficiary's interest in this
Plan and his or her Account in the Trust are subject to the claims of the
Company's creditors as provided in the Trust. Each Participant and Beneficiary
shall, however, be considered a general creditor of the Company with respect to
the assets held in his or her Account in the Trust, so that if the Company
should become insolvent, the Participant or Beneficiary will have a claim
against the Trust assets equal to that of the Company's other general creditors
(regardless of whether such assets are removed from the trust by a trustee in
bankruptcy).
(e) Whenever a provision of this Plan restricts or limits
a Participant or a Participant's Account, benefit or distribution, such
limitation shall also apply to a Beneficiary unless otherwise specified.
12.2. No Enlargement of Employee Rights.
(a) This Plan is strictly a voluntary undertaking on the
part of the Company and shall not be deemed to constitute a contract between
the Company and any Employee or Director, or be consideration for, or an
inducement to, or a condition of, the employment of any Employee or affiliation
of any Director.
(b) The employment of any Employee is not for any
specified term and may be terminated by any Employee or by the Company at any
time, for any reason, with or without cause. Nothing contained in the Plan
shall be deemed to give any Employee the right to be retained in the employ of
the Company, to constitute any promise or commitment by the Company regarding
future positions, future work assignments, future compensation or any other
term or condition of employment or to interfere with the right of the Company
to discharge or retire any Employee at any time.
(c) No person shall have any right to any benefits under
this Plan, except to the extent expressly provided herein.
12.3. Rights of Repurchase and First Refusal for the Company. Any
Company Stock distributed from the Plan shall be subject to a right of
repurchase and right of first refusal by the Company, as well as any
conditions, limitations or restrictions contained in an agreement specified in
Section 3.2. The terms and conditions of the right of repurchase and right of
first refusal shall be those applied to Company Stock by the Certificate of
Incorporation of Science Applications International Corporation, as in effect
from time to time.
12.4. Mailing of Payments. All payments under the Plan shall be
delivered in person or mailed to the last address of the Participant (or, in
the case of the death of the Participant to that of any other person entitled
to such payments under the terms of the Plan). Each Participant shall be
responsible for furnishing the Committee with his or her correct current
address and the correct current name and address of his or her Beneficiary.
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<PAGE> 18
12.5. Inability to Locate Participant or Beneficiary. In the event
that the Committee is unable to locate a Participant or Beneficiary to whom
benefits are payable hereunder after mailing a notice to the Participant's or
Beneficiary's last known address, and such inability lasts for a period of
three (3) years, then any remaining benefits payable hereunder shall be
forfeited to the Company and no Participant or Beneficiary shall have any right
to further benefits from the Plan, even if subsequently located.
12.6. Governing Law. All legal questions pertaining to the Plan
shall be determined in accordance with the laws of California, excluding its
rules governing conflicts of laws.
12.7. Illegality of Particular Provision. If any particular
provision of this Plan shall be found to be illegal or unenforceable, such
provision shall not affect the other provisions thereof, but the Plan shall be
construed in all respect as if such invalid provision were omitted.
12.8. Interpretation. Section headings are for convenient reference
only and shall not be deemed to be part of the substance of this instrument or
in any way to enlarge or limit the contents of any article or section.
12.9. Tax Effects. The Company makes no representations or
warranties as to the tax consequences to a Participant or to a Participant's
Beneficiary from Deferrals hereunder or the subsequent receipt of any benefits
as a result thereof. Each Participant must rely solely on his or her own tax
advisor with respect to the tax consequences arising from the Deferrals or the
receipt of benefits hereunder, or from any other related transaction.
12.10. Receipt or Release. Any payment to any Participant or
Beneficiary in accordance with the provisions of this Plan shall, to the extent
thereof, be in full satisfaction of all claims against the Committee and the
Company, and the Committee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect.
12.11. Records. The records of the Company with respect to the Plan
shall be conclusive on all Participants, Beneficiaries, and all other persons
whomsoever.
12.12. Arbitration. The Committee's written decision on review of a
denial of benefits, shall be final, conclusive and binding on all Participants,
Beneficiaries and Employees of the Company. Notwithstanding the foregoing, any
person disputing such a written decision shall submit such dispute to binding
Arbitration pursuant to the rules of the American Arbitration Association, to
be held in San Diego County. The losing party in such arbitration proceedings
shall bear the costs of arbitration, and each party shall bear its own
attorneys' fees.
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<PAGE> 1
EXHIBIT 4(t)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT AND CONFIRMATION
1995 STOCK OPTION PLAN
ACCOUNT NUMBER: OPTION NUMBER:
OPTION SHARES:
OPTION PRICE:
GRANT DATE:
EXPIRATION DATE:
THIS AGREEMENT is entered into as of the above stated Grant Date by and between
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, a Delaware corporation (the
"Company"), and the undersigned, who is affiliated with the Company or a
subsidiary of the Company ("Subsidiary") as an employee, director or consultant
("Optionee").
RECITALS
WHEREAS the Company's Board of Directors has approved the granting to Optionee
of an option to purchase shares of the Company's Class A Common Stock, $.01 par
value per share ("Stock"), in the belief that the interests of the Company and
Optionee will be advanced by encouraging and enabling Optionee to acquire a
proprietary interest in the Company.
NOW, THEREFORE, in consideration of the mutual promises herein set forth, it is
agreed:
1. GRANT OF OPTION; NUMBER OF SHARES; OPTION PRICE. Subject to Optionee
executing and returning this Agreement to the Company's Stock Programs
Department within 120 days from the Grant Date (unless such delay is approved by
the Stock Option Committee, in its sole unreviewable discretion, upon a finding
of good cause), the Company hereby grants to Optionee an option to purchase, on
the terms and conditions herein set forth, all or any part of the number of
shares of Stock ("Option Shares"), at the purchase price per share ("Option
Price") both set forth above. In the event Optionee fails to execute and return
this Agreement as provided above, the option will be forfeited and this
Agreement will be null and void.
2. TERM OF OPTION. This option shall expire five (5) years from the Grant Date
of this Agreement, except as and to the extent that the term of the option may
sooner terminate as provided in Section 4 hereof. Notice of termination or
expiration shall not be the responsibility of the Company.
3. EXERCISE OF OPTION. The right to exercise the option shall be
in accordance with the following schedule:
1
<PAGE> 2
(a) The option may not be exercised in whole or in part at
any time prior to the first-year anniversary of the Grant
Date.
(b) The option may be exercised as to 20% of the Option
Shares after the first-year anniversary of the Grant
Date.
(c) The option may be exercised as to an additional 20% of
the Option Shares after the second-year anniversary of
the Grant Date.
(d) The option may be exercised as to an additional 20% of
the Option Shares after the third-year anniversary of the
Grant Date.
(e) The option may be exercised as to an additional 40% of
the Option Shares after the fourth-year anniversary of
the Grant Date.
The rights to exercise the option, as specified in the preceding schedule, shall
be cumulative. Optionee may buy all, or from time to time, any part of the
maximum number of Option Shares which are then exercisable, but in no case may
Optionee exercise the option in regard to any fraction of a share. Except as set
forth in Section 4(c) below, this option shall be exercisable only by Optionee.
4. TERMINATION OF OPTION. If Optionee shall cease to be affiliated with the
Company or a Subsidiary as an employee, director or consultant, this option
shall terminate in accordance with the following:
(a) If Optionee ceases to be affiliated with the Company or a
Subsidiary and such affiliation ceases for any reason other
than death, retirement or permanent total disability, Optionee
may exercise this option within the thirty (30) day period
following such cessation of affiliation, but only to the
extent that this option was exercisable at the date of such
cessation of affiliation.
(b) If Optionee is an employee and ceases to be affiliated
with the Company or a Subsidiary and such affiliation
ceases as a result of Optionee's normal retirement,
permanent total disability or early retirement under the
terms of a retirement or pension plan maintained by the
Company or a Subsidiary and in which Optionee is a
participant, Optionee may exercise this option within the
ninety (90) day period following such cessation of
affiliation, but only to the extent that this option was
exercisable at the date of such cessation of affiliation.
(c) If Optionee ceases to be affiliated with the Company or a
Subsidiary and such affiliation ceases as a result of
Optionee's death, this option may be exercised within the one
(1) year period following such death, and then only by the
beneficiary designated by Optionee or by the
2
<PAGE> 3
person or persons to whom Optionee's rights under this option
shall pass by Optionee's will or by the laws of descent and
distribution, but only to the extent that this option was
exercisable at the date of Optionee's death.
(d) If Optionee is an employee of the Company or a Subsidiary
and is on a leave of absence pursuant to the terms of The
Company's Administrative Policy No. B-11 "Unpaid Personal
Leave of Absence", Optionee shall not during the period
of such absence be deemed, by virtue of such absence
alone, to have terminated Optionee's employment with the
Company or a Subsidiary. Unless Optionee is on a Medical
Leave (as hereinafter defined), all rights which Optionee
would have had to exercise the option will be suspended
during the period of such leave of absence. Upon
Optionee's return to the Company or a Subsidiary, all
rights to exercise the option shall be restored to the
extent the option is exercisable at that time. If
Optionee is on a Medical Leave, Optionee shall have all
rights to exercise the option that Optionee would have
had if Optionee were not on a Medical Leave. For
purposes of this Section 4(d), "Medical Leave" shall be
defined as a leave of absence for medical reasons which
shall begin after ninety-one (91) consecutive calendar
days of total disability leave and shall remain in effect
until the earlier of a release by the attending physician
for Optionee to return to work or until the termination
of employment.
(e) If any portion of the option granted hereunder is not
exercised by the end of the applicable period specified
in (a), (b) or (c) of this Section 4, any such
unexercised portion and all of Optionee's rights with
respect thereto shall terminate at the end of such
period. In no event shall this option or any portion
thereof be exercisable beyond the five (5) year term
stated in Section 2.
5. RIGHTS, RESTRICTIONS AND LIMITATIONS. ALL SHARES OF STOCK ISSUED UPON THE
EXERCISE OF THIS OPTION ARE SUBJECT TO THE RIGHTS, RESTRICTIONS AND LIMITATIONS
SET FORTH IN ARTICLE FOURTH OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED.
6. RESTRICTIONS UNDER SECURITIES LAW. All shares of Stock covered by this
Agreement are subject to any restrictions which may be imposed under applicable
state and federal securities laws and are subject to obtaining all necessary
consents which may be required by, or any condition which may be imposed in
accordance with, applicable state and federal securities laws or regulations.
7. INVESTMENT. Optionee agrees that any and all shares of Stock purchased upon
the exercise of this option shall be acquired for investment and not for
distribution.
8. CAPITAL ADJUSTMENT. The Option Price and the number of Option Shares shall be
appropriately adjusted to any increase or decrease
3
<PAGE> 4
in the number of shares of Stock which the Company has issued and outstanding
resulting from any stock split, stock dividend, combination of shares or any
other change, or any exchange for other securities or any reclassification,
reorganization, redesignation, recapitalization or otherwise.
9. INCORPORATION OF STOCK OPTION PLAN. The option granted hereby is granted
pursuant to the Company's 1995 Stock Option Plan ("Plan"), all the terms and
conditions of which are hereby made a part hereof and are incorporated herein by
reference. In the event of any inconsistency between the terms and conditions
contained herein and those set forth in the Plan, the terms and conditions of
the Plan shall prevail.
10. EMPLOYMENT AT WILL. If Optionee is an employee of the Company or a
Subsidiary, such employment is not for any specified term and may be terminated
by employee or by the Company or a Subsidiary at any time, for any reason, with
or without cause. Nothing in this Agreement or the Plan shall confer upon
Optionee any right to continue in the employ of, or affiliation with, the
Company or a Subsidiary nor constitute any promise or commitment by the Company
or a Subsidiary regarding future positions, future work assignments, future
compensation or any other term or condition of employment or affiliation.
11. MISCELLANEOUS. This Agreement contains the entire agreement between the
parties with respect to its subject matter. This Agreement shall be binding upon
and shall inure to the benefit of the respective parties, the successors and
assigns of the Company, and the heirs, legatees and personal representatives of
Optionee. Optionee acknowledges that signing this Agreement constitutes an
unequivocal acceptance of this Agreement and any attempted modifications or
deletions will have no force or effect upon the Company's right to enforce the
terms and conditions stated herein.
12. GOVERNING LAW. This Agreement shall be governed by, construed and enforced
in accordance with the laws of the State of Delaware without reference to such
state's principles of conflict of laws.
IN WITNESS WHEREOF, THE UNDERSIGNED OPTIONEE HEREBY AGREES TO ALL THE TERMS AND
CONDITIONS OF THIS AGREEMENT, ACKNOWLEDGES RECEIPT OF THE 1995 STOCK OPTION PLAN
AND HEREBY ACKNOWLEDGES THAT THIS AGREEMENT SHALL NOT BE BINDING ON THE COMPANY
UNTIL AN UNALTERED COPY OF THIS AGREEMENT HAS BEEN SIGNED BY THE OPTIONEE,
RETURNED TO, RECEIVED AND APPROVED BY THE COMPANY.
____________________________________________ ______________
Signature of Optionee Date
PLEASE SIGN AND RETURN THIS COPY TO THE STOCK PROGRAMS DEPARTMENT. THIS
AGREEMENT MUST BE SIGNED AND RETURNED WITHIN 120 DAYS OR THE OPTION WILL BE
FORFEITED AND THIS AGREEMENT WILL BE NULL AND VOID.
A copy will be returned to you upon receipt of this Agreement.
4
<PAGE> 1
EXHIBIT 4(u)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
INCENTIVE STOCK OPTION AGREEMENT AND CONFIRMATION
1995 STOCK OPTION PLAN
ACCOUNT NUMBER: OPTION NUMBER:
OPTION SHARES:
OPTION PRICE:
GRANT DATE:
EXPIRATION DATE:
THIS AGREEMENT is entered into as of the above stated Grant Date by and between
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, a Delaware corporation (the
"Company"), and the undersigned employee ("Optionee") of the Company or a
subsidiary of the Company ("Subsidiary").
RECITALS
WHEREAS the Company's Board of Directors has approved the granting to Optionee
of an incentive stock option to purchase shares of the Company's Class A Common
Stock, $.01 par value per share ("Stock"), in the belief that the interests of
the Company and Optionee will be advanced by encouraging and enabling Optionee
to acquire an ownership interest in the Company.
NOW, THEREFORE, in consideration of the mutual promises herein set forth, it is
agreed:
1. GRANT OF OPTION; NUMBER OF SHARES; OPTION PRICE. Subject to Optionee
executing and returning this Agreement to the Company's Stock Programs
Department within 120 days from the Grant Date (unless an extension of such
deadline is approved by the Stock Option Committee, in its sole unreviewable
discretion, upon a finding of good cause), the Company hereby grants to Optionee
an option to purchase, on the terms and conditions herein set forth, all or any
part of the number of shares of Stock ("Option Shares"), at the purchase price
per share ("Option Price") both set forth above. The option is designated as an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code and is subject to the rights, limitations and restrictions applicable to
incentive stock options under the Company's 1995 Stock Option Plan ("Plan"). In
the event Optionee fails to execute and return this Agreement as provided above,
the option will be forfeited and this Agreement will be null and void.
2. TERM OF OPTION. This option shall expire five (5) years from the Grant Date
of this Agreement, except as and to the extent that the term of the option may
sooner terminate as provided in Section 4, 6 or 7 hereof. Notice of termination
or expiration shall not be the responsibility of the Company.
1
<PAGE> 2
3. EXERCISE OF OPTION. The right to exercise the option shall be in accordance
with the following schedule:
(a) The option may not be exercised in whole or in part at
any time prior to the first-year anniversary of the Grant
Date.
(b) The option may be exercised as to 20% of the Option
Shares after the first-year anniversary of the Grant
Date.
(c) The option may be exercised as to an additional 20% of
the Option Shares after the second-year anniversary of
the Grant Date.
(d) The option may be exercised as to an additional 20% of
the Option Shares after the third-year anniversary of the
Grant Date.
(e) The option may be exercised as to an additional 40% of
the Option Shares after the fourth-year anniversary of
the Grant Date.
The rights to exercise the option, as specified in the preceding schedule, shall
be cumulative. Optionee may buy all, or from time to time, any part of the
maximum number of Option Shares which are then exercisable, but in no case may
Optionee exercise the option in regard to any fraction of a share. Except as set
forth in Section 7 below, this option shall be exercisable only by Optionee.
If any portion of the option granted hereunder is not exercised by the end of
the applicable period specified in 4, 6 or 7 of this Agreement, any such
unexercised portion and all of Optionee's rights with respect thereto shall
terminate at the end of such period. In no event shall this option or any
portion thereof be exercisable beyond the five (5) year term stated in Section
2.
4. TERMINATION OF EMPLOYMENT WITH THE COMPANY. If Optionee shall cease to be
employed by the Company or a Subsidiary for any reason other than death, total
disability, or retirement, any unexercised portion shall terminate on the date
of such cessation of employment unless extended by the Committee in its sole
discretion under Section 7(b) of the Plan.
5. LEAVE OF ABSENCE OF OPTIONEE. If Optionee is an employee of the Company or a
Subsidiary and is on a leave of absence pursuant to the terms of The Company's
Administrative Policy No. B-11 "Unpaid Personal Leave of Absence", Optionee
shall not during the period of such absence be deemed, by virtue of such absence
alone, to have terminated Optionee's employment with the Company or a
Subsidiary. Unless Optionee is on a Medical Leave (as hereinafter defined), all
rights which Optionee would have had to exercise the option will be suspended
during the period of such leave of absence, except to the extent the Committee
has exercised its discretion pursuant to Section 7(e) of the Plan. Upon
Optionee's return to the Company or a Subsidiary, all rights to exercise the
option shall be restored to the extent the option is exercisable at that time.
If Optionee is on a Medical Leave, Optionee shall have all rights to exercise
the option that Optionee would have had if Optionee were not on a Medical Leave.
For purposes of this Section 5, "Medical Leave" shall be defined as a leave of
absence for medical reasons which shall begin after ninety-one (91)
2
<PAGE> 3
consecutive calendar days of total disability leave and shall remain in effect
until the earlier of a release by the attending physician for Optionee to return
to work or until the termination of employment.
6. RETIREMENT OR PERMANENT DISABILITY OF OPTIONEE. If Optionee ceases to be
affiliated with the Company or a Subsidiary and such affiliation ceases as a
result of Optionee's normal retirement, permanent total disability or early
retirement under the terms of a retirement or pension plan maintained by the
Company or a Subsidiary and in which Optionee is a participant, Optionee may
exercise this option within the ninety (90) day period following such cessation
of affiliation, but only to the extent that this option was exercisable at the
date of such cessation of affiliation.
7. DEATH OF OPTIONEE. If Optionee ceases to be affiliated with the Company or a
Subsidiary as a result of Optionee's death, this option may be exercised within
the one (1) year period following such death, and then only by the beneficiary
designated by Optionee or by the person or persons to whom Optionee's rights
under this option shall pass by Optionee's will or by the laws of descent and
distribution, but only to the extent that this option was exercisable at the
date of Optionee's death.
8. RIGHTS, RESTRICTIONS AND LIMITATIONS. ALL SHARES OF STOCK ISSUED UPON THE
EXERCISE OF THIS OPTION ARE SUBJECT TO THE RIGHTS, RESTRICTIONS AND LIMITATIONS
SET FORTH IN ARTICLE FOURTH OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED.
9. RESTRICTIONS UNDER SECURITIES LAW. All shares of Stock covered by this
Agreement are subject to any restrictions which may be imposed under applicable
state and federal securities laws and are subject to obtaining all necessary
consents which may be required by, or any condition which may be imposed in
accordance with, applicable state and federal securities laws or regulations.
10. INVESTMENT. Optionee agrees that any and all shares of Stock purchased upon
the exercise of this option shall be acquired for investment and not for
distribution.
11. CAPITAL ADJUSTMENT. The Option Price and the number of Option Shares shall
be adjusted in accordance with the Plan for certain capital adjustments as set
forth in the Plan.
12. INCORPORATION OF STOCK OPTION PLAN. The option granted hereby is granted
pursuant to the Plan, all the terms and conditions of which are hereby made a
part hereof and are incorporated herein by reference. In the event of any
inconsistency between the terms and conditions contained herein and those set
forth in the Plan, the terms and conditions of the Plan shall prevail.
13. EMPLOYMENT AT WILL. If Optionee is an employee of the Company or a
Subsidiary, such employment is not for any specified term and may be terminated
by employee or by the Company or a Subsidiary at any time, for any reason, with
or without cause. Nothing in this Agreement or the Plan shall confer upon
Optionee any right to
3
<PAGE> 4
continue in the employ of, or affiliation with, the Company or a Subsidiary nor
constitute any promise or commitment by the Company or a Subsidiary regarding
future positions, future work assignments, future compensation or any other term
or condition of employment or affiliation.
14. MISCELLANEOUS. This Agreement (and the Plan which is incorporated herein by
reference) contains the entire agreement between the parties with respect to its
subject matter. This Agreement shall be binding upon and shall inure to the
benefit of the respective parties, the successors and assigns of the Company,
and the heirs, legatees and personal representatives of Optionee. Optionee
acknowledges that signing this Agreement constitutes an unequivocal acceptance
of this Agreement and any attempted modifications or deletions will have no
force or effect upon the Company's right to enforce the terms and conditions
stated herein.
15. STATUS OF OPTION. Optionee acknowledges and agrees that the Company makes no
representations regarding the status of the option granted under the Plan and
this Agreement as an incentive stock option and is under no obligation to take
any action or refrain from taking any action to preserve or maintain the
option's status as an incentive stock option.
IN WITNESS WHEREOF, THE UNDERSIGNED OPTIONEE HEREBY AGREES TO ALL THE TERMS AND
CONDITIONS OF THIS AGREEMENT, ACKNOWLEDGES RECEIPT OF THE 1995 STOCK OPTION PLAN
AND HEREBY ACKNOWLEDGES THAT THIS AGREEMENT SHALL NOT BE BINDING ON THE COMPANY
UNTIL AN UNALTERED COPY OF THIS AGREEMENT HAS BEEN SIGNED BY THE OPTIONEE,
RETURNED TO, RECEIVED AND APPROVED BY THE COMPANY.
________________________________________ _______________
Signature of Optionee Date
PLEASE SIGN AND RETURN THIS COPY TO THE STOCK PROGRAMS DEPARTMENT. THIS
AGREEMENT MUST BE SIGNED AND RETURNED WITHIN 120 DAYS OR THE OPTION WILL BE
FORFEITED AND THIS AGREEMENT WILL BE NULL AND VOID.
A copy will be returned to you upon receipt of this Agreement.
4
<PAGE> 1
Exhibit 4(v)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
KEY EXECUTIVE STOCK DEFERRAL PLAN
STOCK RESTRICTION AGREEMENT
This Stock Restriction Agreement (the "Agreement") is made and entered
into this ____ day of ___________, 19___, by and between
____________________________ ("Participant") and Science Applications
International Corporation ("SAIC") with reference to the following facts:
a. Participant desires to become a Participant in the Science
Applications International Corporation Key Executive Stock Deferral Plan
("Plan") and has determined to be eligible to become a Participant by the
Plan's Deferral Authority.
b. Participation in the Plan is specifically conditioned on the
Participant entering into an agreement with SAIC relating to SAIC's right of
repurchase of shares of SAIC Class A Common Stock ("SAIC Stock") potentially
distributable to Participant under the terms of the Plan.
NOW, THEREFORE, the parties hereto agree as follows:
1. Any shares of SAIC Stock distributed to Participant under the
Plan shall be subject to SAIC's right of repurchase on the terms and conditions
set forth hereinbelow.
2. SAIC's right of repurchase shall be identical to that provided
under ARTICLE FOURTH of the Restated Certificate of Incorporation of Science
Applications International Corporation ("Certificate"), except as follows:
(a) The period for providing notice of SAIC's exercise of
the right of repurchase shall in no event expire prior to sixty (60) days after
the date such shares are distributed to the Participant under the terms of the
Plan.
(b) If SAIC elects to repurchase the shares, the price
shall be the Formula Price in effect on the date the shares are distributed to
the Participant under the terms of the Plan and SAIC shall pay for such shares
in cash within ninety (90) days after the date the shares are distributed to
the Participant under the terms of the Plan.
<PAGE> 2
3. In all respects, other than those set forth in paragraph 2
above, SAIC's right of repurchase shall be governed by the terms of the ARTICLE
FOURTH of the Certificate, and entering into this agreement shall in no way
represent a waiver of SAIC's right of repurchase under the Certificate, rather
only an extension of such right.
Executed this ____ day of ____________________, 19___.
- --------------------------------------
Participant
Science Applications International Corporation
By:
------------------------------------------
- 2 -
<PAGE> 1
EXHIBIT 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
Computation of Per-Share Earnings
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended January 31
---------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
PRIMARY:
Net Income $57,296 $49,052 $41,500
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 676 637 501
Interest earned, net of income tax expense on
assumed investment of U.S. government
securities or commercial paper -- -- 17
------- ------- -------
Adjusted net income $57,972 $49,689 $42,018
======= ======= =======
Weighted average shares outstanding 48,136 46,603 45,404
Dilutive stock options, based on the modified
treasury stock method, using average fair value 3,170 2,661 2,025
------- ------- -------
Total average shares outstanding 51,306 49,264 47,429
======= ======= =======
Per Share Amount $ 1.13 $ 1.01 $ .89
======= ======= =======
FULLY DILUTED:
Net Income $57,296 $49,052 $41,500
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 462 499 435
Interest earned, net of income tax expense on
assumed investment of U.S. government
securities or commercial paper -- -- 5
------- ------- -------
Adjusted net income $57,758 $49,551 $41,935
======= ======= =======
Weighted average shares outstanding 48,136 46,603 45,404
Dilutive stock options, based on the modified
treasury stock method, using year-end or
exercise date established price if higher
than average fair value 3,170 2,661 2,025
------- ------- -------
Total average shares outstanding 51,306 49,264 47,429
======= ======= =======
Per Share Amount $ 1.13 $ 1.01 $ .88
======= ======= =======
</TABLE>
<PAGE> 1
Exhibit 21
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
WHOLLY-OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C>
American Systems Engineering Corporation Delaware
Andrew Palmer & Associates Limited England
(wholly-owned by SAIC UK Limited)
Bull, Inc. California
Campus Point Realty Corporation California
Energy and Technology Management Corporation Delaware
Environmental Restoration Systems, Inc. Delaware
General Sciences Corporation Delaware
Hicks & Associates, Inc. Delaware
JHK & Associates, Inc. Delaware
JMD Development Corporation dba JDA California
Network Solutions, Inc. District of Columbia
Pathology Associates International Corporation Delaware
R.E. Wright Environmental, Inc. Delaware
Sachse Engineering Associates, Inc. California
SAIC Colombia, Limitada Colombia
SAIC Commercial Enterprises, Inc. California
SAIC de Mexico, S.A. de C.V. Mexico
SAIC Engineering, Inc. California
SAIC Engineering of Ohio, Inc. Ohio
SAIC Global Technology Corporation Delaware
SAIC in Novosibirsk Russia
SAIC-MIR Russia
SAIC Limited (wholly-owned by SAIC UK Limited) England
SAIC UK Limited England
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C>
Science Applications International (Barbados) Corporation Barbados
Science Applications International Corporation (SAIC Canada) Canada
Science Applications International Corporation Venezuela
de Venezuela, S.A.
Science Applications International, Europe S.A. France
Science Applications International Pty. Ltd. Australia
Science Applications International Technology California
Syntonic Technology, Inc. Delaware
Systems Control Technology, Inc. Delaware
TST International Pty., Ltd. Australia
(wholly-owned by Syntonic Technology, Inc.)
Wright Laboratory Services, Inc. Delaware
(wholly-owned by R.E. Wright Environmental, Inc.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENT OF INCOME AND CASH
FLOWS FOR THE YEAR ENDED JANUARY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 25,794
<SECURITIES> 7,654
<RECEIVABLES> 500,201
<ALLOWANCES> 1,878
<INVENTORY> 40,097
<CURRENT-ASSETS> 594,227
<PP&E> 278,523
<DEPRECIATION> 121,238
<TOTAL-ASSETS> 859,290
<CURRENT-LIABILITIES> 367,042
<BONDS> 33,151
0
0
<COMMON> 486
<OTHER-SE> 458,611
<TOTAL-LIABILITY-AND-EQUITY> 859,290
<SALES> 0
<TOTAL-REVENUES> 2,155,657
<CGS> 0
<TOTAL-COSTS> 1,875,072
<OTHER-EXPENSES> 173,742
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,529
<INCOME-PRETAX> 102,314
<INCOME-TAX> 45,018
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,296
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
<PAGE> 1
EXHIBIT 28 (a)
Securities and Exchange Commission
Washington, D.C. 20549
Form 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number __________
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(Full title of the plan)
Science Applications International Corporation
10260 Campus Point Drive, San Diego, California 92121
(Name of issuer of the securities held pursuant to
the plan and the address of its principal executive office)
<PAGE> 2
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the Science Applications International Corporation Stock Purchase Plan
Committee have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Date: April 4, 1996 BY: s/Anne Maharry
--------------
Anne Maharry
Science Applications
International Corporation
Employee Stock Purchase
Plan Committee
<PAGE> 3
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Index To Financial Statements
Page
----
Report of Independent Accountants F-2
Financial Statements:
Statement of Net Assets Available
for Benefits as of January 31, 1996 and 1995 F-3
Statement of Changes in Net Assets
Available for Benefits for the years ended
January 31, 1996, 1995, and 1994 F-4
Notes to Financial Statements F-5
Schedules:
None
All schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or the notes thereto.
F - 1
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Employee Stock Purchase Plan Committee and Participants of the Science
Applications International Corporation Employee Stock Purchase Plan:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the net assets available for benefits
of the Science Applications International Corporation Employee Stock Purchase
Plan at January 31, 1996 and 1995, and the changes in net assets available for
benefits for each of the three years in the period ended January 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Plan's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
April 4, 1996
F - 2
<PAGE> 5
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Statement of Net Assets Available for Benefits
<TABLE>
<CAPTION>
============== ==============
1/31/96 1/31/95
============== ==============
ASSETS:
Investments at fair value:
<S> <C> <C>
SAIC Class A Common Stock $ 2,497,000 $ 3,229,000
(Cost $2,332,000 and $3,018,000 respectively)
Receivables:
Participant contributions withheld 1,360,000 696,000
Employer contributions receivable 72,000 37,000
-------------- --------------
Net Assets Available for Benefits $ 3,929,000 $ 3,962,000
============== ==============
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE> 6
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Statement of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
Year Ended
=========== =========== ===========
1/31/96 1/31/95 1/31/94
=========== =========== ===========
<S> <C> <C> <C>
Unrealized appreciation of
investments in SAIC Common Stock $ 164,000 $ 210,000 $ 242,000
Realized appreciation of shares distributed 116,000 0 0
Participant contributions 5,263,000 3,958,000 3,061,000
Employer contributions 279,000 210,000 163,000
Benefits paid (5,855,000) (3,782,000) (2,668,000)
----------- ----------- -----------
Decrease/Increase in net assets (33,000) 596,000 798,000
Net assets at beginning of year 3,962,000 3,366,000 2,568,000
----------- ----------- -----------
Net Assets at End of Year $ 3,929,000 $ 3,962,000 $ 3,366,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE> 7
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
NOTE A - PLAN DESCRIPTION
The Science Applications International Corporation Employee Stock
Purchase Plan (the "Plan") is a three year plan the purpose of which is to
secure for Science Applications International Corporation (the "Company") and
its stockholders the benefits inherent in the ownership of capital stock of the
Company by employees of the Company and its subsidiaries. The Plan is intended
to provide to all eligible employees of the Company and designated subsidiaries
an opportunity to purchase shares of Class A Common Stock through payroll
deductions. It is intended that the Plan shall qualify under Section 423(b) of
the Internal Revenue Code. The 1995 Employee Stock Purchase Plan became
effective on July 14, 1995 and will terminate on July 31, 1998. The Plan is a
successor plan to the 1993 Employee Stock Purchase Plan which terminated on July
31, 1995. All shares purchased under the 1993 Plan were distributed to
participants or repurchased by the Company. The plans are identical except for
the number of shares reserved for issuance. The financial statements reflect the
net assets available for benefits and changes in net assets available for
benefits of the 1995 Plan as well as the 1993 Plan. Each participant is
furnished with a copy of the complete Plan before electing to participate in the
Plan.
Science Applications International Corporation is the Trustee under the
Plan. No trustee fees have ever been paid by the Plan. No bonds of any nature
are furnished to the Plan by the Trustee, its officers or employees. The Plan is
administered by the Employee Stock Purchase Plan Committee (the "Committee")
whose members are appointed by the Company's Board of Directors to serve at the
discretion of the Board. The members of the Committee do not act in the capacity
of trustees. The members of the Committee receive no compensation from the Plan
for services rendered in connection therewith. The members of the committee as
of January 31, 1996 are: A. Maharry, W. Reed, W.A. Roper. The Plan is not
subject to the Employee Retirement Income Security Act of 1974, as amended.
At predetermined purchase dates during the year, the Trustee purchases
for the account of each participant the whole number of shares of the Company's
Class A Common Stock (the "Common Stock") which may be acquired from funds
available in the participant's Stock Purchase Account, together with the
Company's 5% contribution described below. The authority to control and manage
the operation and administration of the Plan is vested in the Stock Purchase
Plan Committee. Generally, all employees of the Company and its affiliates who
have adopted the Plan are eligible to participate in the Plan. Employees may
contribute to the Plan by authorizing payroll deductions in amounts equal to 3%
or more, up to a maximum of 10%, of their base compensation. These contributions
are allocated to the Stock Purchase Accounts of the respective participants. No
interest is paid on amounts in the participants' Stock Purchase Accounts.
F - 5
<PAGE> 8
Purchases of SAIC's Common Stock are made in the limited secondary
market or from the Company. There is no general public market for the Common
Stock. However, the Company has established and maintains a limited secondary
market for the Common Stock through its wholly-owned subsidiary, Bull, Inc. This
limited market permits stockholders to sell stock to employees, consultants, and
directors of the Company who have been approved by the Board of Directors or the
Operating Committee of the Board of Directors as being entitled to purchase an
equity interest in the Company.
The purchase price to be paid for shares of Common Stock is the
prevailing fair market value (Note B). Of this price, 95% is paid out of the
participant contributions, and 5% is paid or accrued by the Company. A
participant is not entitled to purchase an amount of Common Stock having a fair
market value, as measured on its purchase date, in excess of $25,000 in any
calendar year pursuant to the Plan and any other employee stock purchase plans
which may be adopted by the Company.
A participant's interest in his account is 100% vested at all times.
Shares of Common Stock acquired under the Plan will be issued to the participant
prior to any record date established by the Company for any vote of its
stockholders. Until distribution occurs, the shares are held by the Company,
acting as Trustee, on behalf of the participants. Each participant is furnished
with a statement of accounting at the time of any distribution.
All shares of Common Stock purchased pursuant to the Plan are subject to
the Company's right of repurchase upon the participant's termination of
employment or affiliation with the Company. The repurchase price is the then
prevailing Formula Price. Such shares are also 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.
Participants may withdraw the money held in their Stock Purchase
Accounts at any time prior to the acquisition of shares of Common Stock
therewith, although upon doing so the participant will no longer be eligible to
re-enroll until the beginning of the next applicable plan year.
The 1995 Employee Stock Purchase Plan will terminate on the earlier of
July 31, 1998 or when 1,500,000 shares of Common Stock have been purchased
pursuant to the Plan or at the discretion of the Company's Board of Directors.
For the Plan year ended January 31, 1996, 132,701 shares of Common Stock were
purchased by the 1995 Employee Stock Purchase Plan.
F - 6
<PAGE> 9
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The accompanying financial statements are prepared on the accrual basis
of accounting.
Investment valuation and income, gains, and losses
The fair value of Common Stock is determined using the fair market value
pursuant to a stock price formula and valuation process which includes an
appraisal prepared by an independent appraisal firm. Periodic determinations of
fair market value of the Common Stock are made by the Board of Directors with
the assistance of the independent appraisal firm. Periodic determinations of
fair market value of the Common Stock are made by the Board of Directors, with
the assistance of the independent appraisal firm. The Board of Directors
reserves the right to alter the formula. Realized gains and losses on Common
Stock are the difference between the fair market value when distributed and the
original cost of the shares of Common Stock purchased during the year or the
fair market value of shares held at the beginning of the year. Unrealized
appreciation or depreciation is computed at the fair market value of the Common
Stock held at the end of the year less the fair market value of the Common Stock
held at the beginning of the year or acquisition cost for Common Stock acquired
during the year. As of January 31, 1996 and 1995, the fair market value per
share was $19.33 and $15.72, respectively, for Class A Common Stock. The number
of shares held by the Plan was 129,155 and 205,380 on January 31, 1996 and 1995,
respectively.
Benefits distributable
Investments in Common Stock are distributed from the Plan after the end
of the Plan's fiscal year. Benefits distributable at January 31, 1996 and 1995
were $2,497,000 and $3,229,000, respectively.
Administrative expenses of the Plan
All expenses incurred in the administration of the Plan are paid out of
the Plan assets unless the Company elects to pay such costs. During Plan years
ended January 31, 1996, 1995, and 1994, the Company paid all administrative
expenses of the Plan.
Contributions
Participant contributions are accrued when the compensation from which
the contribution is made is earned. Employer contributions are accrued when the
corresponding participant's contributions are accrued.
F - 7
<PAGE> 10
NOTE C - TAX STATUS AND FEDERAL INCOME TAX CONSEQUENCES TO PARTICIPANTS
The Plan is not subject to federal income taxes and is intended to
qualify under Section 423(b) of the Internal Revenue Code.
No taxable income will be recognized by a participant in the Plan until
the taxable year of sale or certain other dispositions of the shares of Common
Stock acquired under the Plan.
F - 8
<PAGE> 1
Exhibit 28(b)
Securities and Exchange Commission
Washington, D.C. 20549
Form 11-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the calendar year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
----------------------------
(Full Title of Plan)
Science Applications International Corporation
10260 Campus Point Drive, San Diego, California 92121
-----------------------------------------------------
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE> 2
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Science Applications International Corporation Retirement Plans
Committee duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
DATE 4-15-96 /s/ Ward Reed
---------------------------------------- ----------------------------
Ward Reed
Corporate Vice President
and Treasurer
Retirement Plans Committee
<PAGE> 3
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
REPORT, FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
DECEMBER 31, 1995 AND 1994
<PAGE> 4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CASH OR DEFERRED ARRANGEMENT
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of independent Accountants F-2
Financial Statements:
Statement of Net Assets Available for Benefits F-3
Statement of Changes in Net Assets Available for Benefits F-4
Notes to Financial Statements F-5 - F-13
Additional Information:*
Schedule I - Schedule of Assets Held for Investment Purposes F-14
Schedule II - Schedule of Loans or Fixed Income Obligations F-15
Schedule III - Schedule of Reportable Transactions F-16
</TABLE>
* Other schedules required by Section 2520.103-10 of the Department of
Labor Rules and Regulations for Reporting and Disclosure under ERISA
have been omitted because they are not applicable.
F-1
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Retirement Plans Committee
and Participants of the Science Applications
International Corporation Cash or Deferred Arrangement
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the net assets available for benefits
of the Science Applications International Corporation Cash or Deferred
Arrangement (the Plan) at December 31, 1995 and 1994, and the changes in net
assets available for benefits for the years then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
Schedules I through III is presented for purposes of additional analysis and is
not a required part of the basic financial statements but is additional
information required by ERISA. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
PRICE WATERHOUSE LLP
San Diego, California
April 4, 1996
F-2
<PAGE> 6
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
Investments, at fair market value:
Mutual funds $231,707,000 $157,183,000
SAIC Common Stock 116,432,000 84,571,000
Short-term investments 684,000 125,000
Participant loans 11,630,000 8,604,000
------------ ------------
360,453,000 250,483,000
------------ ------------
Receivables:
Participant contributions 1,996,000 1,771,000
Company contributions 2,696,000 2,446,000
Interest income 6,000
------------ ------------
4,698,000 4,217,000
------------ ------------
Total assets 365,151,000 254,700,000
------------ ------------
LIABILITIES
Accrued Plan expenses 57,000 38,000
------------ ------------
Total liabilities 57,000 38,000
------------ ------------
Net assets available for benefits $365,094,000 $254,662,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 7
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994
<S> <C> <C>
Additions to net assets attributed to:
Investment income:
Mutual funds:
Dividends and interest $ 15,305,000 $ 9,252,000
Realized gain 2,082,000 702,000
Unrealized appreciation (depreciation) 22,430,000 (10,027,000)
SAIC Common Stock:
Realized gain 0 6,000
Unrealized appreciation 18,891,000 9,884,000
Interest 923,000 612,000
Participant contributions 59,133,000 47,599,000
Company contributions 11,535,000 10,977,000
------------- -------------
Total additions 130,299,000 69,005,000
------------- -------------
Deductions from net assets attributed to:
Distributions to participants (19,676,000) (14,240,000)
Plan expenses (191,000) (160,000)
------------- -------------
Total deductions (19,867,000) (14,400,000)
------------- -------------
Net increase 110,432,000 54,605,000
Net assets at beginning of year 254,662,000 200,057,000
------------- -------------
Net assets at end of year $ 365,094,000 $ 254,662,000
============= =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 8
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - PLAN DESCRIPTION
GENERAL
The Science Applications International Corporation Cash or Deferred Arrangement
(the "Plan" or "CODA") was established on September 18, 1982 and became
effective January 1, 1983. The authority to administer the Plan is vested in the
Retirement Plans Committee (the "Committee") whose members are the Named
Fiduciaries for purposes of Section 402 (a) of the Employee Retirement Income
Security Act of 1974, as amended. Generally, employees of Science Applications
International Corporation (the "Company" or "SAIC") and its subsidiaries are
eligible to participate in the Plan upon commencing employment, except for
employees in groups or units designated as ineligible. The following description
of the Plan provides only general information. Participants should refer to the
Plan document for a more complete description of the Plan's provisions.
The Plan consists of a Deferred Fund which is the fund in which assets acquired
by the Plan in its function as a qualified Cash or Deferred Arrangement are held
and accounted for. The Plan permits participants to elect to defer up to 18% of
their eligible compensation, as defined, for the Plan year and to have such
deferred amount contributed directly by the Company to the Deferred Fund for the
benefit of the participants. Such contributions are limited under the Internal
Revenue Code (the "Code") to $9,240 for the years ended December 31, 1995 and
1994. Amounts deferred by participants, including rollovers from qualified
plans, totaled $59,133,000 and $47,599,000 for the years ended December 31, 1995
and 1994, respectively.
In addition to amounts deferred by participants, the Company, at its discretion,
may make a matching contribution equal to a specified percentage of the
aggregate amounts deferred by participants. The match is only provided on
participant deferrals of up to 10% of compensation, with any deferrals above 10%
receiving no match. In 1995 and 1994, the Company contributed 30% of the first
$2,000 of a participant's annual deferred compensation and 15% of such deferred
compensation above $2,000 for an annual total of $9,430,000 and $9,063,000,
respectively. During 1995 and 1994, the Company contribution was allocated to
the SAIC Common Stock Fund. Also, the Company, at its discretion, may make an
additional contribution to the Deferred Fund for the benefit of participants in
order to comply with the Code. The additional Company contributions are
allocated to the accounts of non-highly compensated participants, as prescribed
by the Code. During 1995 and 1994, additional Company contributions of
$2,104,000 and $1,914,000, respectively, were invested in the Vanguard Money
Market Reserves-Prime Portfolio.
Employees hired prior to January 1, 1995 are immediately eligible for the
Company matching contributions. Employees hired on or after January 1, 1995, who
have elected to participate, are eligible for Company matching contributions if
they have attained age 21 and have both twelve calendar months of employment and
850 hours of service, as defined.
The Company's contribution to the Deferred Fund is to be paid in cash unless the
Company's Board of Directors determines to make the contribution in shares of
Class A Common Stock or another form. Contributions to the Deferred Fund shall
not exceed the maximum amount deductible by the Company for Federal income tax
purposes.
Participants may elect to borrow against their vested plan balances. Upon this
election, the loan balance is transferred from the applicable investment fund(s)
to a separate loan fund (participant loans) until repayment.
Participants are permitted to transfer to the Plan their account balances from a
previous employer's qualified retirement plan within a specified time period.
F-5
<PAGE> 9
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A participant's interest in the employee deferral portion of the Deferred Fund
account is 100% vested at all times. The participant's interest in the Deferred
Fund account will be paid in a single distribution to the participant or their
designated beneficiary upon termination of employment with the Company,
retirement, permanent disability or death. A participant may not make
withdrawals from the Deferred Fund accounts while employed with the Company
prior to attaining age 59 1/2 unless the Committee determines the participant is
incurring financial hardship. After attaining age 59 1/2, a participant may make
withdrawals even if still employed with the Company. Distributions from the
Deferred Fund are paid in cash.
VESTING
A participant's interest in the Company matching contribution is 100% vested if
the participant was hired prior to January 1, 1995. If the participant was hired
on or after January 1, 1995, the participant's interest in the Company matching
contribution vests at the rate of 25% per year in years three through six,
becoming fully vested after six years of service, as defined. Participants are
deemed fully vested upon reaching age 59 1/2, permanent disability or death.
Forfeitures, arising from participants withdrawing from the Plan prior to
achieving 100% vesting, are applied to the Company's matching contribution.
There were no Plan forfeitures in 1995 or 1994.
INVESTMENT PROGRAMS
The investment programs offered to participants in the Deferred Fund allow
participants to choose among nine investment funds during 1995 and seven
investment funds during 1994 offered by the Vanguard Group of Investment
Companies. Participants are also allowed to direct a portion of their investment
into Class A Common Stock of the Company. Such investment into the SAIC Common
Stock Fund can be exchanged into one of the Vanguard Funds subject to certain
restrictions.
THE VANGUARD FUNDS OFFERED ARE AS FOLLOWS:
1) Vanguard Fixed Income Securities Fund - GNMA Portfolio, which invests in
fixed income securities guaranteed by the U.S. Government; 2) Vanguard Index
Trust-500 Portfolio, which invests in common stocks; 3) Vanguard Money Market
Reserves - Prime Portfolio, which invests in money market instruments; 4)
Vanguard Fixed Income Securities Fund - Short-Term Federal Portfolio, which
invests in U.S. government obligations; 5) Vanguard/ Wellesley Income Fund,
which invests in fixed income securities and common stocks; 6) Vanguard/Windsor
Fund, which invests in common stocks; 7) Vanguard International Growth
Portfolio, which invests in common stocks of companies based outside the United
States; 8) Vanguard U.S. Growth Portfolio (new in 1995), which invests in common
stocks; and 9) Vanguard Fixed Income Securities Fund - Intermediate - Term
Corporate Portfolio (new in 1995), which invests primarily in investment grade
corporate bonds. Separate Deferred Fund accounts are established for each
investment program selected by a participant. Participants may elect to transfer
their existing account balances at any time among the investment funds and/or
alter the allocations of future contributions among the investment alternatives
under rules prescribed by the Committee.
PLAN TERMINATION
Although the Company has not expressed any intent to terminate the Plan, it
reserves the right to suspend or discontinue contributions to the Plan or to
terminate the Company's participation in the Plan at any time. In the event of
termination, a distribution of the participants' Deferred Fund account balances
will be made in accordance with the Plan provisions.
F-6
<PAGE> 10
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis of
accounting.
INVESTMENT VALUATION AND INCOME, GAINS AND LOSSES
Vanguard Funds
Deposits to the Vanguard Funds are used to buy shares from the respective
investment fund. Vanguard Fund shares are valued at the net asset value per
share as of each valuation date.
Investment transactions are accounted for on the date the shares in the fund are
purchased or sold. Realized and unrealized gains and losses are computed based
on the market value at the beginning of the year or purchase price if purchased
during the year.
SAIC Common Stock
A general public market for the Company's common stock does not exist;
therefore, the fair market value of the common stock is determined pursuant to a
stock price formula and valuation process which includes an appraisal prepared
by an independent appraisal firm. Periodic determinations of fair market value
of the common stock are made by the Board of Directors, with the assistance of
the independent appraisal firm. The Board of Directors reserves the right to
alter the formula.
The gains or losses realized on distributions of investments and the increases
or decreases in unrealized appreciation are calculated as the difference between
the current fair market value and the fair market value of the investments at
the beginning of the year or purchase price if purchased during the year. As of
December 31, 1995 and 1994, the fair market value of the Company's Class A
Common Stock was $18.27 and $15.07 and the Plan held approximately 6,373,000
shares and 5,612,000 shares, respectively.
It is the policy of the Committee to keep the SAIC Common Stock Fund invested
primarily in Common Stock, except for estimated reserves for use in
distributions and investment exchanges by participants. Such reserves are
invested in the Vanguard Money Market Reserves - Prime Portfolio mutual fund. If
reserves in the SAIC Common Stock Fund are less than the amount required at any
given time to make requested distributions and investment changes, investment
exchanges out of the SAIC Common Stock Fund by participants may have to be
deferred.
Short-term investments
Short-term investments consist primarily of State Street Bank and Trust
Short-Term Investment Fund, which invests in short-term money market
instruments. State Street Bank and Trust Company is the Plan's Trustee.
CONTRIBUTIONS
Participant contributions and matching Company contributions are accrued based
upon the amounts deferred by participants at year end which are received by the
Trustee subsequent to year end. Additional Company contributions are accrued
based upon the amounts determined by the Company's Board of Directors (Note 1).
F-7
<PAGE> 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO PARTICIPANTS
Distributions to participants are recorded when paid. Generally, upon
termination or retirement, participants will receive their vested account
balance in a single lump sum payment following their termination or retirement
date. Benefits to be paid at a future date as elected by terminated or retired
participants are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
INVESTMENT FUND
Vanguard GNMA $ 2,343,000 $ 1,602,000
Vanguard Index 4,680,000 2,449,000
Vanguard Prime 3,758,000 2,677,000
Vanguard STFED 1,746,000 1,459,000
Vanguard Wellesley 2,412,000 1,305,000
Vanguard Windsor 9,315,000 5,920,000
Vanguard Intl. Growth 1,688,000 1,266,000
Vanguard U.S. Growth 464,000 0
Vanguard Int. Corporate Bond 28,000 0
SAIC CODA Stock 13,035,000 7,647,000
Participant Loans 672,000 503,000
----------- -----------
Total $40,141,000 $24,828,000
=========== ===========
</TABLE>
These amounts are reflected as liabilities in the Plan's Form 5500.
ADMINISTRATIVE EXPENSES OF THE PLAN
All expenses incurred in the administration of the Plan are paid out of Plan
assets unless the Company elects to pay such costs. Fees totaling $57,000 and
$34,000 were paid or accrued to the Trustee by the Plan during 1995 and 1994,
respectively. Other Plan expenses totaling $134,000 and $126,000 were paid or
accrued by the Plan during 1995 and 1994, respectively.
NOTE 3 - TAX STATUS
The Plan is intended to qualify under Section 401(a) of the Code. In addition,
the Deferred Fund of the Plan is intended to be a "Qualified Cash or Deferred
Arrangement" under Section 401(k) of the Code. The Plan is not subject to
Federal income taxes.
The Plan received a favorable determination letter from the Internal Revenue
Service during 1993 indicating that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code ("the Code").
The Plan has been amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the Code.
NOTE 4 - FINANCIAL INFORMATION BY INVESTMENT FUND
Financial information by investment fund as of December 31, 1995 and 1994, and
for the years then ended are shown on the following pages.
F-8
<PAGE> 12
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------------------------
NOTE 4 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1995
-------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investments:
Mutual funds $ 19,310,000 $ 39,488,000 $ 27,578,000 $23,023,000 $76,996,000 $18,085,000
SAIC Common Stock
Short-term investments
Participant loans
------------ ------------ ------------ ----------- ----------- -----------
19,310,000 39,488,000 27,578,000 23,023,000 76,996,000 18,085,000
------------ ------------ ------------ ----------- ----------- -----------
Receivables:
Participant contributions
Company contributions 2,104,000
Accrued interest
------------ ------------ ------------ ----------- ----------- -----------
2,104,000
------------ ------------ ------------ ----------- ----------- -----------
Total assets 19,310,000 39,488,000 29,682,000 23,023,000 76,996,000 18,085,000
------------ ------------ ------------ ----------- ----------- -----------
LIABILITIES
Accrued Plan expenses
------------ ------------ ------------ ----------- ----------- -----------
Total liabilities
------------ ------------ ------------ ----------- ----------- -----------
Net assets available
for benefits $ 19,310,000 $ 39,488,000 $ 29,682,000 $23,023,000 $76,996,000 $18,085,000
============ ============ ============ =========== =========== ===========
<CAPTION>
VANGUARD VANGUARD VANGUARD SAIC COMMON PARTICIPANT STATE STREET
U.S. GROWTH CORP. STFED STOCK LOANS STIF TOTAL
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Investments:
Mutual funds $ 8,085,000 $1,085,000 $14,746,000 $ 3,311,000 $231,707,000
SAIC Common Stock 116,432,000 116,432,000
Short-term investments $ 684,000 684,000
Participant loans $11,630,000 11,630,000
----------- ---------- ----------- ------------ ----------- ----------- ------------
8,085,000 1,085,000 14,746,000 119,743,000 11,630,000 684,000 360,453,000
----------- ---------- ----------- ------------ ----------- ----------- ------------
Receivables:
Participant contributions 1,996,000 1,996,000
Company contributions 592,000 2,696,000
Accrued interest 6,000 6,000
----------- ---------- ----------- ------------ ----------- ----------- ------------
592,000 2,002,000 4,698,000
----------- ---------- ----------- ------------ ----------- ----------- ------------
Total assets 8,085,000 1,085,000 14,746,000 120,335,000 11,630,000 2,686,000 365,151,000
----------- ---------- ----------- ------------ ----------- ----------- ------------
LIABILITIES
Accrued Plan expenses 57,000 57,000
----------- ---------- ----------- ------------ ----------- ----------- ------------
Total liabilities 57,000 57,000
----------- ---------- ----------- ------------ ----------- ----------- ------------
Net assets available
for benefits $ 8,085,000 $1,085,000 $14,746,000 $120,335,000 $11,630,000 $ 2,629,000 $365,094,000
=========== ========== =========== ============ =========== =========== ============
</TABLE>
F-9
<PAGE> 13
<TABLE>
<CAPTION>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------------
NOTE 4 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1994
-------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH STFED
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Investments:
Mutual funds $14,826,000 $22,714,000 $22,534,000 $14,299,000 $52,511,000 $15,242,000 $12,761,000
SAIC Common Stock
Short-term investments
Participant loans
----------- ----------- ----------- ----------- ----------- ----------- -----------
14,826,000 22,714,000 22,534,000 14,299,000 52,511,000 15,242,000 12,761,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Receivables:
Participant contributions
Company contributions 1,914,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
1,914,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets 14,826,000 22,714,000 24,448,000 14,299,000 52,511,000 15,242,000 12,761,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES
Accrued Plan expenses
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net assets available
for benefits $14,826,000 $22,714,000 $24,448,000 $14,299,000 $52,511,000 $15,242,000 $12,761,000
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
SAIC COMMON PARTICIPANT STATE STREET
STOCK LOANS STIF TOTAL
ASSETS
<S> <C> <C> <C> <C>
Investments:
Mutual funds $ 2,296,000 $157,183,000
SAIC Common Stock 84,571,000 84,571,000
Short-term investments $ 125,000 125,000
Participant loans $8,604,000 8,604,000
----------- ---------- ----------- ------------
86,867,000 8,604,000 125,000 250,483,000
----------- ---------- ----------- ------------
Receivables:
Participant contributions 1,771,000 1,771,000
Company contributions 532,000 2,446,000
----------- ---------- ----------- ------------
532,000 1,771,000 4,217,000
----------- ---------- ----------- ------------
Total assets 87,399,000 8,604,000 1,896,000 254,700,000
----------- ---------- ----------- ------------
LIABILITIES
Accrued Plan expenses 38,000 38,000
----------- ---------- ----------- ------------
Total liabilities 38,000 38,000
----------- ---------- ----------- ------------
Net assets available
for benefits $87,399,000 $8,604,000 $ 1,858,000 $254,662,000
=========== ========== =========== ============
</TABLE>
F-10
<PAGE> 14
<TABLE>
<CAPTION>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------------------------
NOTE 4 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH
ADDITIONS TO NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Mutual funds:
Realized (loss) gain $ 20,000 $ 766,000 $ 131,000 $ 686,000 $ 402,000
Unrealized appreciation 1,387,000 7,895,000 3,079,000 7,036,000 1,369,000
Dividends and interest 1,239,000 856,000 $ 1,484,000 1,438,000 8,641,000 476,000
SAIC Common Stock:
Realized gain
Unrealized appreciation
Interest
Participant contributions 2,814,000 6,332,000 3,686,000 4,586,000 11,122,000 4,459,000
Company contributions 2,104,000
------------ ------------ ------------ ----------- ----------- -----------
Total additions 5,460,000 15,849,000 7,274,000 9,234,000 27,485,000 6,706,000
------------ ------------ ------------ ----------- ----------- -----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 1,029,000 1,864,000 1,805,000 1,335,000 4,093,000 1,053,000
Plan expenses
------------ ------------ ------------ ----------- ----------- -----------
Total deductions 1,029,000 1,864,000 1,805,000 1,335,000 4,093,000 1,053,000
------------ ------------ ------------ ----------- ----------- -----------
Net increase prior to exchanges 4,431,000 13,985,000 5,469,000 7,899,000 23,392,000 5,653,000
Exchanges 53,000 2,789,000 (235,000) 825,000 1,093,000 (2,810,000)
------------ ------------ ------------ ----------- ----------- -----------
Net increase (decrease) 4,484,000 16,774,000 5,234,000 8,724,000 24,485,000 2,843,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 14,826,000 22,714,000 24,448,000 14,299,000 52,511,000 15,242,000
------------ ------------ ------------ ----------- ----------- -----------
End of year $ 19,310,000 $ 39,488,000 $ 29,682,000 $23,023,000 $76,996,000 $18,085,000
============ ============ ============ =========== =========== ===========
<CAPTION>
VANGUARD VANGUARD VANGUARD SAIC COMMON PARTICIPANT STATE STREET
U.S. GROWTH CORP. STFED STOCK LOANS STIF TOTAL
ADDITIONS TO NET ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Mutual funds:
Realized (loss) gain $ 108,000 $ 9,000 $ (40,000) $ 2,082,000
Unrealized appreciation 833,000 41,000 790,000 22,430,000
Dividends and interest 322,000 30,000 819,000 15,305,000
SAIC Common Stock:
Realized gain
Unrealized appreciation $ 18,891,000 18,891,000
Interest 150,000 $ 717,000 $ 56,000 923,000
Participant contributions 1,218,000 96,000 2,198,000 10,198,000 12,424,000 59,133,000
Company contributions 9,216,000 215,000 11,535,000
----------- --------- ----------- ------------ ----------- ----------- ------------
Total additions 2,481,000 176,000 3,767,000 38,455,000 717,000 12,695,000 130,299,000
----------- --------- ----------- ------------ ----------- ----------- ------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 185,000 39,000 1,028,000 6,938,000 307,000 19,676,000
Plan expenses 191,000 191,000
----------- --------- ----------- ------------ ----------- ----------- ------------
Total deductions 185,000 39,000 1,028,000 6,938,000 307,000 191,000 19,867,000
----------- --------- ----------- ------------ ----------- ----------- ------------
Net increase prior to exchanges 2,296,000 137,000 2,739,000 31,517,000 410,000 12,504,000 110,432,000
Exchanges 5,789,000 948,000 (754,000) 1,419,000 2,616,000 (11,733,000)
----------- --------- ----------- ------------ ----------- ----------- ------------
Net increase (decrease) 8,085,000 1,085,000 1,985,000 32,936,000 3,026,000 771,000 110,432,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 0 0 12,761,000 87,399,000 8,604,000 1,858,000 254,662,000
----------- --------- ----------- ------------ ----------- ----------- ------------
End of year $ 8,085,000 $1,085,000 14,746,000 $120,335,000 $11,630,000 $ 2,629,000 $365,094,000
=========== ========== =========== ============ =========== =========== ============
</TABLE>
F-11
<PAGE> 15
<TABLE>
<CAPTION>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------------------------
NOTE 4 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH
ADDITIONS TO NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Mutual funds:
Realized (loss) gain $ (55,000) $ 350,000 $ (127,000) $ 318,000 $ 306,000
Unrealized depreciation (1,049,000) (737,000) (1,444,000) (5,517,000) (539,000)
Dividends and interest 987,000 663,000 $ 796,000 1,007,000 4,891,000 197,000
SAIC Common Stock:
Realized gain
Unrealized appreciation
Interest
Participant contributions 2,936,000 5,220,000 3,332,000 4,313,000 10,107,000 3.892,000
Company contributions 1,914,000
------------ ------------ ------------ ----------- ----------- -----------
Total additions 2,819,000 5,496,000 6,042,000 3,749,000 9,799,000 3,856,000
------------ ------------ ------------ ----------- ----------- -----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 1,035,000 1,111,000 1,385,000 894,000 2,644,000 896,000
Plan expenses
------------ ------------ ------------ ----------- ----------- -----------
Total deductions 1,035,000 1,111,000 1,385,000 894,000 2,644,000 896,000
------------ ------------ ------------ ----------- ----------- -----------
Net increase prior to exchanges 1,784,000 4,385,000 4,657,000 2,855,000 7,155,000 2,960,000
Exchanges (925,000) 339,000 2,926,000 (692,000) 1,698,000 3,964,000
------------ ------------ ------------ ----------- ----------- -----------
Net increase (decrease) 859,000 4,724,000 7,583,000 2,163,000 8,853,000 6,924,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 13,967,000 17,990,000 16,865,000 12,136,000 43,658,000 8,318,000
------------ ------------ ------------ ----------- ----------- -----------
End of year $ 14,826,000 $ 22,714,000 $ 24,448,000 $14,299,000 $52,511,000 $15,242,000
============ ============ ============ =========== =========== ===========
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------------------------------------
VANGUARD SAIC COMMON PARTICIPANT STATE STREET
STFED STOCK LOANS STIF TOTAL
ADDITIONS TO NET ASSETS
<S> <C> <C> <C> <C> <C>
Investment income:
Mutual funds:
Realized (loss) gain $ (90,000) $ 702,000
Unrealized depreciation (741,000) (10,027,000)
Dividends and interest 711,000 9,252,000
SAIC Common Stock:
Realized gain $ 6,000 6,000
Unrealized appreciation 9,884,000 9,884,000
Interest 87,000 $ 499,000 $ 26,000 612,000
Participant contributions 2,313,000 9,035,000 6,451,000 47,599,000
Company contributions 8,938,000 125,000 10,977,000
----------- ----------- ---------- ----------- ------------
Total additions 2,193,000 27,950,000 499,000 6,602,000 69,005,000
----------- ----------- ---------- ----------- ------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 834,000 5,138,000 303,000 14,240,000
Plan expenses 160,000 160,000
----------- ----------- ---------- ----------- ------------
Total deductions 834,000 5,138,000 303,000 160,000 14,400,000
----------- ----------- ---------- ----------- ------------
Net increase prior to exchanges 1,359,000 22,812,000 196,000 6,442,000 54,605,000
Exchanges (1,578,000) (2,898,000) 1,762,000 (4,596,000)
----------- ----------- ---------- ----------- ------------
Net increase (decrease) (219,000) 19,914,000 1,958,000 1,846,000 54,605,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 12,980,000 67,485,000 6,646,000 12,000 200,057,000
----------- ----------- ---------- ---------- ------------
End of year $12,761,000 $87,399,000 $8,604,000 $1,858,000 $254,662,000
=========== =========== ========== ========== ============
</TABLE>
F-12
<PAGE> 16
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5 - PARTY-IN-INTEREST TRANSACTIONS
Transactions involving cash, securities or assets of the Company, the Trustee or
other affiliated persons are considered to be party-in-interest transactions
under Section 2520.103-10 of the Department of Labor Rules and Regulations for
Reporting and Disclosure. Reportable party-in-interest transactions for the
years ended December 31, 1995 and 1994, are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
NUMBER NUMBER
INVESTMENT SALES OF UNITS OF SALES COST PROCEEDS
<S> <C> <C> <C> <C>
State Street Bank & Trust
Short-Term Investment Fund 714,000 66 $ 71,397,000 $ 71,397,000
INVESTMENT PURCHASES
State Street Bank & Trust
Short-Term Investment Fund 721,000 78 $ 72,058,000
SAIC Class A Common Stock 761,000 4 $ 12,970,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------
NUMBER NUMBER
INVESTMENT SALES OF UNITS OF SALES COST PROCEEDS
<S> <C> <C> <C> <C>
State Street Bank & Trust
Short-Term Investment Fund 605,000 70 $ 60,466,000 $ 60,466,000
SAIC Class A Common Stock 3,000 1 $ 44,000 $ 50,000
<CAPTION>
NUMBER NUMBER
INVESTMENT PURCHASES OF UNITS OF PURCHASES COST PROCEEDS
State Street Bank & Trust
Short-Term Investment Fund 605,000 84 $ 60,571,000
SAIC Class A Common Stock 720,000 6 $ 10,506,000
</TABLE>
F-13
<PAGE> 17
ADDITIONAL INFORMATION
SCHEDULE I
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
<TABLE>
<CAPTION>
ITEM 27A FORM 5500 - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AT DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF COST OF CURRENT
IDENTITY OF ISSUE INVESTMENT SHARES OR UNITS ASSET VALUE
<S> <C> <C> <C> <C>
Mutual funds:
The Vanguard Group of Vanguard Fixed Income
Investment Companies Securities Fund -
GNMA Portfolio 1,851,000 $ 18,583,000 $ 19,310,000
Vanguard Index Trust -
500 Portfolio 686,000 29,441,000 39,488,000
Vanguard Money
Market Reserves -
Prime Portfolio 30,889,000 30,889,000 30,889,000
Vanguard Fixed Income
Securities Fund -
Short-Term Federal
Portfolio 1,439,000 14,614,000 14,746,000
Vanguard/Wellesley
Income Fund 1,126,000 21,138,000 23,023,000
Vanguard/Windsor
Fund 5,299,000 73,173,000 76,996,000
Vanguard Intl. Growth
Portfolio 1,204,000 16,020,000 18,085,000
Vanguard Interm.
Corporate Bond
Portfolio 107,000 1,044,000 1,085,000
Vanguard U.S. Growth
Portfolio 397,000 7,252,000 8,085,000
---------------- ---------------
212,154,000 231,707,000
Common Stock:
SAIC* Class A 6,373,000 97,541,000 116,432,000
Short-term investment:
State Street Short-Term Investment
Bank & Trust* Fund 684,000 684,000 684,000
Participant Loans Due 1/6/1996 to
12/7/2020; 6% - 12% 2,500 11,630,000 11,630,000
---------------- ---------------
$ 322,009,000 $ 360,453,000
================ ===============
</TABLE>
* Represents a party-in-interest.
F-14
<PAGE> 18
ADDITIONAL INFORMATION
SCHEDULE II
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
ITEM 27D FORM 5500 - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING YEAR
AMOUNT -------------------------
IDENTITY AND ADDRESS OF OBLIGOR OF LOAN PRINCIPAL INTEREST
<S> <C> <C> <C>
Thomas Belnick
6356 138th Ave. NE #216
Redmond, WA 98052 $ 7,611 $ 625 $ 426
David Herron
11524 Windhaven Ct.
Indianapolis, ID $ 5,000 $ 1,799 $ 51
Paul Corbin
4952 Quailridge
Albuquerque, NM $ 6,000 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
DETAILED DESCRIPTION OF LOSS INCLUDING DATES OF
UNPAID MAKING AND MATURITY, INTEREST RATE, THE TYPE AND VALUE AMOUNT OVERDUE*
BALANCE AT OF COLLATERAL, ANY RENEGOTIATION OF THE LOAN AND THE ----------------------
IDENTITY AND ADDRESS OF OBLIGOR END OF YEAR TERMS OF THE RENEGOTIATION AND OTHER MATERIAL ITEMS PRINCIPAL INTEREST
<S> <C> <C> <C> <C>
Thomas Belnick Loan date: 8/30/91; Maturity date: 7/22/16;
6356 138th Ave. NE #216 Interest rate: 9%; Collateral - Vested balance;
Redmond, WA 98052 $ 6,691 Loan maturity renegotiated 1 year from term,
10/29/95 $ 6,691 $ 0
David Herron Loan date: 12/27/91; Maturity date: 12/20/96;
11524 Windhaven Ct. Interest rate: 8%; Collateral - Vested balance;
Indianapolis, ID $ 710 Loan maturity renegotiated 1 year from term,
8/17/95 $ 710 $ 0
Paul Corbin Loan date: 12/27/93; Maturity date: 1/3/97;
4952 Quailridge Interest rate: 6%; Collateral - Vested balance;
Albuquerque, NM $ 4,636 Loan maturity renegotiated 1 year from term,
8/10/95 $ 4,636 $ 0
</TABLE>
* During 1996, the Company instructed the Plan's recordkeeper to issue Forms
1099 to the obligors listed above in the amount of the principal balance
outstanding at December 31, 1995.
F-15
<PAGE> 19
ADDITIONAL INFORMATION
SCHEDULE III
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
<TABLE>
<CAPTION>
ITEM 27D FORM 5500 - SCHEDULE OF REPORTABLE TRANSACTIONS*
YEAR ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OF PURCHASE SELLING LEASE
PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE PRICE RENTAL
<S> <C> <C> <C> <C> <C>
State Street Bank & Trust Short-term Investment Fund 78 $ 72,058,000
State Street Bank & Trust Short-term Investment Fund 66 $ 71,397,000
SAIC Class A Common Stock 4 $ 12,970,000
<CAPTION>
CURRENT
VALUE ON
EXPENSE COST OF TRANSACTION NET GAIN
PARTY INVOLVED DESCRIPTION OF ASSET INCURRED ASSET DATE OR (LOSS)
<S> <C> <C> <C> <C> <C>
State Street Bank & Trust Short-term Investment Fund $ 72,058,000
State Street Bank & Trust Short-term Investment Fund $ 71,397,000 $ 71,397,000 $ 0
SAIC Class A Common Stock $ 12,970,000
</TABLE>
* Transactions or series of transactions in excess of 5 percent of the
current value of the Plan's assets as of December 31, 1994 as defined in
Section 2520.103-6 of the Department of Labor Rules and Regulations for
Reporting and Disclosure under ERISA.
F-16
