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SCHEDULE 14A INFORMATION
(Rule 14a-101)
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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SAIC LOGO
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
10260 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Science
Applications International Corporation, a Delaware corporation (the "Company"),
will be held in the Grand Ballroom of the La Jolla Marriott Hotel, 4240 La Jolla
Village Drive, San Diego, California, on Friday, July 10, 1998, at 10:00 A.M.
(local time), for the following purposes:
1. To elect seven Class II Directors, each for a term of three years.
2. To approve the 1998 Stock Option Plan.
3. To approve the 1998 Employee Stock Purchase Plan.
4. To approve the appointment of Price Waterhouse LLP as the Company's
independent accountants for the Company's fiscal year ending January 31,
1999.
5. To transact such other business as may properly come before the meeting
or any adjournments, postponements or continuations thereof.
Only stockholders of record at the close of business on May 11, 1998, are
entitled to notice of and to vote at the Annual Meeting and at any and all
adjournments, postponements or continuations thereof. A list of stockholders
entitled to vote at the meeting will be available for inspection at the office
of the Corporate Secretary of the Company at 10010 Campus Point Drive, San
Diego, California, for at least 10 days prior to the meeting and will also be
available for inspection at the meeting.
By Order of the Board of Directors
/s/ J. DENNIS HEIPT
J. Dennis Heipt
Corporate Secretary
San Diego, California
June 10, 1998
YOUR VOTE IS IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. HOWEVER, TO ASSURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
PROMPTLY MAIL YOUR PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. RETURNING A SIGNED PROXY WILL NOT PREVENT YOU FROM
ATTENDING THE ANNUAL MEETING AND VOTING IN PERSON, IF YOU SO DESIRE, BUT WILL
HELP THE COMPANY SECURE A QUORUM AND REDUCE THE EXPENSE OF ADDITIONAL PROXY
SOLICITATIONS.
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SAIC LOGO
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
10260 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 10, 1998
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is being furnished to the stockholders of Science
Applications International Corporation, a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held in the Grand Ballroom of the La Jolla Marriott
Hotel, 4240 La Jolla Village Drive, San Diego, California, on Friday, July 10,
1998, at 10:00 A.M. (local time), and at any and all adjournments, postponements
or continuations thereof. At the Annual Meeting, the stockholders of the Company
are being asked to consider and vote upon: (i) the election of seven Class II
Directors, each for a term of three years, (ii) the approval of the 1998 Stock
Option Plan, (iii) the approval of the 1998 Employee Stock Purchase Plan and
(iv) the approval of the appointment of Price Waterhouse LLP as the Company's
independent accountants for its fiscal year ending January 31, 1999.
This Proxy Statement and the enclosed form of proxy are first being mailed
to the stockholders of the Company on or about June 10, 1998.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Only stockholders of record of the Company's Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), and/or Class B Common Stock,
par value $.05 per share (the "Class B Common Stock"), as of the close of
business on May 11, 1998 (the "Record Date"), are entitled to notice of and to
vote at the Annual Meeting. As of the Record Date, the Company had 54,679,628
shares of Class A Common Stock and 310,311 shares of Class B Common Stock
outstanding. The Company has no other class of capital stock outstanding.
The Class A Common Stock and the Class B Common Stock are collectively
referred to herein as the "Common Stock." The presence, either in person or by
proxy, of the holders of a majority of the total voting power of the shares of
Common Stock outstanding on the Record Date is necessary to constitute a quorum
and to conduct business at the Annual Meeting. Although abstentions may be
specified on all proposals (other than the election of directors), abstentions
will only be counted as present for purposes of determining the presence of a
quorum but will not be voted.
Each holder of Class A Common Stock will be entitled to one vote per share,
and each holder of Class B Common Stock will be entitled to five votes per
share, in person or by proxy, for each share of Common Stock held in such
stockholder's name as of the Record Date on any matter submitted to a vote of
stockholders at the Annual Meeting, except that in the election of Directors,
all shares are entitled to be voted cumulatively. Accordingly, in voting for
Directors: (i) each share of Class A Common Stock is entitled to as many votes
as there are Directors to be elected, (ii) each share of Class B Common Stock is
entitled to five times as many votes as there are Directors to be elected and
(iii) each stockholder may cast all of such votes for a single nominee or
distribute them among any two or more nominees as such stockholder chooses.
Unless otherwise directed, shares represented by properly executed proxies will
be voted at the discretion of the proxy holders so
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as to elect the maximum number of the Board of Directors' nominees that may be
elected by cumulative voting.
On the Record Date, Vanguard Fiduciary Trust Company (the "Trustee"), as
trustee of the Employee Stock Retirement Plan ("ESRP"), Cash or Deferred
Arrangement ("CODA") and Profit Sharing Retirement Plan ("Profit Sharing Plan")
of the Company, the Bell Communications Research Savings and Security Plan and
the Bell Communications Savings Plan for Salaried Employees (collectively, the
"Bellcore Savings Plans") of Bell Communications Research, Inc., a wholly-owned
subsidiary of the Company, and the TransCore Retirement Savings Plan ("TransCore
Retirement Plan") of Syntonic Technology, Inc. doing business as TransCore, a
wholly-owned subsidiary of the Company, (collectively, the "Retirement Plans")
held 26,983,415 shares of Class A Common Stock and 29,420 shares of Class B
Common Stock. Each participant in the Retirement Plans has the right to instruct
the Trustee on a confidential basis how to vote his or her proportionate
interests in all allocated shares of Common Stock held in the Retirement Plans.
The Trustee will vote all allocated shares held in the Retirement Plans as to
which no voting instructions are received, together with all unallocated shares
held in the Retirement Plans, in the same proportion, on a plan by plan basis,
as the allocated shares for which voting instructions have been received. The
Trustee's duties with respect to voting the Common Stock in the Retirement Plans
are governed by the fiduciary provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). These fiduciary provisions of ERISA
may require, in certain limited circumstances, that the Trustee override the
votes of participants with respect to the Common Stock held by the Trustee and
to determine, in the Trustee's best judgment, how to vote the shares.
On the Record Date, Wachovia Bank, N.A. ("Wachovia"), as trustee of the
Company's Stock Compensation Plan, Management Stock Compensation Plan and Key
Executive Stock Deferral Plan (collectively, the "Stock Plans") held 989,077
shares of Class A Common Stock. Under the terms of the Stock Plans, Wachovia has
the power to vote the shares of Class A Common Stock held by Wachovia in the
Stock Plans. Wachovia will vote all such shares of Class A Common Stock in the
same proportion that the other stockholders of the Company vote their shares of
Common Stock.
Shares of Common Stock represented by properly executed proxies received in
time for voting at the Annual Meeting will, unless such proxies have previously
been revoked, be voted in accordance with the instructions indicated thereon. In
the absence of specific instructions, the shares represented by properly
executed proxies will be voted: (i) FOR the election of each nominee of the
Board of Directors as a Class II Director, (ii) FOR the approval of the 1998
Stock Option Plan, (iii) FOR the approval of the 1998 Employee Stock Purchase
Plan and (iv) FOR the approval of Price Waterhouse LLP as the Company's
independent accountants for its fiscal year ending January 31, 1999. No business
other than that set forth in the accompanying Notice of Annual Meeting is
expected to come before the Annual Meeting; however, should any other matter
requiring a vote of stockholders properly come before the Annual Meeting, it is
the intention of the proxy holders to vote such shares in accordance with their
best judgment on such matter. For information with respect to advance notice
requirements applicable to stockholders who wish to propose any matter for
consideration at an Annual Meeting, see "Stockholder Proposals for the 1999
Annual Meeting."
Execution of the enclosed proxy will not prevent a stockholder from
attending the Annual Meeting and voting in person. Any proxy may be revoked at
any time prior to the exercise thereof by delivering in a timely manner a
written revocation or a new proxy bearing a later date to the Corporate
Secretary of the Company, 10260 Campus Point Drive, San Diego, California 92121,
or by attending the Annual Meeting and voting in person. Attendance at the
Annual Meeting will not, however, in and of itself constitute a revocation of a
proxy.
This solicitation of proxies is made by the Company and the cost thereof
will be borne by the Company, including the charges and expenses of persons
holding shares in their name as nominee for forwarding proxy materials to the
beneficial owners of such shares. In addition to the use of the mails, proxies
may be solicited by officers, Directors and employees of the Company in person,
by telephone or by telegram. Such individuals will not be additionally
compensated for such solicitation but may be reimbursed for reasonable
out-of-pocket expenses incurred in connection with such solicitation.
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ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a "classified"
Board of Directors consisting of three classes which shall be as equal in number
as possible. The number of authorized Directors is currently fixed at 21
Directors, with seven Directors in each of Class I, Class II and Class III.
At the Annual Meeting, seven Class II Directors are to be elected to serve
three-year terms ending in 2001 or until their successors are elected and
qualified or their earlier retirement, death, resignation or removal. Currently,
B.R. Inman, W.M. Layson, E.A. Straker, M.E. Trout, J.H. Warner, Jr., J.B.
Weisler and A.T. Young serve as Class II Directors. All such Class II Directors
will be standing for reelection with the exception of W.M. Layson, who will be
retiring from the Board in July 1998. D.W. Dorman has been nominated to fill the
vacancy created by W.M. Layson's retirement. Pursuant to the Company's
retirement policy for its Board of Directors, Mr. Wiesler will be standing for
reelection as a Class II Director to serve a term ending on his 72nd birthday.
Upon Mr. Weisler's retirement from the Board, the Board of Directors may fill
the vacancy created by Mr. Wiesler's retirement or, pursuant to Section 3.02 of
the Company's Bylaws, fix the authorized number of Directors at a lower number.
The seven nominees who receive the most votes will be elected as Class II
Directors. It is intended that, unless otherwise indicated, the persons named in
the enclosed form of proxy will vote FOR the election of Directors so as to
elect the maximum number of the Board of Directors' nominees that may be elected
by cumulative voting. To the best knowledge of the Board of Directors, all of
the nominees are, and will be, able and willing to serve. In the event that any
of the seven nominees listed below should become unavailable to stand for
election at the Annual Meeting, the proxy holders intend to vote for such other
person, if any, as may be designated by the Board of Directors, in the place and
stead of any nominee unable to serve. Alternatively, the Board of Directors may
elect, pursuant to Section 3.02 of the Company's Bylaws, to fix the authorized
number of Directors at a lower number so as to give the Nominating Committee of
the Board of Directors additional time to evaluate candidates.
Set forth below is a brief biography of each nominee for election as a
Class II Director and of all other members of the Board of Directors who will
continue in office:
NOMINEES FOR ELECTION AS
CLASS II DIRECTORS
TERM ENDING 2001
D.W. DORMAN, age 44
Nominee for Director
Mr. Dorman has been the President and Chief Executive Officer of PointCast
Incorporated ("PointCast") since November 1997 and Chairman of the Board of
PointCast since February 1998. Previously, Mr. Dorman was the Executive Vice
President of SBC Communications, Inc., a diversified telecommunications company,
from August 1997 to November 1997, and the President and Chief Executive Officer
of Pacific Bell Corporation ("Pacific Bell") since July 1994 and Chairman of the
Board of Pacific Bell since March 1996. Prior thereto, he was associated with
Sprint Corporation for 13 years, during which time he held several management
positions, most recently as President of Sprint Business Services from 1993 to
1994. Mr. Dorman is also a member of the Board of Directors of 3Com Corporation
and Scientific Atlantic Corporation.
B.R. INMAN, age 67 Director since 1982
Director
Admiral Inman, USN (Ret.) joined the Company in 1990 as a part-time
employee and, in that capacity, advises the Company on a wide variety of
strategic planning issues. Admiral Inman was the Chairman of the Board,
President and Chief Executive Officer of Westmark Systems, Inc., an electronics
industry holding company, from 1986 through 1989. From 1983 to 1986, Admiral
Inman served as Chairman, President and Chief Executive Officer of
Microelectronics and Computer Technology Corporation. Admiral Inman retired from
the United States Navy in 1982. During his career as a United States Naval
Officer, Admiral Inman
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served in a number of high-level positions in the U.S. Government, including
Director of the National Security Agency and Deputy Director of Central
Intelligence. Admiral Inman is also a member of the Board of Directors of Fluor
Corporation, SBC Communications, Inc., Temple-Inland, Inc. and Xerox
Corporation.
E.A. STRAKER, age 60 Director since 1992
Executive Vice President and Director
Dr. Straker joined the Company in 1971 and has served in various capacities
since that time. He was elected as an Executive Vice President in 1994.
M.E. TROUT, age 67 Director since 1995
Director
Dr. Trout served as the interim Chief Executive Officer of Cytran, Inc., a
bio-technology company, from April 1996 to July 1996. Prior thereto, Dr. Trout
was associated with American Healthcare Systems, Inc. from 1986 until his
retirement in 1995. Prior to his retirement, Dr. Trout served as Chairman,
President and Chief Executive Officer and is currently serving as Chairman
Emeritus of American Healthcare Systems, Inc. He is also a member of the Board
of Directors of Baxter International, West Co. and the UCSD Foundation and the
Chairman of the Board of Cytyc, Inc.
J.H. WARNER, JR., age 57 Director since 1988
Corporate Executive Vice President and Director
Dr. Warner joined the Company in 1973 and has served in various capacities
since that time. He was elected as a Corporate Executive Vice President in 1996.
J.B. WIESLER, age 70 Director since 1989
Director
Mr. Wiesler was associated with the Bank of America National Trust and
Savings Association from 1949 until his retirement in 1987. Prior to his
retirement, Mr. Wiesler served in a number of executive capacities with Bank of
America National Trust and Savings Association, including Vice Chairman, Head of
Retail Banking and Executive Vice President, Head of North American Division.
A.T. YOUNG, age 60 Director since 1995
Director
Mr. Young served as an Executive Vice President of Lockheed Martin Corp.
from March 1995 to July 1995. Prior to its merger with Lockheed Corporation, Mr.
Young served as the President and Chief Operating Officer of Martin Marietta
Corp. from 1990 to 1995. Mr. Young is also on the Board of Directors of the Dial
Corporation, the B.F. Goodrich Company and Potomac Electric Power Company.
CLASS III DIRECTORS
TERM ENDING 1999
J.R. BEYSTER, age 73 Director since 1969
Chairman of the Board and Chief Executive Officer
Dr. Beyster founded the Company in 1969 and has served as Chairman of the
Board and Chief Executive Officer since that time. Dr. Beyster also served as
President of the Company until 1988. Dr. Beyster is also a member of the Board
of Directors of Network Solutions, Inc.
W.A. DOWNING, age 58 Director since 1996
Director
General Downing, USA (Ret.) joined the Company as a part-time employee in
March 1996. General Downing retired from the United States Army in 1996. Prior
to his retirement, General Downing served as the Commander in Chief of U.S.
Special Operations Command. General Downing has also served as the
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Commanding General of U.S. Army Special Operations Command and Commanding
General of Joint Special Operations Command. General Downing is also a member of
the Board of Directors of NOVAVAX.
A.K. JONES, age 56 Director since January 1998(1)
Director
Dr. Jones has been a professor at the University of Virginia since 1989.
From 1993 to 1997, Dr. Jones was on leave of absence from the University to
serve as Director Defense Research and Engineering in the U.S. Department of
Defense.
J.W. MCRARY, age 58 Director since 1972(2)
Director
Dr. McRary is the Chairman of the Board, President and Chief Executive
Officer of Microelectronics and Computer Technology Corporation, a corporation
involved in research and development of advanced computer architecture, software
technology, component packaging and computer-aided design and manufacturing. Dr.
McRary was an employee of the Company from 1971 to 1994 and served in various
capacities, including serving as a Vice Chairman of the Board from 1988 to 1994.
S.D. ROCKWOOD, age 55 Director since 1996
Executive Vice President and Director
Dr. Rockwood joined the Company in 1986 and has served in various
capacities since that time. He was elected as an Executive Vice President in
April 1997.
R.C. SMITH, age 56 Director since April 1998
Director
R.C. Smith has served as the Chief Executive Officer and a member of the
Board of Directors of Bell Communications Research, Inc., a wholly-owned
subsidiary of the Company ("Bellcore"), since January 1998 and a Director of the
Company since April 1998. Prior to joining Bellcore, Mr. Smith was the Senior
Vice President-Quality Development and Public Relations for Sprint Corporation
from 1991 to January 1998.
J.P. WALKUSH, age 46 Director since 1996
Sector Vice President and Director
Mr. Walkush joined the Company in 1976 and has served in various capacities
since that time. He was elected as a Sector Vice President in 1994.
CLASS I DIRECTORS
TERM ENDING 2000
D.P. ANDREWS, age 53 Director since 1996
Corporate Executive Vice President and Director
Mr. Andrews joined the Company in 1993 and has served as Corporate
Executive Vice President since January 1998 and a Director since October 1996.
Prior thereto, Mr. Andrews served as Executive Vice President for Corporate
Development from 1995 to 1998, Senior Vice President for Corporate Development
from 1994 to 1995 and as a Senior Vice President from 1993 to 1994. Prior to
joining the Company, Mr. Andrews served as Assistant Secretary of Defense from
1989 to 1993.
V.N. COOK, age 63 Director since 1990
Director
Mr. Cook joined the Company in 1991 and served as a Vice Chairman of the
Board from 1992 to 1994. Mr. Cook was associated with IBM for 26 years until his
retirement in 1989. Mr. Cook held several executive
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1Dr. Jones also served as a Director from June 1987 to May 1993.
2Dr. McRary did not serve as a Director in 1973.
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positions at IBM, including Vice President of IBM's Asia Pacific Corporation and
President of IBM Federal System Division. He is also a member of the Board of
Directors of KFX, Inc. and the Chairman of Visions International, Inc., an
industry consulting firm.
W.H. DEMISCH, age 53 Director since 1990
Director
Mr. Demisch has been a Managing Director of BT Alex. Brown since 1993. From
1988 to 1993, he was Managing Director of UBS Securities, Inc.
J.E. GLANCY, age 52 Director since 1994
Corporate Executive Vice President and Director
Dr. Glancy joined the Company in 1976 and has served in various capacities
since that time. He was elected as a Corporate Executive Vice President in 1994.
Dr. Glancy is also a member of the Board of Directors of Network Solutions, Inc.
H.M.J. KRAEMER, JR., age 43 Director since 1997
Director
Mr. Kraemer has served as the President of Baxter International, Inc.
("Baxter"), a health-care products, systems and services company, since April
1997. Prior thereto, Mr. Kraemer served as the Senior Vice President and Chief
Financial Officer of Baxter from November 1993 to April 1997 and as the Vice
President of Finance and Operations of Baxter from 1990 to 1993. Mr. Kraemer is
also a member of the Board of Directors of Comdisco, Inc. and MedPartners, Inc.
C.B. MALONE, age 62 Director since 1993
Director
Ms. Malone has served as the President of Financial & Management
Consulting, Inc., a consulting company, since 1982. Ms. Malone is also a member
of the Board of Directors of Dell Computer Corporation, Hannaford Bros. Co.,
Hasbro, Inc., Houghton Mifflin Company, The Limited Inc., Lafarge Corporation,
Lowe's Companies, Mallinckrodt Group and Union Pacific Resources Corporation.
J.A. WELCH, age 67 Director since 1984
Director
Dr. Welch joined the Company in July 1990 and is currently a part-time
employee involved in a number of scientific endeavors and strategic planning
issues. Dr. Welch also serves as President of Jasper Welch Associates, a
consulting firm which he founded in 1983. Prior thereto, Dr. Welch was a Major
General in the United States Air Force, from which he retired in 1983 after
serving for 31 years. Dr. Welch is also a member of the Board of Directors of
Millitech Corp.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the year ended January 31, 1998 ("Fiscal 1998"), the Board of
Directors held four meetings. Average attendance at such meetings of the Board
of Directors was 98%. During Fiscal 1998, all Directors attended at least 75% of
the aggregate of the meetings of the Board of Directors and committees of the
Board of Directors on which they served, except for C.K. Davis and E.A. Frieman.
The Board of Directors has various standing committees, including an Audit
Committee, a Compensation Committee, an Executive Committee, a Nominating
Committee and an Operating Committee.
Audit Committee
The Audit Committee is primarily concerned with the Company's financial
condition and its responsibilities include: (i) reviewing and evaluating the
work and performance of the Company's internal auditors and its independent
accountants and making recommendations to the Board of Directors regarding the
selection of the Company's independent accountants; (ii) conferring with the
Company's independent accountants and its internal auditors and financial and
accounting officers to evaluate the Company's internal accounting methods and
procedures and the recommended changes therein; (iii) reviewing circumstances
which may have a major impact on the Company's financial controls and future
profitability and (iv) overseeing the activities of the Company's Employee
Ethics and Risk Committees. The Audit Committee held four meetings during Fiscal
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1998. The current members of the Audit Committee are C.B. Malone (Chairperson),
J.R. Beyster (ex-officio), A.K. Jones, H.M.J. Kraemer, Jr., and J.B. Wiesler.
Compensation Committee
The Compensation Committee is responsible for approving the salaries of the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company and recommending to the Bonus Compensation Committee of
the Board of Directors the amount of awards to be made to the Chief Executive
Officer and the four other most highly compensated executive officers under the
Company's Bonus Compensation Plan. The Compensation Committee is also
responsible for issuing reports required by the Securities and Exchange
Commission regarding the Company's compensation policies applicable to the Chief
Executive Officer and the four other most highly compensated executive officers.
The Compensation Committee held one meeting during Fiscal 1998. The Compensation
Committee consists of all Directors who are not also employees of the Company.
The current members of the Compensation Committee are J.B. Wiesler (Chairman),
W.H. Demisch, A.K. Jones, H.M.J. Kraemer, Jr., C.B. Malone, J.W. McRary, M.E.
Trout and A.T. Young.
Executive Committee
The Executive Committee's charter provides that, to the extent permitted by
Delaware law, it shall have and may exercise all powers and authorities of the
Board of Directors with respect to the following: (i) taking action on behalf of
the Board of Directors during intervals between regularly scheduled meetings of
the Board of Directors if it is impractical to delay action on a matter until
the next regularly scheduled meeting of the Board of Directors and (ii)
overseeing and assisting in the formulation and implementation of human resource
management, scientific research policies and financial matters. The Executive
Committee held four meetings during Fiscal 1998. The current members of the
Executive Committee are B.R. Inman (Chairman), D.P. Andrews, J.R. Beyster, J.E.
Glancy, M.E. Trout and J.H. Warner, Jr.
Nominating Committee
The Nominating Committee's responsibilities include: (i) establishing a
procedure for identifying nominees for election as Directors to the Board of
Directors; (ii) reviewing and recommending to the Board of Directors criteria
for membership on the Board and (iii) proposing nominees to fill vacancies on
the Board of Directors as they occur. The Nominating Committee held three
meetings during Fiscal 1998. The current members of the Nominating Committee are
J.R. Beyster (Chairman), B.R. Inman, H.M.J. Kraemer, Jr., J.W. McRary, M.E.
Trout, J.A. Welch and A.T. Young.
Any stockholder may nominate a person for election as a Director of the
Company by complying with the procedure set forth in the Company's Bylaws.
Pursuant to Section 3.03 of the Company's Bylaws, in order for a stockholder to
nominate a person for election as a Director, such stockholder must give timely
notice to the Corporate Secretary of the Company prior to the meeting at which
Directors are to be elected. To be timely, notice must be received by the
Corporate Secretary not less than 50 days nor more than 75 days prior to the
meeting (or if fewer than 65 days' notice or prior public disclosure of the
meeting date is given or made to stockholders, not later than the 15th day
following the day on which the notice of the date of the meeting was mailed or
such public disclosure was made). Such notice must contain certain information
about the nominee, including his or her age, business and residence addresses
and principal occupation during the past five years, the class and number of
shares of Common Stock beneficially owned by such nominee and such other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee. The notice must also contain
certain information about the stockholder proposing to nominate that person.
Pursuant to Section 3.03 of the Company's Bylaws, the Company may also require
any proposed nominee to furnish other information reasonably required by the
Company to determine the proposed nominee's eligibility to serve as a Director.
Operating Committee
The Operating Committee has the authority to (i) approve offers by the
Company to sell shares of Class A Common Stock; (ii) approve contracts to be
entered into by the Company for the purchase or lease of goods, services and
facilities; (iii) approve the amendment of the Company's employee benefit and
incentive
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compensation plans, the Company's contributions to any such plan and the
participation by the Company's subsidiaries in any such plan; (iv) approve the
retainer and meeting fees to be paid to outside Board members; (v) authorize the
filing of registration statements, reports and other documents with the
Securities and Exchange Commission and state securities commissions; (vi) call
the annual meeting of stockholders, fix the purposes, place, time, date and
record date for such meeting and approve the proxy materials to be used in
connection therewith; (vii) review preliminary agendas for meetings of the Board
of Directors; (viii) adopt supplemental resolutions which modify or amend
resolutions theretofore adopted by the Board of Directors which, in the opinion
of the Company's counsel, do not materially change the purpose and intent of the
underlying resolutions and (ix) authorize the merger between the Company and one
or more of its subsidiaries. The Operating Committee held four meetings during
Fiscal 1998. The current members of the Operating Committee are J.R. Beyster
(Chairman), D.P. Andrews, J.E. Glancy, S.D. Rockwood, E.A. Straker, J.P. Walkush
and J.H. Warner, Jr.
Directors' Compensation
Except as otherwise described below, all Directors, other than those who
are employees of the Company, are paid an annual retainer of $25,000 and receive
$1,000 for each day on which they attend meetings of the Board of Directors or
of the committees on which they serve; provided, however, if a committee meeting
is held on the same day as a Board of Directors or other committee meeting, the
fee for each additional meeting is $500. Because W.A. Downing is not a full-time
employee of the Company, he is paid the annual retainer and meeting fees in
addition to his compensation as an employee. Directors are also reimbursed for
expenses incurred while attending meetings or otherwise performing services for
the Company. Directors are eligible to receive bonuses under the Company's 1984
Bonus Compensation Plan, pursuant to which, for services rendered as a Director
during Fiscal 1998, M.E. Trout and J.B. Wiesler each received $70,000 in cash
and C.B. Malone received $20,000 in cash. Directors are also eligible to receive
stock options under the Company's 1995 Stock Option Plan (and the 1998 Stock
Option Plan, if approved by the shareholders) pursuant to which, for services
rendered as a Director during Fiscal 1998, H.M.J. Kraemer, Jr. received options
to purchase 5,000 shares of Class A Common Stock at $30.01 per share, which was
the market value of the Class A Common Stock (as reflected by the Formula Price)
on the date of grant, A.K. Jones received options to purchase 11,000 shares of
Class A Common Stock at $34.78 per share, which was the market value of the
Class A Common Stock (as reflected by the Formula Price) on the date of grant,
V.N. Cook, W.H. Demisch, W.A. Downing, A.K. Jones, H.M.J. Kraemer, Jr., J.W.
McRary and J.A. Welch each received options to purchase 3,500 shares of Class A
Common Stock at $39.13 per share, which was the market value of the Class A
Common Stock (as reflected by the Formula Price) on the date of grant and B.R.
Inman, C.B. Malone and A.T. Young each received options to purchase 5,000 shares
of Class A Common Stock at $39.13 per share, which was the market value of the
Class A Common Stock (as reflected by the Formula Price) on the date of grant.
All such options become exercisable one year after the date of grant and vest as
to 20%, 20%, 20% and 40% on the first, second, third and fourth year
anniversaries of the date of grant, respectively.
The Company has also entered into agreements with certain Directors whereby
such Directors perform consulting and other services for the Company. In Fiscal
1998, C.B. Malone received $49,992 for consulting services and services as a
Director under a consulting arrangement which provides for remuneration of
$4,166 per month. The amount paid to Ms. Malone under such consulting
arrangement was in lieu of the annual retainer and meeting fees. In Fiscal 1998,
M.E. Trout received $60,000 for consulting services and services as a Director
under a consulting arrangement which provides for remuneration of $5,000 per
month. The amount paid to Dr. Trout under such consulting agreement was in lieu
of the annual retainer and meeting fees.
See "Compensation Committee Interlocks and Insider Participation" and
"Certain Relationships and Related Transactions" for information with respect to
transactions between the Company and certain entities in which certain Directors
of the Company may be deemed to have an interest.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table (the "Summary Compensation Table") sets forth
information regarding the annual and long-term compensation for services in all
capacities to the Company for the fiscal years ended January 31, 1998, 1997 and
1996, of those persons who were, at January 31, 1998 (i) the chief executive
officer and (ii) the other four most highly compensated executive officers of
the Company (collectively, the "Named Executive Officers"). The Summary
Compensation Table sets forth the annual and long-term compensation earned by
the Named Executive Officers for the relevant fiscal year whether or not paid in
such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -------------------------
NAME AND FISCAL ------------------------- RESTRICTED OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS STOCK(1) (SHARES) COMPENSATION
------------------ ------ -------- -------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
J.R. Beyster.............. 1998 $509,615 $600,000 $300,010(2) 0 $ 14,867(3)
Chairman of the Board
and 1997 $396,635 $450,000 $ 0 50,000 $ 13,209(3)
Chief Executive Officer 1996 $375,404 $300,000 $ 0 0 $ 14,049(3)
W.A. Owens(4)............. 1998 $385,000(5) $400,026(5) $ 0 30,000 $ 12,742(3)
1997 $316,346(5)(6) $400,000(5)(7) $ 69,996(8) 65,000 $349,999(9)
1996 N/A(10) N/A(10) N/A(10) N/A(10) N/A(10)
J.E. Glancy............... 1998 $315,000 $269,995(11) $250,002(12) 10,000 $ 14,867(3)
Corporate Executive 1997 $245,000 $215,000 $ 15,005(13) 15,000 13,209(3)
Vice President 1996 $226,539 $172,000 $ 0 10,000 14,103(3)
J.H. Warner, Jr........... 1998 $275,000 $259,974(14) $100,016(15) 10,000 $ 14,867(3)
Corporate Executive 1997 $269,231 $200,000 $ 9,995(16) 10,000 $ 13,209(3)
Vice President 1996 $240,616 $175,000 $ 0 10,000 $ 14,129(3)
W.A. Roper, Jr............ 1998 $251,347 $224,982(17) $259,980(18) 25,000 $ 64,864(19)
Senior Vice President 1997 $227,308 $155,005(20) $ 30,010(21) 15,000 $ 38,207(22)
And Chief Financial
Officer 1996 $221,539 $ 70,000 $ 20,007(23) 5,000 $ 14,128(3)
</TABLE>
- ---------------
(1) The amount reported represents the market value on the date of grant
(calculated by multiplying the Formula Price of the Company's Class A
Common Stock on the date of grant by the number of shares awarded), without
giving effect to the diminution in value attributable to the restrictions
on such stock. As of January 31, 1998, the aggregate restricted stock
holdings for the Named Executive Officers and for all other employees were
as follows: J.R. Beyster: none; W.A. Owens: 2,070 shares, with a market
value as of such date of $80,999; J.E Glancy: 764 shares, with a market
value as of such date of $29,895; J.H. Warner, Jr.: 767 shares, with a
market value as of such date of $30,013; W.A Roper, Jr.: 1,736 shares, with
a market value as of such date of $67,930; and all other employees: 637,146
shares, with a market value as of such date of $24,931,523. Dividends are
payable on such restricted stock if and when declared. However, the Company
has never declared or paid a cash dividend on its capital stock and no cash
dividends on its capital stock are contemplated in the foreseeable future.
(2) Represents 7,667 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(3) Represents amounts contributed or accrued by the Company for the Named
Executive Officers under the Company's Profit Sharing Plan, ESRP and/or
CODA.
(4) Mr. Owens served as a Director of the Company until April 9, 1998 and as
the President and Chief Operating Officer until June 1, 1998.
(5) The Company and W.A. Owens are parties to a letter agreement dated January
18, 1996, as amended on March 30, 1998 (the "agreement"). The agreement
originally provided that Mr. Owens would be guaranteed an annual base
salary of $350,000 through February 28, 1999 and minimum annual bonuses of
$350,000 through the Company's fiscal year ending January 31, 1998, and
that if Mr. Owens' employment was terminated prior to the end of the
Company's fiscal year ending January 31, 1999, any
9
<PAGE> 12
vesting stock (other than stock granted pursuant to the Company's
Management Stock Compensation Plan) and stock options would be fully vested
on the date of his termination of employment. The agreement as amended now
additionally provides that Mr. Owens will: (i) continue to receive his
annual base salary for an additional five months beyond the original time
period, (ii) be eligible to receive a bonus of up to $100,000 for the
period of February 1, 1998 through August 1, 1998 and (iii) receive
$140,000 on August 1, 1998 to compensate him for expected closing costs,
commissions, tax payments and any loss on the sale of his personal
residence.
(6) Mr. Owens joined the Company in March 1996. Mr. Owens' annual salary for
Fiscal 1997 would have been $350,000.
(7) Includes $50,000 paid to Mr. Owens as a sign-on bonus.
(8) Represents 3,357 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(9) Represents the award of 15,520 Stock Units (which generally corresponds to
one share of Class A Common Stock) pursuant to the Key Executive Stock
Deferral Plan which had a market value on the date of grant (calculated by
multiplying the Formula Price of the Class A Common Stock on the date of
grant by the number of Stock Units awarded) of $300,002 and the award of
2,284 Stock Units (which generally corresponds to one share of Class A
Common Stock) pursuant to the Company's Management Stock Compensation Plan
which had a market value on the date of grant (calculated by multiplying
the Formula Price of the Class A Common Stock on the date of grant by the
number of Stock Units awarded) of $49,997.
(10) Mr. Owens was not an employee of the Company during Fiscal Year 1996.
(11) Includes the award of 511 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $19,995.
(12) Represents 6,389 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(13) Represents 578 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(14) Includes the award of 766 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $29,974.
(15) Represents 2,556 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(16) Represents 385 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(17) Includes the award of 894 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $34,982.
(18) Represents 6,644 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(19) Represents a total of $14,867 contributed or accrued by the Company for Mr.
Roper under the Company's Profit Sharing Plan, ESRP and CODA and the award
of 1,666 Stock Units (which generally correspond to one share of Class A
Common Stock) pursuant to the Company's Management Stock Compensation Plan
which had a market value on the date of grant (calculated by multiplying
the Formula Price of the Class A Common Stock on the date of grant by the
number of shares awarded) of $49,997.
(20) Includes the award of 578 shares of Class A Common Stock which had a market
value on the date of grant (calculated by multiplying the Formula Price of
the Class A Common Stock on the date of grant by the number of shares
awarded) of $15,005.
10
<PAGE> 13
(21) Represents 1,156 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
(22) Represents a total of $13,209 contributed or accrued by the Company for Mr.
Roper under the Company's Profit Sharing Plan, ESRP and CODA and the award
of 1,142 Stock Units (which generally corresponds to one share of Class A
Common Stock ) pursuant to the Company's Management Stock Compensation Plan
which had a market value on the date of grant (calculated by multiplying
the Formula Price of the Class A Common Stock on the date of grant by the
number of shares awarded) of $24,998.
(23) Represents 1,035 shares of Class A Common Stock which vest as to 20%, 20%,
20% and 40% on the first, second, third and fourth year anniversaries of
the date of grant, respectively.
OPTION GRANTS
The following table sets forth information regarding grants of options to
purchase shares of Class A Common Stock pursuant to the Company's 1995 Stock
Option Plan made during Fiscal 1998 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO FOR OPTION TERM(2)
GRANTED EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME (SHARES)(1) FISCAL 1998 (PER SHARE) DATE 5% 10%
---- ----------- ------------ -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
J.R. Beyster................ 0 N/A N/A N/A N/A N/A
W.A. Owens.................. 20,000(3) * $25.96 3/27/02 $143,445 $316,977
30,000 * $34.78 10/30/02 $288,272 $637,006
J.E. Glancy................. 15,000(3) * $25.96 3/27/02 $107,584 $237,733
J.H. Warner, Jr............. 10,000(3) * $25.96 3/27/02 $ 71,723 $158,488
W.A. Roper, Jr.............. 15,000(3) * $25.96 3/27/02 $107,584 $237,733
</TABLE>
- ---------------
* Less than 1% of the total options granted to employees in Fiscal 1998.
(1) All such options become exercisable one year after the date of grant and
vest as to 20%, 20%, 20% and 40% on the first, second, third and fourth year
anniversaries of the date of grant, respectively.
(2) The potential realizable value is based on an assumption that the Formula
Price of the Class A Common Stock will appreciate at the annual rate shown
(compounded annually) from the date of grant until the end of the 5-year
option term. These values are calculated based on the regulations
promulgated by the Securities and Exchange Commission and should not be
viewed in any way as an estimate or forecast of the future performance of
the Class A Common Stock. There can be no assurance (i) that the values
realized upon the exercise of the stock options will be at or near the
potential realizable values listed in this table, (ii) that the Class A
Common Stock will in the future provide returns comparable to historical
returns or (iii) that the Formula Price will not decline.
(3) Although the following grants of options were made during Fiscal 1998, such
grants relate to the individual's service during the fiscal year 1997.
11
<PAGE> 14
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information regarding the exercise of
options during Fiscal 1998 and unexercised options to purchase Class A Common
Stock granted during Fiscal 1998 and prior years under the Company's 1992 Stock
Option Plan and 1995 Stock Option Plan to the Named Executive Officers and held
by them at January 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT JANUARY 31, 1998 AT JANUARY 31, 1998(1)
ACQUIRED VALUE ---------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.R. Beyster................. 0 N/A 10,000 40,000 $163,000 $ 652,000
W.A. Owens................... 0 N/A 9,000 86,000 $178,200 $1,106,700
J.E. Glancy.................. 0 N/A 13,800 32,200 $332,152 $ 567,578
J.H. Warner, Jr.............. 3,000 $44,430 7,000 20,000 $167,456 $ 329,504
W.A. Roper, Jr............... 5,000 $74,050 6,200 21,800 $152,276 $ 344,514
</TABLE>
- ---------------
(1) Based on the Formula Price of the Class A Common Stock as of such date less
the exercise price of such options.
12
<PAGE> 15
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Since its inception, the Company has been an employee-owned corporation
based upon the philosophy that "those who contribute to the Company should own
it, and ownership should be commensurate with that contribution and performance
as much as feasible." The Company's compensation policies, plans and programs
seek to implement this employee ownership philosophy by closely aligning the
financial interest of the Company's employees, including executive officers,
with the financial interest of its stockholders.
As members of the Compensation Committee, it is our responsibility to
approve the salaries paid to the Company's Chief Executive Officer and the four
other most highly paid executive officers of the Company and to recommend to the
Bonus Compensation Committee of the Board of Directors the amount of grants to
be made to the Chief Executive Officer and the four other most highly
compensated executive officers under the Company's Bonus Compensation Plan.
These determinations are made in light of individual, corporate and business
unit performance, the performance of our competitors and other similar
businesses and relevant market compensation data. To assist the Compensation
Committee in carrying out these responsibilities, Towers Perrin, an
internationally recognized executive compensation consulting firm, was retained
by the Compensation Committee to review the compensation paid to the Company's
Chief Executive Officer and the four other highest paid executive officers of
the Company during the fiscal year ended January 31, 1998, and to provide a
competitive assessment of the various components of such compensation.
The compensation policy of the Company, which is endorsed by the
Compensation Committee, is that a substantial portion of the total compensation
of executive officers be related to and contingent upon their individual
contribution and performance, the performance of business units under their
management and the performance of the Company as a whole. In this way, the
Company seeks to encourage continuing focus on increasing the Company's revenue,
profitability and stockholder value, while at the same time motivating its
executive officers to perform to the fullest extent of their abilities.
The Company has continued to set the annual base salaries of its executive
officers at or below competitive levels and continues to cause a significant
portion of an executive officer's compensation to consist of annual and
longer-term incentive compensation which are variable and closely tied to
corporate, business unit and individual performance. For the fiscal year ended
January 31, 1998, the executive officers' incentive compensation was an average
of approximately 51% of the executive officers' total compensation (salary and
bonus). As a result, much of an executive officer's total compensation was "at
risk" and dependent on performance during the prior fiscal year.
An executive officer's incentive compensation may consist of cash,
fully-vested stock, vesting stock, stock options, stock units or a combination
of these components. Generally, an annual bonus is given after the end of the
fiscal year based on individual, corporate and business unit performance for
such fiscal year and an executive officer's respective responsibilities,
strategic and operational goals and levels of historic and anticipated
performance. By awarding bonuses of vesting stock and vesting stock options, the
Company seeks to encourage individuals to remain with the Company and continue
to focus on the long-term technical and financial performance of the Company and
on increasing stockholder value. Further, the exercise price of all stock
options granted was equal to the Formula Price of the Class A Common Stock on
the date of grant. Therefore, such stock options only have value to the extent
that the Formula Price of the Company's Class A Common Stock increases during
the term of the stock option. The Company's general philosophy is to encourage
employees to have significant stockholdings in the Company so that they have
sufficient economic incentive to maximize the Company's long-term performance
and stock value.
In evaluating the performance and establishing the incentive compensation
of the Chief Executive Officer and the Company's other executive officers, the
Compensation Committee recognized that the Company continued to increase its
revenue and profitability during the past fiscal year. For the fiscal year ended
January 31, 1998, the Company's revenues increased to $3.1 billion, a 29.2%
increase from the prior fiscal year revenues of $2.4 billion. The Company's net
income for this same period was $84.8 million, or a 33.1% increase over the
prior fiscal year net income of $63.7 million. The Compensation Committee noted
that the Company had realized several significant accomplishments during this
past fiscal year. In November 1997, the
13
<PAGE> 16
Company completed its acquisition of Bell Communications Research, Inc.
(Bellcore), a developer and provider of telecommunications services and software
with annual revenues in excess of $1.0 billion. Further, during the past fiscal
year, the initial public offering of Network Solutions, Inc. (NSI), a subsidiary
of the Company, was completed. The Compensation Committee also has noted that
despite increasing competition, the Company has continued to successfully
increase and expand its business base in and to areas such as
telecommunications, health, transportation, commercial and international and
reduce its dependence on the national security and government areas in light of
declining defense and other government budgets.
Finally, notwithstanding the strong performance of the equity markets
during the past year, the performance of the Company's Class A Common Stock
exceeded the performance of both the broad market index of Standard and Poor's
Composite 500 Stock Index and the Company's peer group index of the Dow Jones
Diversified Technology Index. The Company's Class A Common Stock realized an
annual return of 50.7% for the one year period ended January 31, 1998,
significantly exceeding the annual return of both the Standard and Poor's
Composite 500 Stock Index and the Dow Jones Diversified Technology Index of
26.9% and 11.6%, respectively, during the same period. The Compensation
Committee also noted that over the past five and ten years, the Class A Common
Stock realized annualized returns of 26.6% and 18.7%, respectively.
During the past fiscal year, Dr. Beyster was paid a base salary of
$500,000(1), which represented an increase of 33.3% over his base salary for the
prior year. Dr. Beyster's salary was increased in part due to a recognition that
his prior base salary was significantly below market for comparably situated
Chief Executive Officers. Despite this salary increase, Towers Perrin has
concluded that Dr. Beyster's base salary fell below the 25th percentile in its
compensation survey data base for Chief Executive Officers for general industry,
high technology, aerospace/defense and communications companies.
Dr. Beyster was paid a cash bonus of $600,000 for the fiscal year ended
January 31, 1998 and received 7,667 shares of Class A Common Stock which vest as
to 20%, 20%, 20% and 40% on the first, second, third and fourth year
anniversaries of the date of grant, respectively, and which had a market value
on the date of grant of $300,010. Considering the Company's successful
performance during the past fiscal year (including the completion of the
Bellcore acquisition and the NSI initial public offering), the fact that the
Company's Class A Common Stock outperformed both the broad market index and the
Company's peer group index and the continued diversification of the Company's
business base, the Compensation Committee believes that Dr. Beyster's cash and
vesting stock bonus are well warranted.
Towers Perrin has also advised the Compensation Committee that Dr.
Beyster's total compensation (base salary and bonus) paid for the last fiscal
year also fell below the 25th percentile in its compensation survey data base of
Chief Executive Officers for general industry, high technology,
aerospace/defense and communications companies. The Compensation Committee would
like to emphasize that Dr. Beyster's below market compensation level is not a
reflection of the Compensation Committee's opinion of Dr. Beyster's ability or
his relative value. It is, however, a reflection of Dr. Beyster's personal
reluctance to accept compensation anywhere near the median compensation levels
provided to the Chief Executive Officers of the comparable companies surveyed by
Towers Perrin.
Towers Perrin has reviewed the compensation for each of the other four
highest paid executive officers of the Company during its last fiscal year and
has reported to the Compensation Committee that, based on industry survey data
collected by Towers Perrin, the compensation of these executive officers was
within an acceptable range of competitive market levels for individuals with
comparable duties and responsibilities.
- ---------------
(1)The variance between Dr. Beyster's base salary reported in the Summary
Compensation Table is attributable to his having been paid for unused
comprehensive leave.
14
<PAGE> 17
The Compensation Committee believes that the compensation policies, plans
and programs the Company has implemented, and which the Compensation Committee
endorses, have encouraged management's focus on the long-term financial
performance of the Company and have contributed to achieving the Company's
technical and financial success.
<TABLE>
<S> <C>
J.B. Wiesler (Chairman) C.B. Malone
W.H. Demisch J.W. McRary
A.K. Jones M.E. Trout
H.M.J. Kraemer A.T. Young
</TABLE>
April 9, 1998
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During Fiscal 1998, C.K. Davis, W.H. Demisch, A.K. Jones, H.M.J. Kraemer,
Jr., C.B. Malone, J.W. McRary, M.E. Trout, J.B. Wiesler and A.T. Young served as
members of the Compensation Committee. None of such persons served as an officer
or employee of the Company or any of its subsidiaries during Fiscal 1998 or
formerly served as an officer of the Company or any of its subsidiaries, except
for J.W. McRary who was an employee of the Company from 1971 to 1994 and served
as an Executive Vice President of the Company from 1979 to 1994.
See also "Election of Directors -- Directors' Compensation."
15
<PAGE> 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Foundation for Enterprise Development, a non-profit organization (the
"Foundation"), was founded in 1986 by J.R. Beyster, Chairman of the Board and
Chief Executive Officer of the Company, to promote employee ownership. Dr.
Beyster is the President and a member of the Board of Trustees of the
Foundation. In Fiscal 1998, the Company made a cash contribution of $400,000 to
the Foundation. The Board of Directors has approved a contribution of $550,000
to the Foundation for fiscal year 1999.
W. Frieman, daughter of E.A. Frieman, a Director of the Company until
January 1998, is an employee of the Company and the Director of the Asia
Technology Program for the Company. For services rendered during Fiscal 1998, W.
Frieman received $103,879 in cash and stock compensation, 38 shares of vesting
Class A Common Stock which had a market value on the date of grant of $1,487 and
options to acquire 500 shares at $39.13 per share, which was the market value of
the Class A Common Stock (as reflected by the Formula Price) on the date of
grant. Such shares of vesting Class A Common Stock and options both vest as to
20%, 20%, 20% and 40% on the first, second, third and fourth year anniversaries
of the date of grant, respectively. W. Frieman's area of professional expertise
is the analysis of industrial and defense technology in the Pacific Rim, with an
emphasis on China, Japan and Southeast Asia.
R.D. Layson, wife of W.M. Layson, a Director of the Company, is an employee
of the Company and the Deputy Division Manager for the Information Systems
Integration Division. For services rendered during Fiscal 1998, R.D. Layson
received $113,409 in cash and stock compensation, 74 shares of vesting Class A
Common Stock which had a market value on the date of grant of $2,896 and options
to acquire 800 shares at $34.78 per share, which was the market value of the
Class A Common Stock (as reflected by the Formula Price) on the date of grant.
Such shares of vesting Class A Common Stock and options both vest as to 20%,
20%, 20% and 40% on the first, second, third, and fourth year anniversaries of
the date of grant, respectively. R.D. Layson has been an employee of the Company
for over 18 years and works in the area of systems integration and software
development management.
See also "Compensation Committee Interlocks and Insider Participation."
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules of the Securities and Exchange Commission (the "Commission")
thereunder require the Company's directors and executive officers to file
reports of their ownership and changes in ownership of Class A Common Stock with
the Commission. Personnel of the Company generally prepare these reports on the
basis of information obtained from each director and officer. Based on such
information, the Company believes that all reports required by Section 16(a) of
the Exchange Act to be filed by its directors and executive officers during the
last fiscal year were filed on time, except that one report for Mr. Pavlics
relating to the award of bonus stock and stock options and the exercise of stock
options was filed late.
16
<PAGE> 19
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total return on the Class A Common Stock against the cumulative
total return of the Standard & Poor's Composite-500 Stock Index and the Dow
Jones Diversified Technology Index for the ten (10) fiscal years commencing
February 1, 1988 and ending January 31, 1998. The comparison of total return
shows the change in year-end stock price, assuming the immediate reinvestment of
all dividends for each of the periods and has been indexed to $100.00 as of
January 31, 1993.
COMPARISON OF TEN-YEAR
CUMULATIVE TOTAL RETURN
AMONG SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CLASS A COMMON STOCK,
STANDARD AND POOR'S COMPOSITE-500 STOCK INDEX AND
DOW JONES DIVERSIFIED TECHNOLOGY INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD SAIC STOCK DJ DIVERSIFIED
(FISCAL YEAR COVERED) PRICE S&P 500 INDEX TECHNOLOGY
<S> <C> <C> <C>
1/88 58.62 49.60 54.64
1/89 68.19 59.48 62.62
1/90 77.60 67.81 68.92
1/91 81.27 73.38 78.88
1/92 92.84 89.94 87.87
1/93 100.00 100.00 100.00
1/94 118.15 112.89 123.26
1/95 130.89 113.49 121.39
1/96 160.95 157.14 167.58
1/97 216.15 198.54 218.96
1/98 325.81 251.96 244.29
</TABLE>
17
<PAGE> 20
BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
CLASS A COMMON STOCK
To the best of the Company's knowledge, as of the Record Date, no person
(other than Vanguard Fiduciary Trust Company ("Vanguard") in its capacity as
trustee of the Retirement Plans) beneficially owned more than 5% of the
outstanding shares of Class A Common Stock. The following table sets forth, as
of the Record Date, to the best of the Company's knowledge, the number of shares
of Class A Common Stock beneficially owned by each Director, each nominee for
Director, the Named Executive Officers and all executive officers and Directors
as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
------------------------ ------------ -----------
<S> <C> <C>
D.P. Andrews................................................ 41,224 *
J.R. Beyster................................................ 791,131 1.5%(3)
V.N. Cook................................................... 23,681 *
W.H. Demisch................................................ 30,979 *
D.W. Dorman................................................. -0- *
W.A. Downing................................................ 6,571 *
J.E. Glancy................................................. 146,738 *
B.R. Inman.................................................. 82,647 *
A.K. Jones.................................................. 3,727 *
H.M.J. Kraemer, Jr.......................................... 5,000 *
W.M. Layson................................................. 95,462 *
C.B. Malone................................................. 16,221 *
J.W. McRary................................................. 158,306 *
W.A. Owens.................................................. 32,685 *
S.D. Rockwood............................................... 64,131 *
W.A. Roper, Jr.............................................. 50,091 *
R.C. Smith.................................................. 25 *
E.A. Straker................................................ 106,884 *
M.E. Trout.................................................. 10,000 *
J.P. Walkush................................................ 100,057 *
J.H. Warner, Jr............................................. 135,299 *
J.A. Welch.................................................. 39,218 *
J.B. Wiesler................................................ 6,000 *
A.T. Young.................................................. 7,570 *
Vanguard Fiduciary Trust Company............................ 26,983,415 49.4%(4)
400 Vanguard Boulevard
Malvern, PA 19355
All executive officers and Directors as a group (30
persons).................................................. 2,252,437 4.1%(5)
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Class A Common Stock and less than
1% of the voting power of the Common Stock.
(1) The beneficial ownership depicted in the table includes: (i) the approximate
number of shares allocated to the account of the individual by the Trustee
of the Company's ESRP, Profit Sharing Plan and CODA as follows: D.P. Andrews
(2,940 shares), J.R. Beyster (1,246 shares), V.N. Cook (2,399 shares), W.A.
Downing (351 shares), J.E. Glancy (27,182 shares), B.R. Inman (10 shares),
A.K. Jones (2,727 shares), W.M. Layson (37,850 shares), W.A. Owens (239
shares), S.D. Rockwood
18
<PAGE> 21
(8,254 shares), W.A. Roper, Jr. (5,426 shares) E.A. Straker (37,756 shares),
J.P. Walkush (18,282 shares), J.H. Warner, Jr. (29,838 shares), J.A. Welch
(4,810 shares), and all executive officers and Directors as a group (224,208
shares); (ii) shares subject to options exercisable within 60 days following
the Record Date, as follows: D.P. Andrews (20,815 shares), J.R. Beyster
(10,000 shares) V.N. Cook (8,000 shares), W.H. Demisch (11,000 shares), W.A.
Downing (1,400 shares) J.E. Glancy (21,000 shares), B.R. Inman (12,000
shares), C.B. Malone (14,500 shares), J.W. McRary (8,000 shares), W.A. Owens
(22,000 shares), S.D. Rockwood (18,800 shares), W.A. Roper, Jr. (9,400
shares) E.A. Straker (14,800 shares), M.E. Trout (4,000 shares), J.P.
Walkush (18,000 shares), J.H. Warner, Jr. (9,200 shares), J.A. Welch (11,000
shares), A.T. Young (4,800 shares) and all executive officers and Directors
as a group (281,755 shares); (iii) shares held by spouses, minor children or
other relatives sharing a household with the individual, as follows: J.E.
Glancy (3,444 shares), W.M. Layson (43,862 shares), E.A. Straker (9,718
shares), J.H. Warner, Jr. (666 shares), J.A. Welch (5,000 shares) and all
executive officers and Directors as a group (64,190 shares); and (iv) shares
held by certain trusts or foundations established by the individual, as
follows: J.R. Beyster (772,218 shares), W.A. Downing (2,976 shares), W.A.
Owens (8,893 shares), M.E. Trout (2,000 shares), J.H. Warner, Jr. (88,230
shares), J.B. Wiesler (6,000 shares) and all executive officers and
Directors as a group (947,547 shares).
(2) Based on 54,679,628 shares of Class A Common Stock outstanding as of the
Record Date.
(3) Represents 1.4% of the voting power of the Common Stock.
(4) At the Record Date, Vanguard, as Trustee for the Retirement Plans,
beneficially owned the following percentage of the outstanding shares of
Class A Common Stock and Class B Common Stock and voting power of the Common
Stock under the following plans for the benefit of plan participants: ESRP:
28.8% Class A Common Stock, 9.5% Class B Common Stock and 28.3% of the
voting power of the Common Stock; CODA: 15.5% Class A Common Stock, 0% Class
B Common Stock and 15.1% of the voting power of the Common Stock; Profit
Sharing Plan: 0.1% Class A Common Stock, 0.01% Class B Common Stock and 0.1%
of the voting power of the Common Stock; Bellcore Savings Plans: 4.8% Class
A Common Stock, 0% Class B Common Stock and 4.6% of the voting power of the
Common Stock; TransCore Retirement Plan: 0.1% Class A Common Stock, 0% Class
B Common Stock and 0.1% of the voting power of the Common Stock.
(5) Represents 4.0% of the voting power of the Common Stock.
19
<PAGE> 22
CLASS B COMMON STOCK
The following table sets forth, as of the Record Date, to the best of the
Company's knowledge, those persons who were beneficial owners of 5% or more of
the outstanding shares of Class B Common Stock. None of the Directors, nominees
for Director, the Named Executive Officers or executive officers of the Company
own any shares of Class B Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OWNERSHIP OF CLASS(1)
---------------------------------------- ---------- -----------
<S> <C> <C>
Vanguard Fiduciary Trust Company........................... 29,420(2) 9.5%(3)
400 Vanguard Boulevard
Malvern, PA 19355
R.C. Cavanagh.............................................. 16,167 5.2%(3)
2007 Carrhill Road
Vienna, VA 22181
J.D. Cramer................................................ 15,425 5.0%(3)
P.O. Box 30691
Albuquerque, NM 87190
J.L. Griggs, Jr............................................ 20,267(4) 6.5%(3)
1516 Sagebrush Trail, S.E
Albuquerque, NM 87123
</TABLE>
- ---------------
(1) Based on 310,311 shares of Class B Common Stock outstanding as of the Record
Date.
(2) Represents shares of Class B Common Stock beneficially owned by Vanguard in
its capacity as Trustee for the ESRP and Profit Sharing Plan. Vanguard's
total ownership of Common Stock is set forth in Note (4) to the previous
table above.
(3) Represents less than 1% of the voting power of the Common Stock.
(4) Includes 803 shares held for the account of J.L. Griggs, Jr. by the Trustee
of the Company's ESRP.
APPROVAL OF THE 1998 STOCK OPTION PLAN
GENERAL
The Company has maintained the 1995 Stock Option Plan which has provided
for the grant of options to purchase shares of Class A Common Stock to certain
of its employees, directors and consultants. The 1995 Stock Option Plan expires
by its terms on July 31, 1998. On April 10, 1998, the Board of Directors of the
Company approved, subject to stockholder approval, the 1998 Stock Option Plan
(the "1998 Stock Option Plan"), which will enable the Company to continue to
grant options to purchase its Class A Common Stock to its employees, directors
and consultants for a two-year period. The 1998 Stock Option Plan will, if
approved by the stockholders, authorize the issuance of options to purchase up
to the sum of the following (subject to adjustment under certain circumstances):
(i) 8,500,000 shares of Class A Common Stock; (ii) any shares of Class A Common
Stock available for future awards under the 1995 Stock Option Plan as of the
effective date of the 1998 Stock Option Plan (following which date no further
grants will be made under the 1995 Stock Option Plan); and (iii) any shares of
Class A Common Stock that are subject to options granted under the 1992 Stock
Option Plan and 1995 Stock Option Plan which are forfeited back to the Company
when such options expire, terminate or for any other reason cease to be
exercisable in whole or in part.
The following summary of the material terms and provisions of the 1998
Stock Option Plan is qualified in its entirety by reference to the full text of
the 1998 Stock Option Plan, a copy of which is attached to this Proxy Statement
as Annex I and incorporated herein by this reference.
20
<PAGE> 23
ADMINISTRATION
The 1998 Stock Option Plan will be administered by the Stock Option
Committee of the Board of Directors (the "Stock Option Committee") whose members
consist of directors of the Company selected by the Board of Directors. Each
member of the Stock Option Committee must satisfy the requirements to be a
"non-employee director" under Rule 16b-3 under the Securities Exchange Act of
1934, as amended, as well as an "outside director" pursuant to Treasury
Regulations under Section 162(m) of the Internal Revenue Code of 1986, as
amended ("Code").
The Stock Option Committee will determine the persons to whom options will
be granted under the 1998 Stock Option Plan, the number of shares subject to
such options, the terms and provisions of such options, whether such options
will be incentive stock options or nonqualified stock options, and whether or
not such rights shall be exercisable in installments. The Stock Option Committee
may authorize nonqualified stock options to be transferable in certain limited
situations. The Stock Option Committee also has the power to modify or amend the
terms of an option, accelerate or defer the exercise date of an option, or
reprice, cancel, regrant or otherwise adjust the exercise price of an option,
all with the consent of the optionee. The Stock Option Committee is also
authorized to interpret the 1998 Stock Option Plan and to adopt rules and
regulations for its administration.
OPTION TERMS
The terms and conditions under which options may be granted under the 1998
Stock Option Plan are summarized below:
Eligibility
Key employees, directors and consultants of the Company and its
subsidiaries are eligible to participate in the 1998 Stock Option Plan. However,
no option may be granted to any person who, at the time the option is granted,
owns stock possessing more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Company or any subsidiary.
Further, in no event may any single individual receive option grants for more
than 500,000 shares of Class A Common Stock in the aggregate. In addition, only
employees are eligible to receive incentive stock options. Finally, the
Committee has the power to grant nonqualified options to employees of any entity
in which the Company has an equity ownership interest. As of April 30, 1998, the
Company and its subsidiaries had eight directors who were not also employees,
and approximately 32,500 employees and 2,000 consultants.
Options
Options granted pursuant to the 1998 Stock Option Plan may be nonqualified
stock options or incentive stock options within the meaning of Section 422 of
the Code.
Underlying Securities
Options granted under the 1998 Stock Option Plan will be options to
purchase shares of Class A Common Stock. Pursuant to the Company's Certificate
of Incorporation, all shares of Class A Common Stock purchased pursuant to
options granted under the 1998 Stock Option Plan will be subject to the
Company's right of repurchase upon the individual's termination of employment or
affiliation with the Company at the then prevailing Formula Price. All such
shares will also be subject to the Company's right of first refusal in the event
that the participant desires to sell such shares other than in the Company's
Limited Market. As of April 30, 1998, the market value of the Class A Common
Stock (as reflected by the Formula Price) was $47.22 per share.
Price and Payment
Options must be granted with an exercise price of not less than 100% of the
fair market value of the shares of the Company's Class A Common Stock on the
date the options are granted. Payment is required to
21
<PAGE> 24
be made in cash, shares of the Company's Class A Common Stock or a combination
thereof at the time the option is exercised. Shares of Class A Common Stock
acquired through the exercise of a stock option must have been owned by the
optionee at least six months before such shares may be used to pay the exercise
price of another option. In addition, the Committee may permit the exercise
price to be paid by an election authorizing the withholding of a number of
shares from the shares to be issued upon the exercise of the option.
Option Duration and Exercise
The 1998 Stock Option Plan provides that options granted thereunder shall
expire on such dates as shall be determined by the Stock Option Committee;
provided, however, no option may be granted which is exercisable more than ten
years after the date it is granted. Within such limitations, the Stock Option
Committee has the discretion to determine the period or periods of time in which
the options may be exercised and it may grant options which are to be exercised
in whole or in part, in installments, cumulative or otherwise, and at such times
as it deems proper.
Option Termination
The 1998 Stock Option Plan provides that options granted thereunder shall
terminate upon the occurrence of such events as shall be determined by the Stock
Option Committee.
AMENDMENT, SUSPENSION AND TERMINATION
The Board of Directors or the Operating Committee of the Board of Directors
may at any time amend, suspend or terminate the 1998 Stock Option Plan;
provided, however, that no such amendment may, without the affirmative vote of a
majority of the voting power of the Company's outstanding stock, (i) increase
the maximum number of shares for which options may be granted (in the aggregate
or to any single individual), (ii) materially increase the benefits accruing to
any holder of an incentive stock option or (iii) materially modify the
eligibility requirements to receive an incentive stock option. The 1998 Stock
Option Plan, unless previously terminated, shall terminate on July 31, 2000.
ANTI-DILUTION PROVISIONS
The 1998 Stock Option Plan provides for adjustments in the aggregate number
of shares subject to the 1998 Stock Option Plan, the maximum number of shares as
to which options may be granted to any one optionee thereunder and the number of
shares and the price per share subject to outstanding options, in the event of
any stock split, stock dividend, combination of shares or other change, exchange
of securities, reclassification, reorganization, redesignation, recapitalization
or other similar transaction.
NON-TRANSFERABILITY
Options granted pursuant to the 1998 Stock Option Plan are not transferable
except by will or by the laws of descent and distribution and during the
optionee's life may only be exercised by the optionee or his or her conservator
or other legal representative, except as otherwise provided by the Committee
with respect to nonqualified stock options.
CHANGE IN CONTROL
The 1998 Stock Option Plan provides that the Committee may designate,
either at or after the date of grant of an option, that any option shall become
fully exercisable from and after the date of a Change in Control (as hereinafter
defined) of the Company. For purposes of the 1998 Stock Option Plan, a "Change
in Control" is deemed to have occurred upon any person, other than the Company
or any subsidiary or employee benefit plan or trust maintained by the Company or
any subsidiary, becoming the beneficial owner of more than 25% of the Common
Stock of the Company outstanding at such time without the prior approval of the
Board of Directors.
22
<PAGE> 25
PLAN BENEFITS
Subject to the provisions of the plan, the Committee has full discretion to
determine the number and amount of awards to be granted under the 1998 Stock
Option Plan. Therefore, the benefits and amounts that will be received by each
of the Named Executive Officers, all current executive officers as a group, all
current directors who are not executive officers as a group and all employees as
a group under the 1998 Stock Option Plan are not presently determinable. Details
on stock option grants during the last fiscal year to the Named Executive
Officers are presented herein in the table entitled "Option Grants In Last
Fiscal Year."
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options
Options granted under the 1998 Stock Option Plan designated as such are
intended to constitute incentive stock options for federal income tax purposes.
Generally, an optionee receiving an incentive stock option will not be in
receipt of taxable income upon the grant of the incentive stock option or upon
its timely exercise. The exercise of an incentive stock option will be timely if
made during its term and if the optionee remains an employee of the Company at
all times during the period beginning on the date of grant of the incentive
stock option and ending on the date three months before the date of exercise (or
one year before the date of exercise in the case of death). Upon the ultimate
sale of the capital stock received upon such exercise, except as noted below,
the optionee will recognize long-term or mid-term capital gain or loss (if the
capital stock is a capital asset in the hands of the optionee) equal to the
difference between the amount realized upon such sale and the exercise price.
The Company, under these circumstances, will not be entitled to any federal
income tax deduction in connection with either the exercise of the incentive
stock option or the sale of such shares by the optionee.
However, if the capital stock acquired upon the timely exercise of an
incentive stock option is disposed of by the optionee prior to the expiration of
two years from the date of grant of the incentive stock option or within one
year from the date such capital stock is transferred to the optionee upon
exercise (a "disqualifying disposition"), any gain realized by the optionee
generally will be taxable at the time of such disqualifying disposition as
follows: (i) at ordinary income tax rates to the extent of the difference
between the exercise price and the lesser of the fair market value of the
capital stock on the date the incentive stock option is exercised or the amount
realized on such disqualifying disposition and (ii) if the capital stock is a
capital asset in the hands of the optionee, as capital gain to the extent of any
excess of the amount realized on such disqualifying disposition over the fair
market value of the capital stock on the date of exercise of the incentive stock
option. If a disqualifying disposition is made in a transaction in which a loss
would not be recognized under the Code (e.g., a gift, sale to certain related
parties, sale followed by a purchase of stock or grant of a new option under the
"wash sale" rules), the taxable gain recognized as a result of such
disqualifying disposition will not be limited to the amount of gain realized in
the disqualifying disposition. In the case of a disqualifying disposition, the
Company may claim a federal tax deduction at the time and in the amount taxable
to the optionee as ordinary income. Currently, any capital gain realized by the
optionee will be long-term capital gain if the optionee's holding period for the
capital stock at the time of disposition is more than 18 months; mid-term
capital gain if the holding period is more than 12 months but less than or equal
to 18 months; otherwise, it will be short-term capital gain.
Net capital gains from the disposition of capital stock held more than 18
months are currently taxed at a maximum federal income tax rate of 20%; net
capital gains from the disposition of stock held more than 12 but not more than
18 months are currently taxed at a maximum federal income tax rate of 28%; and
net capital gains from the disposition of stock held not more than 12 months is
taxed as ordinary income (maximum rate of 39.6%). However, limitations on
itemized deductions and the phase-out of personal exemptions may result in
effective marginal tax rates higher than 20% or 28% for net capital gains and
39.6% for ordinary income.
23
<PAGE> 26
Nonqualified Stock Options
Options granted under the 1998 Stock Option Plan may be nonqualified
options or incentive stock options, as determined by the Stock Option Committee
at the time of grant. Generally, the optionee will not be taxed upon the grant
of any nonqualified stock option, but rather, at the time of exercise of such
option, the optionee will recognize ordinary income for federal income tax
purposes in an amount equal to the excess of the fair market value at the time
of exercise of the capital stock purchased over the exercise price. The Company
will generally be entitled to a tax deduction at such time and in the same
amount that the optionee realizes ordinary income.
If capital stock acquired upon the exercise of a nonqualified stock option
is later sold or exchanged, then the difference between the sale price and the
fair market value of such capital stock on the date of exercise is generally
taxable (provided the stock is a capital asset in the holder's hands) as
long-term, mid-term or short-term capital gain or loss depending upon whether
the holding period for such capital stock at the time of disposition is more
than 18 months, 12 - 18 months or less than one year, respectively.
Alternative Minimum Tax
For purposes of the alternative minimum tax provisions contained in Section
55 of the Code, the exercise of an incentive stock option will be treated as
though it were a nonqualified stock option under Section 83 of the Code
(described above), but solely for purposes of determining the optionee's
alternative minimum taxable income. The minimum tax is imposed at a rate of 26%
of alternative minimum taxable income (taxable income increased by items of tax
preference and adjusted for certain other items) up to $175,000 ($87,500 for
married filing separately) (and 28% of any additional such income) over a
specified exemption amount ($45,000 for married taxpayers filing jointly,
$33,750 for single taxpayers, but phased out at specified levels of income), but
is payable only if the minimum tax exceeds the taxpayer's regular tax liability
for the year.
Exercise With Shares of Capital Stock
If payment for the exercise price of an incentive stock option is made by
surrendering previously owned shares of the capital stock, the following rules
apply:
If shares of "statutory option stock" (i.e., stock previously acquired
pursuant to the exercise of an incentive stock option) are surrendered in
payment of the exercise price of an incentive stock option and if, at the date
of surrender, the applicable holding period for such shares has not been met
(e.g., if shares previously acquired upon the exercise of an incentive stock
option are surrendered within two years from the date of grant or within one
year from the date the shares were transferred to the optionee), such surrender
will constitute a "disqualifying disposition" and any gain realized on such
transfer will thus be taxable according to the rules described above for
disqualifying dispositions. If the shares surrendered are not statutory option
stock, or if they are statutory option stock but have been held for the
requisite holding period, no gain or loss should be recognized upon such
surrender. Although the Internal Revenue Service will not issue any rulings as
to the effect of such an exercise, it has issued a published ruling stating that
no gain or loss will be recognized upon the surrender of shares upon exercise of
a nonqualified stock option, and the Treasury Department has issued proposed
regulations which, if adopted in their current form, would appear to provide
that, except as discussed above, in general, when shares are surrendered upon
exercise of an incentive stock option:
(a) No gain or loss will be recognized as a result of the exchange.
(b) A number of shares received which is equal in number to the shares
surrendered will have a basis equal to the shares surrendered, and (except
for purposes of determining whether a disposition will be a disqualifying
disposition) will have a holding period which includes the holding period
of the shares exchanged.
(c) Any additional shares received will have a zero basis and will
have a holding period which begins on the date of the exchange. If any of
the shares received are disposed of within two years of the date of grant
of the incentive stock option or within one year after the date shares were
transferred to the
24
<PAGE> 27
optionee, the shares with the lowest basis (i.e., a zero basis) will be
deemed to be disposed of first and such disposition will be a disqualifying
disposition giving rise to ordinary income as discussed above.
If payment of the exercise price of a nonqualified stock option is made by
surrendering previously owned shares of capital stock, the following rules
apply:
(a) No gain or loss will be recognized as a result of the surrender of
shares in exchange for an equal number of shares subject to the
nonqualified stock option, and the surrender of shares will not be treated
as a disqualifying disposition of any stock acquired through exercise of an
incentive stock option.
(b) The number of shares received equal to the shares surrendered will
have a basis equal to the basis of shares surrendered and a holding period
that includes the holding period of the shares surrendered.
(c) Any additional shares received will (i) be taxed as ordinary
income in an amount equal to the fair market value of the shares at the
time of exercise, (ii) have a basis equal to the amount included in taxable
income by the optionee and (iii) have a holding period that begins on the
date of the exercise.
Section 162(m)
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly held corporation for compensation paid in excess of $1
million in any taxable year to the chief executive officer or any of the four
other most highly compensated executive officers who are employed by the
corporation on the last day of the taxable year, but excepts from this
limitation "performance-based compensation" the material terms of which are
disclosed to and approved by stockholders. The Company has structured and
intends to implement the 1998 Stock Option Plan so that compensation resulting
therefrom would be qualified "performance-based compensation" and would not
therefore, be subject to any Code Section 162(m) deduction limitation. To allow
the Company to qualify such compensation, the Company is seeking stockholder
approval of the 1998 Stock Option Plan.
Section 280G of the Code
Under certain circumstances, the accelerated vesting or exercise of options
in connection with a Change of Control (as defined in the 1998 Stock Option
Plan) of the Company might be deemed an "excess parachute payment" for purposes
of the golden parachute tax provisions of Section 280G of the Code. To the
extent it is so considered, the grantee may be subject to a 20% excise tax and
the Company may be denied a tax deduction.
The foregoing discussion is intended only as a summary of certain federal
income tax consequences and does not purport to be a complete discussion of all
of the tax consequences of participation in the 1998 Stock Option Plan.
Accordingly, holders of options granted under the 1998 Stock Option Plan should
consult their own tax advisors for specific advice with respect to all federal,
state or local tax effects before exercising any options and before disposing of
any shares of capital stock acquired upon the exercise of an option. Moreover,
the Company does not represent that the foregoing tax consequences apply to any
particular option holder's specific circumstances or will continue to apply in
the future and makes no undertaking to maintain the tax status (e.g., as an
incentive stock option) of any option.
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
The Board of Directors believes that approval of the 1998 Stock Option Plan
is in the best interest of the Company and its stockholders because it provides
a means by which the Company and its subsidiaries can attract and retain
qualified key employees, directors and consultants and provide such personnel
with an opportunity to participate in the increased value of the Company which
their efforts, initiative and skill have helped produce. THE BOARD OF DIRECTORS
HAS APPROVED THE 1998 STOCK OPTION PLAN AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE 1998 STOCK OPTION PLAN.
25
<PAGE> 28
The affirmative vote of the holders of a majority of the voting power of
Class A Common Stock and Class B Common Stock, voting together as a single
class, represented and voted at the Annual Meeting is required to approve the
1998 Stock Option Plan. If the 1998 Stock Option Plan is not approved by the
Company's stockholders, it will not be implemented.
APPROVAL OF THE 1998 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company currently maintains the 1995 Employee Stock Purchase Plan (the
"1995 Stock Purchase Plan") which provides for the purchase of Class A Common
Stock by participating employees through voluntary payroll deductions. The 1995
Stock Purchase Plan expires by its terms on July 31, 1998. On April 10, 1998,
the Board of Directors of the Company approved, subject to stockholder approval,
the 1998 Employee Stock Purchase Plan (the "1998 Stock Purchase Plan"), which
will enable employees to continue to purchase Class A Common Stock through
payroll deductions for a three-year period. The 1998 Stock Purchase Plan will,
if approved by the stockholders, authorize the issuance and the purchase by
employees of up to the sum of the following (subject to adjustment under certain
circumstances): (i) 1,500,000 shares of Class A Common Stock and (ii) the number
of shares of Class A Common Stock available for issuance under the 1995 Stock
Purchase Plan as of the effective date of the 1998 Stock Purchase Plan,
following which date no further shares will be offered under the 1995 Stock
Purchase Plan.
The following summary of the terms and provisions of the 1998 Stock
Purchase Plan is qualified in its entirety by reference to the full text of the
1998 Stock Purchase Plan, a copy of which is attached to this Proxy Statement as
Annex II and incorporated herein by reference. All capitalized or quoted terms
have the meanings ascribed to them in the 1998 Stock Purchase Plan unless
otherwise defined herein.
ELIGIBILITY
Generally, all of the Company's employees will be eligible to participate
in the 1998 Stock Purchase Plan, except for employees of subsidiaries which have
not been designated as eligible for participation. The Company's Employee Stock
Purchase Committee (the "Stock Purchase Committee") may also impose eligibility
requirements consistent with Section 423(b) of the Code. No employee, however,
who owns capital stock of the Company having more than 5% of the voting power or
value of such capital stock will be able to participate. An employee's
eligibility to participate in the 1998 Stock Purchase Plan will terminate
immediately upon the termination of his or her employment with the Company, upon
a change in employment status to a leave of absence or upon transfer to an
ineligible subsidiary. As of April 30, 1998, there were approximately 29,700
employees who would have been eligible to participate in the 1998 Stock Purchase
Plan.
In addition, the Stock Purchase Committee has the authority to allow
employees of an entity in which the Company has an equity ownership interest of
less than 50% to participate in a non-Code Section 423 component of the 1998
Stock Purchase Plan. The Stock Purchase Committee, has the power and authority
to modify the eligibility for and terms and conditions of participation in the
Plan by such employees. Shares purchased by employees of such entities will not
be eligible for the favorable tax treatment under Section 423 of the Code.
Employees will be able to enroll in the 1998 Stock Purchase Plan by
completing a payroll deduction authorization form and providing it to the
designated officials of the Company. The minimum payroll deduction allowed is 3%
of compensation and the maximum allowable deduction is 10% of compensation. No
employee is entitled to purchase an amount of Class A Common Stock having a fair
market value (measured as of its purchase date) in excess of $25,000 in any
calendar year pursuant to the 1998 Stock Purchase Plan and any other employee
stock purchase plan which may be adopted by the Company.
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PURCHASE OF SHARES
Shares of Class A Common Stock purchased under the 1998 Stock Purchase Plan
may be acquired in the Company's Limited Market or purchased from the Company
out of its authorized but unissued shares. At each of four predetermined
purchase dates during the year, the agent under the 1998 Stock Purchase Plan
(the "Agent") will purchase for the account of each participant in the 1998
Stock Purchase Plan that whole number of shares of Class A Common Stock which
may be acquired from the funds available in the participant's account, together
with the Company's contribution described below.
The Company will contribute a certain percent of the cost of each share of
Class A Common Stock purchased under the 1998 Stock Purchase Plan. The percent
of the cost of each share of Class A Common Stock to be contributed by the
Company (the "Company Percent") will be determined by the Stock Purchase
Committee and will be between zero percent (0%) and fifteen percent (15%). The
Company Percent will be ten percent (10%) unless and until changed by the Stock
Purchase Committee. On each purchase date, the Company will pay the Company
Percent of the cost of each share purchased by the Trustee whether purchased in
the Limited Market or as a newly issued share.
The purchase price to be paid for the shares of Class A Common Stock
acquired for the account of participants will be the Formula Price in effect as
of the date of purchase. As of April 30, 1998, the Formula Price for the Class A
Common Stock was $47.22 per share.
PLAN BENEFITS
The plan benefits to employees derived from the 1998 Stock Purchase Plan
will depend upon such employee's level of participation, the Company's stock
price performance and the Company Percent. Therefore, the benefits and amount of
awards that will be received by each of the Named Executive Officers, the
executive officers as a group and all other employees as a group under the 1998
Stock Purchase Plan are not presently determinable.
DISTRIBUTION AND VOTING RIGHTS
Participants shall have the right to vote the shares of Class A Common
Stock purchased under the 1998 Stock Purchase Plan. Stock certificates
representing shares of Class A Common Stock acquired under the 1998 Stock
Purchase Plan will be distributed to each participant prior to any record date
established by the Company for any vote of its stockholders and in the interim
will be held by the Agent for the account of such participant.
RESTRICTIONS ON SHARES PURCHASED
Pursuant to the Company's Certificate of Incorporation, all shares of Class
A Common Stock purchased pursuant to the 1998 Stock Purchase Plan will be
subject to the Company's right of repurchase upon the participant's termination
of employment or affiliation with the Company at the then prevailing Formula
Price. All such shares will also be subject to the Company's right of first
refusal in the event that the participant desires to sell such shares other than
in the Company's Limited Market.
WITHDRAWALS
Participants may withdraw from the 1998 Stock Purchase Plan, terminate
their election to purchase shares and obtain repayment of the balance of any
monies held in their accounts at any time prior to the acquisition of shares of
Class A Common Stock therewith. No interest will be paid on the money held in
the accounts of the participants, unless required by applicable law.
AMENDMENT AND TERMINATION
The Board of Directors of the Company may suspend or amend the 1998 Stock
Purchase Plan in any respect, except that no amendment may, without the approval
of a majority of the voting power of the capital stock of the Company present or
represented and entitled to vote at a duly constituted meeting of the
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stockholders, (i) increase the maximum number of shares authorized to be issued
by the Company under the 1998 Stock Purchase Plan or (ii) deny to participating
employees the right at any time to withdraw from the 1998 Stock Purchase Plan
and thereupon obtain all amounts then due to their credit in their accounts.
The 1998 Stock Purchase Plan will terminate on July 31, 2001, unless
earlier terminated by the Board of Directors.
ADMINISTRATION
The 1998 Stock Purchase Plan will be administered by the Stock Purchase
Committee, whose members are appointed by the Company's Board of Directors to
serve at the discretion of the Board. Members of the Stock Purchase Committee
will not receive any compensation from the 1998 Stock Purchase Plan or the
Company for services rendered in connection therewith.
AGENT
The Company or its designee will be the Agent of the 1998 Stock Purchase
Plan.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, no taxable income will be recognized by a
participant in the 1998 Stock Purchase Plan until the taxable year of sale or
other disposition of the shares of Class A Common Stock acquired under the plan
which qualify under Code Section 423. When the shares are disposed of by a
participant two years or more from the date such shares were purchased for the
participant's account by the Agent, the participant must recognize ordinary
income for the taxable year of disposition to the extent of the lesser of (i)
the excess of the fair market value of the shares on the purchase date over the
amount of the purchase price paid by the participant (the "Discount") or (ii)
the excess of the fair market value of the shares at disposition or death over
the purchase price. In the event of a participant's death while owning shares
acquired under the 1998 Stock Purchase Plan, ordinary income must be recognized
in the year of death in the amount specified in the foregoing sentence. When the
shares are disposed of prior to the expiration of the two-year holding period (a
"disqualifying disposition"), the participant must recognize ordinary income in
the amount of the Discount, even if the disposition is by gift or is at a loss.
Additional gain, if any, will be short-term, mid-term or long-term capital gain
depending on whether the holding period is 12 months or less, more than 12 not
more than 18 months, or more than 18 months, respectively.
In the cases discussed above (other than death), the amount of ordinary
income recognized by a participant is added to the purchase price paid by the
participant and this amount becomes the tax basis for determining the amount of
the capital gain or loss from the disposition of the shares, assuming that the
shares are a capital asset in the hands of the participant.
Net capital gains from the disposition of capital stock held more than 18
months are currently taxed at a maximum federal income tax rate of 20%; net
capital gains from the disposition of stock held more than 12 but not more than
18 months are currently taxed at a maximum federal income tax rate of 28%; and
net capital gains from the disposition of stock held not more than 12 months is
taxed as ordinary income (maximum rate of 39.6%). However, limitations on
itemized deductions and the phase-out of personal exemptions may result in
effective marginal tax rates higher than 20% or 28% for net capital gains and
39.6% for ordinary income.
The Company will not be entitled to a deduction at any time for the shares
issued pursuant to the 1998 Stock Purchase Plan if a participant holding such
shares continues to hold his or her shares or disposes of his or her shares
after the required two-year holding period or dies while holding such shares.
If, however, a participant disposes of such shares prior to the expiration of
the two-year holding period, the Company is allowed a deduction to the extent of
the amount of ordinary income includable in gross income by such participant for
the taxable year as a result of the premature disposition of the shares, subject
to the deduction limitation of Code Section 162(m).
A participant purchasing shares under the non-Code Section 423 component of
the Plan will be taxed at ordinary income rates on the Discount at the time of
purchase.
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Section 162(m)
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly held corporation for compensation paid in excess of $1
million in taxable year to the chief executive officer or any of the other most
highly compensated executive officers who are employed by the corporation on the
last day of the taxable year. Compensation equal to the Discount recognized by
the Participant on the disqualifying disposition of shares purchased under the
1998 Employee Stock Purchase Plan less than two years after the purchase of such
shares will not qualify for any exception to Code Section 162(m).
The foregoing discussion is intended only as a summary of certain relevant
federal income tax consequences and does not purport to be a complete discussion
of all of the tax consequences of participation in the 1998 Stock Purchase Plan.
Accordingly, participants should consult their own tax advisors with respect to
all federal, state and local tax effects of participation in the 1998 Stock
Purchase Plan. Moreover, the Company does not represent that the foregoing tax
consequences will apply to any participant's specific circumstances or will
continue to apply in the future and makes no undertaking to maintain the
tax-qualified status of the 1998 Stock Purchase Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
The Board of Directors believes that approval of the 1998 Stock Purchase
Plan is in the best interest of the Company and its stockholders because it
provides a means for employees to become stockholders of the Company or increase
their present stock ownership. THE BOARD OF DIRECTORS HAS APPROVED THE 1998
STOCK PURCHASE PLAN AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE 1998 STOCK PURCHASE PLAN.
The affirmative vote of the holders of a majority of the voting power of
Class A Common Stock and Class B Common Stock, voting together as a single
class, present or represented and entitled to vote at the Annual Meeting is
required to approve the 1998 Stock Purchase Plan. If the 1998 Stock Purchase
Plan is not approved by the Company's stockholders, it will not be implemented.
APPROVAL OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP as independent
accountants for the Company for the fiscal year ending January 31, 1999, subject
to approval by the stockholders of the Company. Price Waterhouse LLP has served
as the Company's independent accounting firm since 1977. There is no requirement
in the Company's Certificate of Incorporation or Bylaws that the selection of
independent accountants be submitted to a vote of stockholders. However, the
Board of Directors deems this matter to be of such importance that it has
concluded that it should be subject to approval of the stockholders. If the
stockholders do not approve the appointment of Price Waterhouse LLP, the Board
of Directors will reconsider such appointment.
It is anticipated that a representative of Price Waterhouse LLP will be
present at the Annual Meeting and will have the opportunity to make a statement
if he or she desires to do so. Such representative will also be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any stockholder proposals intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by the Company no later than February
10, 1999 in order to be considered for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting. In addition, Section 2.01
of the Company's Bylaws provides that in order for a stockholder to propose any
matter for consideration at an annual meeting of the Company (other than by
inclusion in the Company's Proxy Statement), such stockholder must have given
timely prior written notice to the Corporate Secretary of the Company of his or
her intention to bring such business before the meeting. To be timely, notice
must be received by the Company not less than 50 days nor more than 75 days
prior to the meeting (or if fewer than 65 days' notice or
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prior public disclosure of the meeting date is given or made to stockholders,
not later than the 15th day following the day on which the notice of the date of
the meeting was mailed or such public disclosure was made). Such notice must
contain certain information, including a brief description of the business the
stockholder proposes to bring before the meeting, the reasons for conducting
such business at the annual meeting, the class and number of shares of Common
Stock beneficially owned by the stockholder who proposes to bring the business
before the meeting and any material interest of such stockholder in the business
so proposed.
ANNUAL REPORT
The Company's 1998 Annual Report to Stockholders for the year ended January
31, 1998, which includes audited financial statements, is being mailed with this
Proxy Statement to stockholders of record as of the Record Date.
The Company will provide without charge to any stockholder, upon request, a
copy of its Annual Report on Form 10-K for the year ended January 31, 1998
(without exhibits) as filed with the Securities and Exchange Commission.
Requests should be directed in writing to Science Applications International
Corporation, 10260 Campus Point Drive, San Diego, California 92121, Attention:
Corporate Secretary.
By Order of the Board of Directors
/s/ J. DENNIS HEIPT
J. Dennis Heipt
Corporate Secretary
June 10, 1998
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ANNEX I
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1998 Stock Option
Plan (the "Plan"). The purpose of the Plan is to advance the interests of the
Company and its stockholders by providing a means by which the Company and its
Subsidiaries can attract, retain and motivate qualified key employees, directors
and consultants and provide such personnel with an opportunity to participate in
the increased value of the Company which their effort, initiative and skill have
helped produce.
2. DEFINITIONS
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Class A Common Stock of the Company,
par value $.01 per share.
(d) "Committee" shall mean the Company's Stock Option Committee
responsible for administering the Plan.
(e) "Employee/Optionee" shall mean an Optionee who is an employee of the
Company or any Subsidiary.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Price" shall mean the price per share at which an Option
may be exercised, as determined by the Committee and as specified in the
Optionee's option agreement.
(h) "Formula Price" shall mean the price per share of Common Stock as
established by the Board from time to time.
(i) "Option" shall mean an option to purchase Common Stock granted
pursuant to the Plan.
(j) "Optionee" shall mean any person who holds an Option pursuant to the
Plan.
(k) "Plan" shall mean this Science Applications International Corporation
1998 Stock Option Plan, as it may be amended from time to time.
(l) "Purchase Price" shall mean at any particular time the Exercise
Price times the number of shares for which an Option is being exercised.
(m) "Subsidiary" shall mean any entity in which the Company has an equity
ownership. For purposes of Sections 4(b) and 4(c), "Subsidiary" shall be limited
to corporations in an unbroken chain of corporations beginning with the Company
in which 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 a chain.
3. ADMINISTRATION
(a) The Committee. The Plan shall be administered by the Committee which
shall consist of not less than two directors appointed by the Board, each of
whom shall satisfy the requirements to be a non-employee director, as defined in
Rule 16b-3(b)(3), as amended, of the Exchange Act, and to be an "outside
director" under Treasury Regulations Section 1.162-27(e)(3). No member of the
Committee shall be liable for any action or determination in respect thereto, if
made in good faith. The Board or Committee may appoint a
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separate committee with respect to Optionees who are not subject to Section 16
of the Exchange Act and/or Section 162(m) of the Code.
(b) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion and on behalf of the
Company:
(i) to grant Options;
(ii) to determine whether the Options granted are intended to be
incentive stock options or non-qualified stock options;
(iii) to determine the Exercise Price per share of Options to be
granted;
(iv) to determine the individuals to whom, and the time or times at
which, Options shall be granted and the number of shares for which an
Option will be exercisable;
(v) to interpret the Plan;
(vi) to prescribe, amend and rescind rules and regulations relating
to the Plan;
(vii) to determine the terms and provisions of each Option granted
and, with the consent of the Optionee, to modify or amend each Option;
(viii) to accelerate or defer, with the consent of the Optionee, the
exercise date of any Option;
(ix) with the consent of the Optionee, to reprice, cancel and
regrant, or otherwise adjust the Exercise Price of an Option previously
granted by the Committee; and
(x) to make all other determinations deemed necessary or advisable
for the administration of the Plan, including factual determinations.
(c) Committee Discretion. In exercising its authority, the Committee shall
have the broadest possible discretion and the Committee's determinations under
the Plan made in good faith shall be binding and conclusive on Optionees and
other persons claiming entitlements under the Plan. In no event shall a
Committee determination with respect to a particular Optionee or provision of
the Plan be binding with respect to any other Optionee (even if similarly
situated) nor with respect to any future determinations regarding the same or
other provisions of the Plan.
4. ELIGIBILITY
(a) General. The individuals who shall be eligible to participate in the
Plan and to receive Options hereunder shall be such key employees, directors and
consultants of the Company and its Subsidiaries as the Committee shall from time
to time determine.
(b) Limitation. No Option shall be granted to any person who, at the time
the Option is granted, owns (including stock owned by application of the
constructive ownership rules of Section 425(d) of the Code) stock possessing
more than 10% of the total combined voting power or value of all classes of
stock of the Company or any Subsidiary.
(c) Incentive Stock Options. No Option which is designated as an incentive
stock option shall be granted to any person who, at the time the Option is
granted, is not an employee of the Company or a Subsidiary. The aggregate fair
market value (determined as of the time the Option is granted) of the Common
Stock with respect to which Options designated as incentive stock options are
exercisable for the first time by an employee shall not exceed $100,000 during
any calendar year (under all plans of the Company or any Subsidiary which
provide for the granting of an incentive stock option).
5. STOCK SUBJECT TO THE PLAN
(a) Subject to the following provisions of this Section 5, Options to
purchase an aggregate number of shares of Common Stock equal to the sum of the
following may be granted pursuant to the Plan: (i) 8,500,000 shares of Common
Stock; (ii) any shares of Common Stock available for future awards under the
1995 Stock
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Option Plan as of the Effective Date following which date no further awards
shall be made under the 1995 Stock Option Plan; and (iii) any shares of Common
Stock that are subject to options granted under the 1992 Stock Option Plan and
1995 Stock Option Plan of the Company (the "Prior Plans"), which are forfeited
back to the Company when such options expire, terminate or for another reason
cease to be exercisable in whole or in part.
(b) These shares may consist either in whole or in part of shares of the
Company's authorized but unissued Common Stock or shares of the Company's
authorized and issued Common Stock reacquired by the Company and held in its
treasury.
(c) If an Option granted under this Plan is surrendered, expires or for any
other reason ceases to be exercisable in whole or in part, the shares which were
subject to any such Option but as to which the Option ceases to be exercisable
shall be available for Options to be granted under the Plan.
6. STOCK OPTIONS
(a) Options. The Options granted pursuant to the Plan may be "incentive
stock options" within the meaning of Section 422 of the Code or non-qualified
stock options. Options designated to be incentive stock options shall be
designated as such in the option agreements evidencing such Options.
(b) Option Agreements. Options shall be evidenced by written option
agreements between the Optionee and the Company in such form as the Committee
shall from time to time determine. No Option or purported Option shall be a
valid and binding obligation of the Company unless previously granted by the
Committee and evidenced in writing by such an option agreement. Appropriate
officers of the Company are hereby authorized to execute and deliver option
agreements in the name of the Company, as directed from time to time by the
Committee.
(c) Exercise Price. The Exercise Price at which Options may be granted
under the Plan shall be not less than one hundred percent (100%) of the fair
market value of the Common Stock on the day the Option is granted, but may be
less than the Exercise Price or Prices of previously granted Options, whether in
effect, canceled or expired. As long as the Company's Common Stock is not listed
on any national securities exchange or traded on a regular basis (as determined
by the Company's Board or a committee of the Board to which the Board has
delegated the authority to make such determination) on the over-the-counter
market, fair market value may be taken as the Formula Price as in effect at the
date of grant.
(d) Date of Grant. The Committee shall, after it approves the granting of
an Option to a participant, cause the participant to be notified of such action.
The date on which the Committee approves the granting of an Option shall be
considered the date on which such Option is granted.
(e) Terms of Exercise. The right to purchase shares covered by any Option
or Options under the Plan shall be exercisable only in accordance with the terms
and conditions of the grant to such Optionee. The Committee may, in its
discretion, provide that such Option or Options may be exercised in whole or in
part, in installments, cumulative or otherwise, for any period or periods of
time specified by the Committee of not more than ten years from the date of the
grant of the Option. Subject to the provisions of Section 9, that portion of an
Option which is exercisable on an installment basis may not be exercised prior
to the expiration of the applicable installment period.
(f) Non-Transferability. Except as otherwise provided by the Committee with
respect to Options not intended to be incentive stock options, an Option granted
under the Plan may not be transferred except by will or the laws of descent and
distribution and, during the lifetime of the Optionee to whom granted, may be
exercised only by such Optionee or his conservator or other legal
representative.
(g) Limit on Option Grants. In no event may any single Optionee receive
Option grants for more than 500,000 shares of Common Stock in the aggregate
under this Plan.
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7. EXPIRATION AND TERMINATION
(a) Expiration of Option. Each Option and all rights and obligations
thereunder shall, subject to the provisions of Section 9, expire on a date to be
determined by the Committee and set forth in the option agreement, such date,
however, in no event to be later than ten (10) years from the date an Option is
granted.
(b) Termination of Option. Each Option and all rights and obligations
thereunder shall, subject to the provisions of Section 9, terminate upon the
occurrence of such events as determined by the Committee and set forth in the
option agreement.
8. EXERCISE OF OPTIONS
(a) The Purchase Price shall be paid in full when the Option is exercised.
The Purchase Price may be paid in whole or in part in (i) cash, (ii) whole
shares of Common Stock owned by Optionee pursuant to Section 8(b) or (iii) a
combination thereof. Further, to the extent authorized by the Committee, the
Purchase Price may also be paid in whole or in part by an election pursuant to
Section 8(c).
(b) If shares of Common Stock owned by Optionee are used to pay the
Purchase Price, such shares shall be evidenced by negotiable certificates or, if
authorized by the Committee, by an attestation signed by Optionee, valued at the
Formula Price in effect on the date of exercise; provided, however, that unless
an exception is granted by the Secretary of this Corporation, shares of Common
Stock of the Company acquired through the exercise of a stock option must have
been owned by the Optionee for at least six months before such shares of Common
Stock may be used to pay the Purchase Price.
(c) The Committee may permit the Purchase Price to be paid by an election
authorizing the withholding of a number of shares, valued at the Formula Price
in effect on the date of exercise of the Option, equal in value to the Purchase
Price from the shares to be issued upon the exercise of the Option.
(d) The Company or any Subsidiary shall be entitled to deduct from other
compensation payable to each Optionee any sums required by federal, state or
local tax law to be withheld with respect to the exercise of an Option but, in
the alternative, may require the Optionee or other person exercising the Option
to pay, or the Optionee or such other persons may pay, such sums to the employer
corporation at the time of such exercise. The Committee shall have the authority
in its discretion to allow withholding on exercise of an Option to be satisfied
by withholding from the shares to be issued upon the exercise of the Option a
number of shares, valued at the Formula Price in effect on the date of exercise
of the Option, equal in value to the withholding requirement.
(e) An Optionee shall have no rights as a shareholder of the Company with
respect to any shares for which his or her Option is exercisable until the date
of exercise of such Option and the issuance of a stock certificate for such
shares. No adjustment shall be made for dividends, ordinary or extraordinary or
whether in currency, securities or other property, distributions, or other
rights for which the record date is prior to the date such stock certificate is
issued.
(f) Each Optionee may name a beneficiary or beneficiaries (who may be named
contingently or successively) to whom the right to exercise Options following
the Optionee's death shall pass. Each designation will revoke any prior
designations by the same Optionee, shall be on a form prescribed by the
Committee, and shall be effective only when filed by the Optionee in writing
with the Committee during the lifetime of the Optionee. In the absence of any
such designation, the right to exercise any unexercised Options following the
death of the Optionee shall pass to the person or persons to whom the Optionee's
rights under the Option pass by will or by the applicable laws of descent and
distribution.
9. CHANGE IN CONTROL
Notwithstanding any provision of Section 7 above or any option agreement to
the contrary but subject to the provisions of Section 4(c) above, the Committee
may designate, either at or after the date of grant, that any Option granted
pursuant to the Plan shall, in the case of a Change In Control (as hereinafter
defined) of the Company, become fully exercisable as to all shares of Common
Stock to which it relates from and after
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the date of such Change In Control. For purposes of this Section 9, the term
"Change in Control" shall be deemed to occur upon any "person" (as defined in
Section 13(d) of the Exchange Act), other than the Company or any Subsidiary or
employee benefit plan or trust maintained by the Company or any Subsidiary,
becoming the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of more than 25% of the Common Stock of the
Company outstanding at such time, without the prior approval of the Board. If
the provisions of this Section 9 are limited by the $100,000 limit of Section
4(c) above, the acceleration of exercisability provided under this Section 9
shall be first applied to those incentive stock options having the lowest
Exercise Price. Any remaining Options which would have become exercisable but
for the $100,000 limit shall become exercisable on the first date on which they
may become exercisable without exceeding the $100,000 limit.
10. LOANS
The Company may, but shall not be obligated to, provide to any Optionee a
loan or guarantee on behalf of any Optionee a loan to facilitate the exercise of
Options on such terms and conditions as agreed to by the Committee.
11. CAPITAL ADJUSTMENTS
The aggregate number of shares of the Company's Common Stock subject to
this Plan, the maximum number of shares as to which Options may be granted to
any one Optionee hereunder, and the number of shares and the Exercise Price
shall be appropriately adjusted, as determined by the Committee in its
discretion, for any increase or decrease in the number of shares of Common Stock
which the Company has issued resulting from any stock split, stock dividend,
combination of shares or any other change, or any exchange for other securities
or any reclassification, reorganization, redesignation, recapitalization, or
otherwise.
12. LIMITATION OF IMPLIED RIGHTS
(a) Neither an Optionee nor any other person shall, by reason of the Plan,
acquire any right in or title to any assets, funds or property of the Company,
including, without limitation, any specific funds, assets, or other property
which the Company in its sole discretion, may set aside in anticipation of a
liability under the Plan. An Optionee shall have only a contractual right to the
Common Stock, if any, issuable under the Plan, unsecured by any assets of the
Company.
(b) An Employee/Optionee's employment with the Company or a Subsidiary is
not for any specified term and may be terminated by such Employee/Optionee or by
the Company or a Subsidiary at any time, for any reason, with or without cause.
Nothing in this Plan or in any option agreement pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ of, or affiliation
with, the Company or a Subsidiary nor constitute any promise or commitment by
the Company or a Subsidiary regarding future positions, future work assignments,
future compensation or any other term or condition of employment or affiliation.
13. GOVERNMENT AND STOCK EXCHANGE REGULATIONS
The Company shall not be required to issue any shares upon the exercise of
any Option unless and until the Company has fully complied with any then
applicable requirements by the Securities and Exchange Commission, the
California Corporations Commissioner, or other regulatory agencies having
jurisdiction, and of any exchanges upon which Common Stock of the Company may be
listed.
Upon the exercise of an Option at a time when there is not in effect a
registration statement under the Securities Act of 1933 or a similar statute
(the "Act") relating to the stock issuable upon exercise thereof and available
for delivery a prospectus meeting the requirements of Section 10(a)(3) of said
Act, or if the rules or interpretations of the Securities and Exchange
Commission so require, the stock may be issued only if the holder represents and
warrants in writing to the Company that the shares purchased are being acquired
for investment and not with a view to distribution thereof.
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14. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board or the Operating Committee of the Board may at any time suspend
or terminate the Plan and may amend it from time to time in such respects as the
Board or the Operating Committee may deem advisable in order that Options
granted thereunder shall conform to any change in the law, or in any other
respect which the Board or the Operating Committee may deem to be in the best
interests of the Company; provided, however, that no such amendment shall,
without the approval of a majority of the voting power of the capital stock of
the Company present or represented and entitled to vote at a duly constituted
meeting of the stockholders, (i) increase the maximum number of shares for which
Options may be granted under the Plan (in the aggregate or to any single
individual), except as specified in Section 11, (ii) materially increase the
benefits accruing to any holder of an incentive stock option, or (iii)
materially modify the eligibility requirements to receive an incentive stock
option
15. NO IMPLIED RIGHTS OR OBLIGATIONS
The Company, in establishing and maintaining this Plan as a voluntary and
unilateral undertaking, expressly disavows the creation of any rights in
Optionees or others claiming entitlements under the Plan or any obligations on
the part of the Company, any Subsidiary or the Committee, except as expressly
provided herein.
16. EMPLOYEES BASED OUTSIDE OF THE UNITED STATES
Notwithstanding any provision of the Plan to the contrary, in order to
foster and promote achievement of the purposes of the Plan or to comply with
provisions of laws or regulations in other countries in which the Company and
its Subsidiaries operate or have employees, the Committee, in its sole
discretion, shall have the power and authority to (i) determine which employees
employed outside the United States are eligible to participate in the Plan, (ii)
modify the terms and conditions of any Options granted to employees who are
employed outside the United States and (iii) establish subplans, modified option
exercise procedures and other terms and procedures to the extent such actions
may be necessary or advisable.
17. EFFECTIVE DATE
The effective date of the Plan shall be July 10, 1998.
18. TERMINATION DATE
Unless the Plan shall have been previously terminated by the Board or the
Operating Committee of the Board, the Plan shall terminate on July 31, 2000,
except as to Options theretofore granted and outstanding under the Plan at that
date, and no Option shall be granted after that date.
19. GOVERNING LAW
The Plan and all option agreements shall be construed in accordance with
and governed by the laws of the State of Delaware.
I-6
<PAGE> 39
ANNEX II
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1998 Employee
Stock Purchase Plan (the "Plan"). The purpose of the Plan is to secure for the
Company and its stockholders the benefits inherent in the ownership of capital
stock of the Company by employees of the Company and its subsidiaries. The Plan
is intended to provide to all eligible employees of the Company and designated
subsidiaries an opportunity to purchase shares of Class A Common Stock through
payroll deductions. The Plan encompasses two components. One component
constitutes a plan designed to comply with Section 423(b) of the Code ("423
Component"), such that the shares purchased thereunder will qualify for the
favorable tax treatment under Sections 423(a) and 421(a) of the Code. The second
component, which shall apply to employees of Subsidiaries which do not fall
within the definition of "subsidiary corporation" in Section 424(f) of the Code,
constitutes a plan ("non-423 Component") which provides for the purchase of
shares which do not qualify for the favorable tax treatment under Sections
423(a) and 421(a) of the Code.
2. DEFINITIONS.
(a) "Agent" shall mean the Agent for the Plan and shall be either the
Company or its designee.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Company's Employee Stock Purchase Committee
responsible for administering the Plan.
(e) "Company Percent" shall mean the percent of the purchase price
contributed by the Company pursuant to the provisions of Section 11. The Company
Percent shall be from zero percent (0%) to fifteen percent (15%) and shall
initially be ten percent (10%) until changed by the Committee.
(f) "Formula Price" shall mean the formula price as defined in the
Company's Restated Certificate of Incorporation.
(g) "Limited Market" shall mean the limited secondary market maintained by
Bull, Inc., a wholly-owned subsidiary of the Company.
(h) "Participant Percent" shall mean the difference between one hundred
percent and the Company Percent.
(i) "Plan Year" shall mean February 1 through January 31 of each year.
(j) "Subsidiary" as used in the non-423 Component of the Plan means any
entity in which the company has an equity ownership interest. For purposes of
the 423 Component of the Plan, Subsidiary means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations, other than the last corporation in such chain, owns at
least fifty percent (50%) of the total voting power in one of the other
corporations in such chain.
3. STOCK SUBJECT TO THE PLAN.
The capital stock which may be purchased under the Plan is the Class A
Common Stock, par value $.01 per share (the "Common Stock"), of the Company,
which may be either authorized and unissued shares or issued shares. The Common
Stock purchased by the Agent for employee stock purchase accounts under the Plan
shall be subject to the terms, conditions and restrictions as set forth in the
Plan, as well as restrictions set
II-1
<PAGE> 40
forth in the Company's Restated Certificate of Incorporation. The number of
shares of Common Stock for issuance under the Plan shall be equal to the sum of
the following: (a) 1,500,000 shares of Common Stock and (b) the number of shares
of Common Stock available for issuance under the 1995 Employee Stock Purchase
Plan as of the Effective Date, following which date no further shares will be
offered or sold under the 1995 Employee Stock Purchase Plan.
4. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The Committee shall
have the number of members as determined by the Board with a minimum of two
members. The members of the Committee shall be appointed by and serve at the
discretion of the Board. Each such Committee member shall be a stockholder of
the Company and may be a director. Vacancies occurring in the membership of the
Committee shall be filled by appointment of the Board.
(b) Subject to the provisions of the Plan, the Committee shall have the
authority, in its discretion and on behalf of the Company:
(i) to determine and change from time to time the Company Percent;
(ii) to prescribe, amend and rescind rules and regulations relating to
the Plan;
(iii) to prescribe forms for carrying out the provisions and purposes
of the Plan;
(iv) to interpret the Plan; and
(v) to make all other determinations deemed necessary or advisable for
the administration of the Plan, including factual determinations.
(c) In exercising its authority, the Committee shall have the broadest
possible discretion and the Committee's determinations under the Plan made in
good faith shall be binding and conclusive on participating employees and other
persons claiming entitlements under the Plan. In no event shall a Committee
determination with respect to a particular employee or provision of the Plan be
binding with respect to any other employee (even if similarly situated) nor with
respect to any future determinations regarding the same or other provisions of
the Plan. No member of the Committee shall be liable for any action or
determination in respect thereto, if made in good faith.
(d) A majority of the Committee shall constitute a quorum. The acts of the
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all of the members, shall be the acts of the
Committee.
5. ELIGIBILITY.
(a) Subject to the terms, provisions and conditions of the Plan, each
employee of the Company or of a participating Subsidiary of the Company shall be
eligible to participate in the Plan except for an employee who owns capital
stock having five percent (5%) or more of the total combined voting power or
value of all classes of capital stock of the Company or its Subsidiaries. The
Subsidiaries whose employees may participate in the 423 Component of the Plan
shall be designated from time to time by the Committee. The Committee may also
impose additional eligibility requirements consistent with Section 423(b) of the
Code. The Committee's determination of the status of an individual as an
employee eligible to participate in the Plan for a particular purchase date or
period shall be final, binding and conclusive, regardless of an subsequent
reclassification or change in status.
(b) The Subsidiaries whose employees may participate in the non-423
Component of the Plan shall be designated from time to time by the Committee.
The Committee, in its sole discretion, shall have the power and authority to
modify the eligibility for, and terms and conditions of, participation in the
Plan by employees of such Subsidiaries and to establish subplans, which need not
qualify under Section 423 of the Code, modified Plan procedures and other terms
and procedures to the extent such actions are deemed necessary or desirable
II-2
<PAGE> 41
by the Committee. Participation in the Plan by employees of such Subsidiaries
and the offer and purchase of Common Stock by such employees shall not be
considered part of, or pursuant to, a Code Section 423 plan.
(c) An employee shall cease to be eligible to participate in the Plan (i)
upon termination of employment with the Company or a Subsidiary thereof, whether
by death, total disability, retirement or otherwise, (ii) upon a change in
employment status to Leave of Absence pursuant to the terms of the Company's
Administrative Policy No. B-11 "Unpaid Personal Leave of Absence," unless the
participant is on Medical Leave (as hereinafter defined), or (iii) upon transfer
to a Subsidiary of the Company which has not been designated by the Committee as
eligible for participation. An employee shall again become eligible to
participate in the Plan as of the date of such person's re-employment by the
Company or by a participating Subsidiary. For purposes of this Section 5(c),
"Medical Leave" shall be defined as a leave of absence for medical reasons which
shall begin after ninety-one (91) consecutive calendar days of total disability
leave and shall remain in effect until the earlier of a release by the attending
physician for the employee to return to work or until the termination of
employment.
(d) No employee shall be entitled to purchase shares of Common Stock with a
fair market value (measured as of its purchase date) of more than twenty-five
thousand dollars ($25,000.00) in any calendar year pursuant to the Plan and any
other "employee stock purchase plan" (as such term is defined in Section 423(b)
of the Code and regulations issued thereunder) of the Company or any of its
Subsidiaries, or at any other rate of purchase that exceeds the rate allowed for
plans qualifying under Section 423(b) of the Code.
6. PARTICIPATION IN THE PLAN.
(a) An eligible employee may enter the Plan at any time prior to its
termination by completing a payroll deduction authorization form and delivering
such form in the manner prescribed by the Committee. Alternatively, the
Committee may prescribe or permit electronic enrollment procedures. The
employee's payroll deduction authorization shall authorize regular payroll
deductions from the employee's compensation.
(b) The participating employee's payroll deduction authorization shall also
designate the Company or the Company's designee to be Agent for participating
employees with respect to all stock certificates for shares purchased under the
Plan. All such stock certificates representing shares purchased for such
participating employees shall be delivered to and held by the Agent. Prior to
any record date established by the Company for any vote of its stockholders, the
Agent shall distribute to each participant a stock certificate representing all
shares purchased under the Plan and not yet distributed to the participant.
Alternatively, the Committee may prescribe or authorize bookkeeping entry or
electronic recording of share ownership.
(c) A participating employee suffering from financial hardship shall be
eligible to apply to the Committee for an early distribution of such employee's
interest in the Plan. The decision for an early distribution based upon
financial hardship shall be at the sole discretion of the Committee. As soon as
practicable after the approval of an early distribution to an employee based
upon financial hardship, the Agent shall distribute to the employee all cash
credited to his or her stock purchase account and shall release all shares
credited to his or her stock purchase account.
7. PAYROLL DEDUCTIONS.
(a) Payroll deductions for employees shall be in an amount specified by the
employee in his or her payroll deduction authorization, but not less than three
percent (3%) nor more than ten percent (10%) of his or her compensation,
expressed as a whole percentage of such compensation. Compensation as used
herein shall be as defined by the Committee; provided, however, it shall include
the regular wages, salary or commissions paid to the employee. Payroll
deductions shall be credited to the stock purchase account to be maintained for
each participating employee.
(b) A participating employee may at any time increase or decrease the
amount of his or her payroll deduction (within the minimum and maximum limits
provided for in Section 7(a) above) by delivering or
II-3
<PAGE> 42
providing a new payroll deduction authorization in the manner prescribed by the
Committee. The change shall become effective as soon as practicable after
delivery or provision of the payroll deduction authorization.
8. STOCK PURCHASE ACCOUNTS.
(a) Amounts credited to a participating employee's stock purchase account
may not be assigned, transferred, pledged, hypothecated or otherwise disposed of
in any way by a participating employee other than by will or the laws of descent
and distribution and any attempt to do so shall be null and void and without
effect.
(b) No interest will be paid on the amounts credited to a participating
employee's stock purchase account, unless required by applicable law.
9. PURCHASE PRICE OF SHARES.
Unless otherwise determined by the Board of Directors, the purchase price
of each share of Common Stock purchased under the Plan shall be the "Formula
Price" in effect as of the date of purchase.
10. PURCHASE OF SHARES.
(a) Shares will be purchased by the Agent in the Limited Market or shares
will be issued by the Company from the remaining balance of those shares
reserved for issuance under Section 3 of the Plan.
(b) Stock purchases shall be made on predetermined purchase dates
established by the Committee which may coincide with the dates that trades are
conducted for the Limited Market by Bull, Inc. If on any purchase date a
participating employee has sufficient funds credited to his or her stock
purchase account to pay the Participant Percent of the purchase price of one or
more whole shares of Common Stock, the Agent shall then purchase such number of
shares at the applicable price per share. The employee's stock purchase account
thereupon shall be charged with the Participant Percent of the purchase price of
such shares. Only whole shares may be purchased. Any balance remaining in the
participating employee's stock purchase account will remain in such stock
purchase account and be treated as part of the accumulations for the succeeding
purchase date.
(c) With respect to both newly issued shares of Common Stock which are
purchased for the account of participating employees under the Plan and shares
so purchased on the Limited Market, a stock certificate will be issued in the
name of the Agent and held by the Agent in accordance with Section 6 of the
Plan. Notwithstanding that such stock certificates are held by the Agent for
participating employees, each participant shall have all the rights and
privileges of a stockholder with respect to the shares purchased for the
participating employee's account, subject to the provisions of Sections 6 and
10(d). Alternatively, the Committee may prescribe or authorize bookkeeping entry
or electronic recording of share ownership.
(d) Shares purchased pursuant to the Plan may not be sold, transferred,
pledged as collateral or in any way encumbered for so long as the stock
certificates are held by the Agent.
11. COMPANY CONTRIBUTIONS.
The Company shall contribute the Company Percent of the purchase price of
each share of Common Stock purchased under the Plan. On each purchase date, the
Company will, through the Agent and under the direction of the Committee, pay
the Company Percent of the purchase price of each share purchased by the Agent,
whether purchased in the Limited Market or as a newly issued share. No
contribution shall be made by the Company into an employee's stock purchase
account.
12. TERMINATION OF PARTICIPATION AND RE-ENTRY.
(a) An employee may terminate participation in the Plan at any time by
completing a payroll deduction authorization form and delivering such form in
the manner prescribed by the Committee. Alternatively, the
II-4
<PAGE> 43
Committee may prescribe or permit electronic procedures for such changes. Such
employee's participation in the Plan shall terminate as soon as practicable upon
receipt of the payroll deduction authorization by the Company. An employee who
terminates participation in the Plan pursuant to this Section 12(a) shall not be
eligible to reenter the Plan until the first business day of the following Plan
Year.
(b) In the event that a participating employee ceases to be eligible to
participate in the Plan as described in Section 5(c) or terminates participation
in the Plan or the Plan terminates or is terminated, any cash credited to such
employee's stock purchase account will be distributed to the participating
employee, or in the event of the death of the participating employee, to his or
her estate. Any shares held by the Agent for an employee whose employment with
the Company or a Subsidiary thereof is terminated will be released by the Agent
to the employee for repurchase by the Company pursuant to the provisions of
Article Fourth of the Company's Restated Certificate of Incorporation or
pursuant to the provisions of any applicable agreement.
13. GOVERNMENT AND STOCK EXCHANGE REGULATIONS.
The Company shall not be required to sell or deliver any shares of Common
Stock under the Plan unless and until the Company has fully complied with any
then applicable requirements of the Securities and Exchange Commission, state
securities commissions, or other regulatory agencies having jurisdiction, and of
any exchanges upon which Common Stock of the Company may be listed. The Company
shall not be obligated to obtain any required licenses or to register any Common
Stock to permit purchases of Common Stock under the Plan.
14. APPLICATION OF FUNDS.
All funds received by the Company under the Plan as a result of the sale of
newly issued shares of Common Stock under the Plan may be used for any corporate
purpose.
15. RECAPITALIZATION.
In the event any change, such as a stock split, reverse stock split or
stock dividend, is made in the Company's capitalization which results in an
adjustment in the number of shares of capital stock outstanding without receipt
of consideration by the Company, appropriate adjustment, as determined by the
Committee in its discretion, shall be made in the number of shares reserved for
issuance as provided in Section 3 of the Plan and in the number of shares
allocated to an employee under the Plan.
16. WITHHOLDING.
The Company shall be entitled to make appropriate arrangements to comply
with any withholding requirements imposed by federal, state, foreign or local
law with respect to the purchase or disposition of shares of Common Stock under
the Plan, including, without limitation, payroll withholding or withholding from
proceeds of a disposition of shares of Common Stock acquired under the Plan.
17. NO EMPLOYMENT OBLIGATION
An employee's employment with the Company or a Subsidiary is not for any
specified term and may be terminated by such employee or by the Company or a
Subsidiary at any time, for any reason, with or without cause. Nothing in this
Plan shall confer upon any employee any right to continue in the employ of, or
affiliation with, the Company or a Subsidiary nor constitute any promise or
commitment by the Company or a Subsidiary regarding future positions, future
work assignments, future compensation or any other term or condition of
employment or affiliation.
18. AMENDMENT OF THE PLAN.
The Board of Directors or Operating Committee of the Board of Directors of
the Company may at any time suspend or terminate the Plan and may at any time or
from time to time amend the Plan in such respects as the Board or the Operating
Committee may deem advisable in order that the Plan shall conform to any
II-5
<PAGE> 44
change in the law, or in any other respect which the Board or the Operating
Committee may deem to be in the best interest of the Company; provided, however,
no such amendment of the Plan shall, without the approval of a majority of the
voting power of the capital stock of the Company present or represented and
entitled to vote at a duly constituted meeting of stockholders, (a) increase the
maximum number of shares available for purchase under the Plan, except as
provided in Section 15 or (b) deny a participating employee the right to
withdraw from the Plan and obtain the balance of any monies held in the
participating employee's stock purchase account.
19. NO IMPLIED RIGHTS OR OBLIGATIONS
The Company, in establishing and maintaining this Plan as a voluntary and
unilateral undertaking, expressly disavows the creation of any rights in
participating employees or others claiming entitlements under the Plan or any
obligations on the part of the Company, any Subsidiary, the Agent or the
Committee, except as expressly provided herein.
20. EMPLOYEES BASED OUTSIDE OF THE UNITED STATES
Notwithstanding any provisions of the Plan to the contrary, in order to
foster and promote achievement of the purposes of the Plan or to comply with
provisions of laws or regulations in other countries in which the Company or a
participating Subsidiary operates or has employees, the Committee, in its sole
discretion, shall have the power and authority to modify the eligibility for,
and terms and conditions of, participation in the Plan by employees employed
outside the United States and to establish subplans, modified Plan procedures
and other terms and procedures to the extent such actions are deemed necessary
or desirable.
21. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
(a) The Effective Date of the Plan shall be July 10, 1998.
(b) Unless the Plan shall have been previously terminated by the Board, the
Plan shall terminate on July 31, 2001. In any case, termination shall be deemed
to be effective as of the close of business on the day of termination.
22. GOVERNING LAW
The Plan shall be construed in accordance with and governed by the laws of
the State of Delaware.
II-6
<PAGE> 45
[LOGO]
VOTING INSTRUCTION CARD FOR ANNUAL MEETING OF STOCKHOLDERS -- JULY 10, 1998
THIS VOTING INSTRUCTION CARD IS PROVIDED IN CONNECTION WITH THE SOLICITATION OF
PROXIES BY THE BOARD OF DIRECTORS.
The undersigned hereby instructs the Trustee, Vanguard Fiduciary Trust
Company, and any successor, under the Cash or Deferred Arrangement, Employee
Stock Retirement Plan ("ESRP") and Profit Sharing Retirement Plan of Science
Applications International Corporation (the "Company"), the Savings and Security
Plan and the Savings Plan for Salaried Employees of Bell Communications
Research, Inc., a wholly-owned subsidiary of the Company, and the Retirement
Savings Plan of Syntonic Technology, Inc., doing business as TransCore, a
wholly-owned subsidiary of the Company (collectively, the "Plans"), to vote all
of the shares of Class A Common Stock and/or Class B Common Stock held for the
undersigned's account in each of the Plans at the Annual Meeting of Stockholders
of the Company to be held in the Grand Ballroom of the La Jolla Marriott Hotel,
4240 La Jolla Village Drive, La Jolla, California, on Friday, July 10, 1998 at
10:00 A.M. (local time), and at any adjournment, postponement or continuation
thereof, as follows.
The shares of Class A Common Stock and/or Class B Common Stock to which this
voting instruction card relates will be voted as directed. If this card is
signed and returned but no instructions are indicated with respect to a
particular item, the vote of such shares as to any such item will be deemed to
have been instructed to vote, and such shares will be voted FOR the election of
directors so as to elect the maximum number of the Board of Directors' nominees
that may be elected by cumulative voting, FOR Proposals 2, 3 and 4 and, in the
discretion of the proxy holders, on any other matters properly coming before the
meeting and any adjournment, postponement or continuation thereof. All allocated
shares of Class A Common Stock and/or Class B Common Stock held in the Plans as
to which no voting instruction cards are received, together with all shares held
in the Plans which have not yet been allocated to the accounts of participants,
will be voted, on a plan-by-plan basis, in the same proportion as the shares
held in each Plan for which voting instructions have been received are voted.
This voting instruction card, if properly executed and delivered, will revoke
all prior voting instruction cards.
RETURN BOTTOM PORTION ONLY
(DETACH HERE)
1. Election of seven Class II Directors.
FOR all nominees listed below (EXCEPT as marked to the contrary below)
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through such nominee's name and your votes will
be distributed among the remaining nominee(s).
D.W. DORMAN, B.R. INMAN, E.A. STRAKER, M.E. TROUT,
J.H. WARNER, JR., J.B. WIESLER AND A.T. YOUNG
WITHHOLD AUTHORITY to vote for ALL nominees listed above.
2. Proposal to approve the 1998 Stock Option Plan.
FOR AGAINST ABSTAIN
3. Proposal to approve the 1998 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
4. Proposal to approve the appointment of Price Waterhouse LLP as independent
accountants for the fiscal year ending January 31, 1999.
FOR AGAINST ABSTAIN
5. In the discretion of the proxy holders, on any other matters properly
coming before the meeting and any adjournment, postponement or
continuation thereof.
- - - - - - - - - - - - - - -
(FOLD HERE) (FOLD HERE)
PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE. IN ORDER TO BE COUNTED, VOTING INSTRUCTION CARDS MUST BE
RECEIVED BY THE PROXY COUNTER BY JULY 6, 1998.
Dated __________________________, 1998
_ _ -------------------------------------
| | Signature
XXXXXXXXXXXXXXXXXXXXXXXX Please sign EXACTLY as name or names appear
XXXXXXXXXXXXXXXXXXXXXXXX hereon. When signing as attorney, executor,
XXXXXXXXXXXXXXXXXXXXXXXX trustee, administrator or guardian, please
give your full title.
|_ _|
PROXY NUMBER: XXXXX XXX.XXX "A" SHARES XXX.XXX "B" SHARES
<PAGE> 46
[LOGO]
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- JULY 10, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.R. BEYSTER, J.D. HEIPT and D.E. SCOTT, and
each of them, with full power of substitution, as proxies to represent the
undersigned and to vote all of the shares of Class A Common Stock and/or Class B
Common Stock the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Science Applications International Corporation (the "Company")
to be held in the Grand Ballroom of the La Jolla Marriott Hotel, 4240 La Jolla
Village Drive, La Jolla, California, on Friday, July 10, 1998 at 10:00 A.M.
(local time), and at any adjournment, postponement or continuation thereof, as
indicated below.
This proxy will be voted as directed. If this proxy card is properly signed
and returned but no directions are specified, the shares represented by this
proxy will be voted FOR the election of directors so as to elect the maximum
number of the Board of Directors' nominees that may be elected by cumulative
voting, FOR Proposals 2, 3 and 4, and in the discretion of the proxy holders, on
any other matters properly coming before the meeting and any adjournment,
postponement or continuation thereof. This proxy card, if properly executed and
delivered in a timely manner, will revoke all prior proxies.
RETURN BOTTOM PORTION ONLY
(DETACH HERE)
1. Election of seven Class II Directors.
[ ] FOR all nominees listed below (EXCEPT as marked to the contrary below)
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, strike a line through such nominee's name and your votes will
be distributed among the remaining nominee(s).
D.W. DORMAN, B.R. INMAN, E.A. STRAKER, M.E. TROUT,
J.H. WARNER, JR., J.B. WIESLER AND A.T. YOUNG
[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed above.
2. Proposal to approve the 1998 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the 1998 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the appointment of Price Waterhouse LLP as
independent accountants for the fiscal year ending January 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In the discretion of the proxy holders, on any other matters properly
coming before the meeting and any adjournment, postponement or
continuation thereof.
(FOLD HERE) (FOLD HERE)
- - - - - - - - - - - - - - -
PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE.
Dated __________________________, 1998
-------------------------------------
Signature
_ _ -------------------------------------
| | Signature
XXXXXXXXXXXXXXXXXXXXXXXX Please sign EXACTLY as name or names appear
XXXXXXXXXXXXXXXXXXXXXXXX hereon. When signing as attorney, executor,
XXXXXXXXXXXXXXXXXXXXXXXX trustee, administrator or guardian, please
give your full title.
|_ _|
PROXY NUMBER: XXXXXXXX.XXX "A" SHARESXXX.XXX "B" SHARES
