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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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] 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 9, 1999
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Science
Applications International Corporation, a Delaware corporation (the "Company"),
will be held in the Grand Ballroom of the Ritz-Carlton Hotel, 1700 Tysons
Boulevard, McLean, Virginia, on Friday, July 9, 1999, at 10:00 A.M. (local
time), for the following purposes:
1. To elect eight Class III Directors, each for a term of three years;
2. To approve amendments to the Company's Restated Certificate of
Incorporation (the "Charter") to (i) increase the number of authorized
shares of Class A Common Stock from 100,000,000 shares with a par value
of $.01 per share to 1,000,000,000 shares with a par value of $.01 per
share, (ii) split each outstanding share of Class A Common Stock into
four shares of Class A Common Stock, (iii) increase the relative voting
and other rights of each share of Class B Common Stock and (iv) clarify
the treatment of employees of the Company's subsidiaries under the
Company's right of repurchase upon termination of affiliation pursuant
to Article Fourth, all as more fully described in the accompanying Proxy
Statement (the "Recapitalization Proposal");
3. To approve the 1999 Stock Incentive Plan;
4. To approve an amendment and restatement of the 1984 Bonus Compensation
Plan; and
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 12, 1999, 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, and 1710 Goodridge Drive, McLean, Virginia, for at least 10
days prior to the meeting and will also be available for inspection at the
meeting.
By Order of the Board of Directors
/s/ J. DENNIS HEIPT
J. Dennis Heipt
Corporate Secretary
San Diego, California
June , 1999
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 9, 1999
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is being furnished to the stockholders of Science
Applications International Corporation, a Delaware corporation (the "Company"),
in connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held in the Grand Ballroom of the Ritz-Carlton Hotel,
1700 Tysons Boulevard, McLean, Virginia, on Friday, July 9, 1999, 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:
1. The election of eight Class III Directors, each for a term of three
years;
2. A proposal to amend the Company's Restated Certificate of Incorporation
(the "Charter ") to:
- increase the number of authorized shares of Class A Common Stock from
100,000,000 shares with a par value of $.01 per share to 1,000,000,000
shares with a par value of $.01 per share;
- split each outstanding share of Class A Common Stock into four shares
of Class A Common Stock;
- increase the relative voting and other rights of each share of Class B
Common Stock; and
- clarify the treatment of employees of the Company's subsidiaries under
the Company's right of repurchase upon termination of affiliation
pursuant to Article Fourth.
3. A proposal to approve the 1999 Stock Incentive Plan; and
4. A proposal to amend and restate the 1984 Bonus Compensation Plan.
This Proxy Statement and the enclosed form of proxy are first being mailed
to the stockholders of the Company on or about June , 1999.
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 12, 1999 (the "Record Date"), are entitled to notice of and to
vote at the Annual Meeting. As of the Record Date, the Company had
shares of Class A Common Stock and 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.
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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 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 Telcordia Technologies Savings and Security Plan and the
Telcordia Technologies Savings Plan for Salaried Employees (collectively, the
"Telcordia Savings Plans") of Telcordia Technologies, Inc., a wholly-owned
subsidiary of the Company, the TransCore Retirement Savings Plan ("TransCore
Retirement Plan") of Syntonic Technology, Inc. doing business as TransCore, a
wholly-owned subsidiary of the Company, and the AMSEC Corporation Employees
401(k) Profit Sharing Plan (the "AMSEC Plan") (collectively, the "Retirement
Plans") held shares of Class A Common Stock and 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
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 Directors so as to elect
the maximum number of the Board of Directors' nominees that may be elected by
cumulative voting, (ii) FOR the approval of the Recapitalization Proposal, (iii)
FOR the approval of the 1999 Stock Incentive Plan and (iv) FOR the approval of
an amendment and restatement of the 1984 Bonus Compensation Plan. 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 the next Annual Meeting, see "Stockholder Proposals for the
2000 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
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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.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a "classified"
Board of Directors consisting of three classes which shall be as equal in number
as possible. The number of authorized Directors is currently fixed at 22
Directors, with eight Directors in Class III and seven Directors in each of
Class I and Class II.
At the Annual Meeting, eight Class III Directors are to be elected to serve
three-year terms ending in 2002 or until their successors are elected and
qualified or their earlier retirement, death, resignation or removal. Currently,
J.R. Beyster, W.A. Downing, A.K. Jones, J.W. McRary, S.D. Rockwood, L.A.
Simpson, R.C. Smith and J.P. Walkush serve as Class III Directors. All such
Class III Directors will be standing for reelection. The eight nominees who
receive the most votes will be elected as Class III 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 eight nominees
listed below should become unavailable to stand for election at the Annual
Meeting, the proxy holders intend to vote for such other person, if any, as may
be designated by the Board of Directors, in the place and stead of any nominee
unable to serve. Alternatively, the Board of Directors may elect, pursuant to
Section 3.02 of the Company's Bylaws, to fix the authorized number of Directors
at a lower number so as to give the Nominating Committee of the Board of
Directors additional time to evaluate candidates.
Set forth below is a brief biography of each nominee for election as a
Class III Director and of all other members of the Board of Directors who will
continue in office:
NOMINEES FOR ELECTION AS
CLASS III DIRECTORS
TERM ENDING 2002
J.R. BEYSTER, age 74 Director since 1969
Chairman of the Board, Chief Executive Officer and President
Dr. Beyster founded the Company in 1969 and has served as Chairman of the
Board and Chief Executive Officer since that time and has served as President
since June 1998. Dr. Beyster also served as President of the Company from 1969
to 1988. Dr. Beyster is also a member of the Board of Directors of Network
Solutions, Inc.
W.A. DOWNING, age 59 Director since 1996
Director
General Downing, USA (Ret.) joined the Company as a part-time employee in
March 1996 and advises the Company on a wide variety of matters, including its
long-term strategy for domestic and international business development. 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
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Downing has also served as the Commanding General of U.S. Army Special
Operations Command and Commanding General of Joint Special Operations Command.
A.K. JONES, age 57 Director since 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 59 Director since 1972(2)
Director
Dr. McRary has been the Chairman of the Board 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
since 1994. 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 56 Director since 1996
Executive Vice President and Director
Dr. Rockwood joined the Company in 1986 and has served as an Executive Vice
President since 1997. Prior thereto, Dr. Rockwood served in various capacities
with the Company, including serving as a Sector Vice President from 1987 to
1997.
L.A. SIMPSON, age 62 Director since April 1999
Director
Mr. Simpson has been the President and Chief Executive Officer, Capital
Operations of GEICO Corporation, an insurance company, since 1993. He is also a
member of the Board of Directors of MediaOne Group, Inc., Potomac Capital
Investment Corporation and Potomac Electric Power Co.
R.C. SMITH, age 57 Director since 1998
Director
R.C. Smith has served as the Chief Executive Officer and a member of the
Board of Directors of Telcordia Technologies, Inc., a wholly-owned subsidiary of
the Company ("Telcordia"), since January 1998. Prior to joining Telcordia, Mr.
Smith was the Senior Vice President-Quality Development and Public Relations for
Sprint Corporation from 1991 to January 1998.
J.P. WALKUSH, age 47 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 54 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. 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
- ---------------
(1) Dr. Jones also served as a Director from June 1987 to May 1993.
(2) Dr. McRary did not serve as a Director in 1973.
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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 64 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 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 and the
Chairman of Visions International, Inc., an industry consulting firm.
W.H. DEMISCH, age 54 Director since 1990
Director
Mr. Demisch has been a Managing Director of Wasserstein Perella Securities,
Inc. since 1998. From 1993 to 1998, he was Managing Director of BT Alex. Brown
and from 1988 to 1993, he was Managing Director of UBS Securities, Inc.
J.E. GLANCY, age 53 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 44 Director since 1997
Director
Mr. Kraemer has served as the Chief Executive Officer of Baxter
International, Inc. ("Baxter"), a health-care products, systems and services
company, since January 1999 and as President of Baxter 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.
C.B. MALONE, age 63 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, Lafarge Corporation, The Limited Inc.,
Lowe's Companies, Mallinckrodt Group and Union Pacific Resources Corporation.
J.A. WELCH, age 68 Director since 1984
Director
Dr. Welch joined the Company as a part-time employee in July 1990 and is
involved in a number of scientific endeavors and strategic planning issues. Dr.
Welch also serves as President of Jasper Welch Associates, a consulting firm
which he founded in 1983. Prior thereto, Dr. Welch was a Major General in the
United States Air Force, from which he retired in 1983 after serving for 31
years. Dr. Welch is also a member of the Board of Directors of Millitech Corp.
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CLASS II DIRECTORS
TERM ENDING 2001
D.W. DORMAN, age 45 Director since 1998
Director
Mr. Dorman has been the President and Chief Executive Officer (Designate)
of ATT/BT Global Venture since April 1999. Prior thereto, he was the President
and Chief Executive Officer of PointCast Incorporated ("PointCast") from
November 1997 to April 1999 and Chairman of the Board of PointCast from February
1998 to April 1999. Previously, Mr. Dorman was the Executive Vice President of
SBC Communications, Inc., a diversified telecommunications company, from August
1997 to November 1997, the President and Chief Executive Officer of Pacific Bell
Corporation ("Pacific Bell") from 1994 to 1997 and Chairman of the Board of
Pacific Bell from 1996 to 1997. 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,
ETEK Dynamics and Scientific Atlanta Corporation.
B.R. INMAN, age 68 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 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 61 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 68 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 and West Pharmaceutical Services, Inc. and
the UCSD Foundation and the Chairman of the Board of Cytyc, Inc.
J.H. WARNER, JR., age 58 Director since 1988
Corporate Executive Vice President and Director
Dr. Warner joined the Company in 1973 and has served as a Corporate
Executive Vice President since 1996. Prior thereto, Dr. Warner served in various
capacities with the Company, including serving as a Executive Vice President
from 1989 to 1996.
J.B. WIESLER, age 71 Director since 1989
Director
Mr. Wiesler has been Chief Executive Officer and President of the Greater
San Diego Chamber of Commerce since December 1998. Prior thereto, Mr. Wiesler
was associated with the Bank of America
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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 61 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 B.F.
Goodrich Company and Potomac Electric Power Company.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the year ended January 31, 1999 ("Fiscal 1999"), the Board of
Directors held four meetings. Average attendance at such meetings of the Board
of Directors was 97%. During Fiscal 1999, 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 D.W. Dorman.
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
1999. 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 four meetings during Fiscal 1999. 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, D.W. Dorman, 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
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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
1999. The current members of the Executive Committee are B.R. Inman (Chairman),
D.P. Andrews, J.R. Beyster, J.E. Glancy, R.C. Smith, M.E. Trout, J.H. Warner,
Jr. and A.T. Young.
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 four
meetings during Fiscal 1999. The current members of the Nominating Committee are
J.R. Beyster (Chairman), D.W. Dorman, 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 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 1999. 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. In addition, effective as of July 1998,
C.B. Malone is paid $10,000 annually for her services as the
8
<PAGE> 11
Chairperson of the Audit Committee, J.B. Wiesler is paid $10,000 annually for
his services as the Chairman of both the Compensation and Human Resources
Committees and M.E. Trout is paid $10,000 annually for his services as the
Chairman of both the Litigation and the Health Care Committees. 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
stock options under the Company's 1998 Stock Option Plan. For services rendered
as a Director during Fiscal 1999, D.W. Dorman received options to purchase 5,000
shares of Class A Common Stock at $54.90 per share; V.N. Cook, W.H. Demisch,
W.A. Downing, A.K. Jones, H.M.J. Kraemer, Jr., J.W. McRary, J.A. Welch and J.B.
Wiesler, each received options to purchase 3,500 shares of Class A Common Stock
at $69.82 per share and D.W. Dorman, B.R. Inman, C.B. Malone, M.T. Trout and
A.T. Young each received options to purchase 5,000 shares of Class A Common
Stock at $69.82 per share. All such options were granted at a price equal to the
market value of the Class A Common Stock (as reflected by the Formula Price) on
the date of grant, 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 agreements with certain Directors whereby such Directors
perform consulting and other services for the Company. In Fiscal 1999, A.K.
Jones earned $3,200 for consulting services under a consulting arrangement which
provided for remuneration of $200 per hour. The amount paid to Dr. Jones under
such consulting arrangement was in addition to the annual retainer and meeting
fees. In Fiscal 1999, C.B. Malone earned $20,830 for consulting services and
services as a Director under a consulting arrangement which provided 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. This
arrangement was terminated effective as of July 1998. In Fiscal 1999, M.E. Trout
earned $25,000 for consulting services and services as a Director under a
consulting arrangement which provided 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. This arrangement was terminated effective as
of July 1998.
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.
9
<PAGE> 12
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, 1999, 1998 and
1997, of those persons who were, at January 31, 1999 (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............. 1999 $623,077 $700,000 $ 0 0 $ 15,293(2)
Chairman of the Board, 1998 $509,615 $600,000 $300,010(3) 0 $ 14,867(2)
Chief Executive Officer 1997 $396,635 $450,000 $ 0 50,000 $ 13,209(2)
and President
R.C. Smith............... 1999 $500,000(4) $650,012(4)(5) $200,034(4)(6) 35,000(4) $ 224,113(4)(7)
Chief Executive 1998 $ 37,879(4)(8) $ 92,016(4)(9) $ 0 40,000(4) $1,687,638(4)(10)
Officer of Telcordia 1997 N/A(11) N/A(11) N/A(11) N/A(11) N/A(11)
Technologies, Inc.
J.E. Glancy.............. 1999 $375,000 $390,007(12) $250,025(13) 30,000 $ 15,293(2)
Corporate Executive 1998 $315,000 $269,995(14) $250,002(15) 10,000 14,867(2)
Vice President 1997 $245,000 $215,000 $ 15,005(16) 15,000 13,209(2)
J.H. Warner, Jr. ........ 1999 $321,923 $320,007(17) $149,973(18) 20,000 $ 15,293(2)
Corporate Executive 1998 $275,000 $259,974(19) $100,016(20) 10,000 $ 14,863(2)
Vice President 1997 $269,231 $200,000 $ 9,995(21) 10,000 $ 13,209(2)
W.A. Roper, Jr. ......... 1999 $311,539 $296,989(22) $260,010(23) 30,000 $ 40,273(24)
Senior Vice President 1998 $251,347 $224,982(25) $259,980(26) 25,000 $ 64,864(27)
and Chief Financial 1997 $227,308 $155,005(28) $ 30,010(29) 15,000 $ 38,207(30)
Officer
</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, 1999, the aggregate restricted stock
holdings (other than restricted stock which have been deferred into the Key
Executive Stock Deferral Plan) for the Named Executive Officers and for all
other employees were as follows: J.R. Beyster: 7,667 shares with a market
value as of such date of $535,310; R.C. Smith: 0 shares; J.E. Glancy: 509
shares, with a market value as of such date of $35,538; J.H. Warner, Jr.:
3,119 shares, with a market value as of such date of $217,769; W.A. Roper,
Jr.: 687 shares, with a market value as of such date of $47,966; and all
other employees: 690,477 shares, with a market value as of such date of
$48,209,104. 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 amounts contributed or accrued by the Company for the Named
Executive Officers under the Company's Profit Sharing Plan, ESRP and CODA.
(3) 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.
(4) The Company and R. C. Smith are parties to an Employment Agreement dated
December 18, 1997, as amended on February 2, 1998 (the "Smith Agreement"),
pursuant to which Mr. Smith serves as Chief Executive Officer of Telcordia.
Pursuant to the terms of the Smith Agreement, Mr. Smith was entitled to
receive (i) an inducement vesting stock award pursuant to the Key Executive
Stock Deferral Plan of
10
<PAGE> 13
deferred vesting shares having a value of $1,500,000 and (ii) an inducement
award of options to purchase 40,000 shares of Class A Common Stock. The
Smith Agreement provides that Mr. Smith will receive (i) a base salary of
$500,000 per year, which base salary will be re-evaluated and determined by
Telcordia's Board of Directors following Fiscal 1999, (ii) an annual
incentive bonus in an amount determined by Telcordia's Board of Directors,
with a target amount of $500,000 per year, beginning in Fiscal 1999, (iii)
an annual option award in an amount determined by Telcordia's Board of
Directors, with a target amount of options to purchase 30,000 shares of the
Company's Class A Common Stock per year, beginning in Fiscal 1999, (iv)
reimbursement of expenses incurred in connection with the relocation of Mr.
Smith and his family to Telcordia's principal place of business and (v) a
company automobile or automobile allowance in accordance with Telcordia's
officer automobile policy as long as Telcordia maintains such a policy. Mr.
Smith is also entitled to participate in various salary and bonus deferral
plans or programs and receive certain health and welfare benefits
maintained by Telcordia. In the event Mr. Smith is at any time
involuntarily terminated without Cause or is subject to Constructive
Termination (as such terms are defined in the Smith Agreement), Mr. Smith
is entitled to receive (i) a severance payment of $2,000,000, payable in 24
installments, and (ii) an additional severance payment equal to the value
of his unvested stock options (calculated by multiplying the difference
between the Formula Price in effect on the date of his termination and the
exercise price or prices of such stock options by the number of shares
covered by such unvested options). Upon any termination of Mr. Smith's
employment with Telcordia at any time, in addition to the usual and
customary payments, Mr. Smith is also entitled to receive a payment equal
to the value of a portion of his unvested shares of Class A Common Stock
(calculated by multiplying the Formula Price in effect on the date of his
termination by the number of such unvested shares). In the event any
payment or distribution by or on behalf of Telcordia and the Company to or
for the benefit of Mr. Smith as a result of a Change In Control (as defined
in the Smith Agreement) would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties resulting from such excise tax, Mr. Smith is entitled
to an additional payment in the amount of all such excise taxes, interest
or penalties paid. Pursuant to the terms of the Smith Agreement, Mr. Smith
is subject to a covenant not to compete against Telcordia or the Company
for a period of one year after the termination of his employment with
Telcordia. The Company has unconditionally guaranteed prompt performance of
Telcordia's obligations under the Smith Agreement.
(5) Includes the award of 4,655 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 $325,012.
(6) Represents 2,865 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.
(7) Represents $192,655 for relocation expenses, $16,549 for financial
counseling, a credit towards his health and welfare benefits of $4,909 and
a car allowance of $10,000. See Footnote 4.
(8) Mr. Smith joined the Company in January 1998. R. C. Smith's annual salary
for fiscal year 1998 would have been $500,000. See Footnote 4.
(9) Includes the award of 1,065 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 $50,289.
(10) Represents the award of 43,129 Stock Units (which generally corresponds to
one share of Class A Common Stock) pursuant to the Key Executive Stock
Deferral Plan. Pursuant to the Smith Agreement, Mr. Smith was entitled to
receive Stock Units having a market value of $1,500,000 as of January 17,
1998. On the date of grant, the 43,129 Stock Units had a value of
$1,687,638. See Footnote 4.
(11) Mr. Smith was not an employee of the Company during fiscal year 1997.
(12) Includes the award of 573 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 $40,007.
11
<PAGE> 14
(13) Represents 3,581 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 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.
(15) 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.
(16) 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.
(17) Includes the award of 573 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 $40,007.
(18) Represents 2,148 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) 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.
(20) 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.
(21) 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.
(22) Includes the award of 673 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 $46,989.
(23) Represents 3,724 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.
(24) Represents a total of $15,293 contributed or accrued by the Company for Mr.
Roper under the Company's Profit Sharing Plan, ESRP and CODA and the award
of 455 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 Stock Units awarded) of $24,980.
(25) 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.
(26) 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.
(27) 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 Stock Units awarded) of $49,997.
(28) 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.
(29) 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.
12
<PAGE> 15
(30) 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 Stock Units awarded) of $24,998.
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 1999 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 1999 (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
R.C. Smith........... 50 * $47.22 4/28/03 $ 652 $ 1,441
J.E. Glancy.......... 10,000(3) * $39.13 3/19/03 $108,109 $238,893
J.H. Warner, Jr. .... 10,000(3) * $39.13 3/19/03 $108,109 $238,893
W.A. Roper, Jr. ..... 25,000(3) * $39.13 3/19/03 $270,272 $597,231
</TABLE>
- ---------------
* Less than 1% of the total options granted to employees in Fiscal 1999.
(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 listed grants of options were made during Fiscal 1999, such
grants relate to the individual's service for the fiscal year ended January
31, 1998.
13
<PAGE> 16
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information regarding the exercise of
options during Fiscal 1999 and unexercised options to purchase Class A Common
Stock granted during Fiscal 1999 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, 1999.
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, 1999 AT JANUARY 31, 1999(1)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.R. Beyster......... 0 N/A 20,000 30,000 $ 939,800 $1,409,700
R.C. Smith........... 0 N/A 8,000 32,050 $ 245,520 $ 983,210
J.E. Glancy.......... 3,000 $ 81,360 21,000 32,000 $1,098,860 $1,346,080
J.H. Warner, Jr. .... 5,000 $170,720 7,200 24,800 $ 350,280 $ 997,520
W.A. Roper, Jr. ..... 2,000 $ 54,240 10,200 40,800 $ 519,420 $1,488,320
</TABLE>
- ---------------
(1) Based on the Formula Price of the Class A Common Stock as of such date less
the exercise price of such options.
14
<PAGE> 17
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, 1999, 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, 1999, 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 is 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, 1999, the Company's revenues increased to $4.7 billion, a 51.6%
increase from the prior fiscal year revenues of $3.1 billion. The Company's net
income for this same period was $150.7 million, or a 77.7% increase over the
prior fiscal year net income of $84.8 million. The Compensation Committee also
has noted that despite increasing competition, the Company has continued to
successfully increase and expand its
15
<PAGE> 18
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 Goldman
Sachs Technology Services Index. The Company's Class A Common Stock realized an
annual return of 78.4% for the one year period ended January 31, 1999,
significantly exceeding the annual return of both the Standard and Poor's
Composite 500 Stock Index and the Goldman Sachs Technology Services Index of
32.5% and 25.4%, 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 37.5% and 23.9%, respectively.
During the past fiscal year, Dr. Beyster was paid a base salary of
$600,000(1), which represented a 20% increase 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 $700,000 for the fiscal year ended
January 31, 1999. Considering the Company's successful performance during the
past fiscal year, 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.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits the deductibility of certain compensation in excess of $1 million paid in
any one year to the chief executive officer and the other four highest paid
executive officers. In order to maintain maximum tax deductibility of executive
compensation, the Company is seeking stockholder approval of the 1999 Stock
Incentive Plan and the amendment and restatement of the 1984 Bonus Compensation
Plan. The Compensation Committee will continue to monitor compensation programs
in light of Section 162(m); however, the Compensation Committee considers it
important to retain the flexibility to design compensation programs that are in
the best long-term interests of the Company and its stockholders.
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
- ---------------
(1) The variance between this amount and Dr. Beyster's base salary reported
in the Summary Compensation Table is attributable to payment for his unused
comprehensive leave.
16
<PAGE> 19
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
D.W. Dorman M.E. Trout
A.K. Jones A.T. Young
H.M.J. Kraemer
</TABLE>
April 8, 1999
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During Fiscal 1999, W.H. Demisch, D.W. Dorman, 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 1999 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."
17
<PAGE> 20
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 1999, the Company made a cash contribution of $548,400 to
the Foundation. The Board of Directors has approved a contribution of $650,000
to the Foundation for Fiscal 2000.
M.A. Walkush, sister of J.P. Walkush, a Director and Sector Vice President
of the Company, is an employee of the Company. For services rendered during
Fiscal 1999, M.A. Walkush received $66,784 in cash compensation, 72 shares of
vesting Class A Common Stock which had a market value on the date of grant of
$5,027 and options to acquire 2,000 shares at $69.82 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. M.A. Walkush has been an
employee of the Company for over 13 years and works in the area of Employee
Owner Relations.
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.
18
<PAGE> 21
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 against two
industry indices for the five (5) fiscal years commencing February 1, 1994 and
ending January 31, 1999. The two industry indices are the Goldman Sachs
Technology Services Index and the Dow Jones Diversified Technology Index, the
industry index used by the Company for 1998. The Company has elected to change
its industry index to the Goldman Sachs Technology Services Index because the
Company believes that this index more accurately represents the Company's lines
of business. 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.
COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL RETURN
AMONG SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CLASS A COMMON STOCK,
STANDARD AND POOR'S COMPOSITE-500 STOCK INDEX,
GOLDMAN SACHS TECHNOLOGY SERVICES INDEX AND
DOW JONES DIVERSIFIED TECHNOLOGY INDEX
<TABLE>
<CAPTION>
DJ GOLDMAN
SAIC STOCK PRICE S&P 500 INDEX DIVERSIFIEDTECHNOLOGY SACHSTECHNOLOGY
---------------- ------------- --------------------- ---------------
<S> <C> <C> <C> <C>
2/94 100.00 100.00 100.00 100.00
1/95 110.78 100.53 98.48 119.32
1/96 136.22 139.40 135.96 174.50
1/97 182.95 176.12 177.64 181.89
1/98 275.76 223.51 198.19 211.61
1/99 492.04 296.13 206.13 265.27
5 Year Annual Return Rate 37.50% 24.20% 15.60% 21.50%
</TABLE>
19
<PAGE> 22
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................................................ -- *
J.R. Beyster................................................ -- __%(3)
V.N. Cook................................................... -- *
W.H. Demisch................................................ -- *
D.W. Dorman................................................. -- *
W.A. Downing................................................ -- *
J.E. Glancy................................................. -- *
B.R. Inman.................................................. -- *
A.K. Jones.................................................. -- *
H.M.J. Kraemer, Jr.......................................... -- *
C.B. Malone................................................. -- *
J.W. McRary................................................. -- *
S.D. Rockwood............................................... -- *
W.A. Roper, Jr.............................................. -- *
L.A. Simpson................................................ -- *
R.C. Smith.................................................. -- *
E.A. Straker................................................ -- *
M.E. Trout.................................................. -- *
J.P. Walkush................................................ -- *
J.H. Warner, Jr............................................. -- *
J.A. Welch.................................................. -- *
J.B. Wiesler................................................ -- *
A.T. Young.................................................. -- *
Vanguard Fiduciary Trust Company............................ -- __%(4)
400 Vanguard Boulevard
Malvern, PA 19355
All executive officers and Directors as a group
( persons).................................. -- __%(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
( shares), J.R. Beyster ( shares), V.N. Cook
( shares), W.A. Downing ( shares), J.E. Glancy
( shares), B.R. Inman ( shares), S.D. Rockwood
( shares), W.A. Roper, Jr. ( shares), E.A.
Straker ( shares), J.P. Walkush ( shares), J.H.
Warner, Jr. ( shares), J.A. Welch ( shares), and
all executive officers
20
<PAGE> 23
and Directors as a group ( shares); (ii) shares subject to
options exercisable within 60 days following the Record Date, as follows:
D.P. Andrews ( shares), J.R. Beyster ( shares)
V.N. Cook ( shares), W.H. Demisch ( shares),
W.A. Downing ( shares), J.E. Glancy ( shares),
B.R. Inman ( shares), C.B. Malone ( shares),
J.W. McRary ( shares), S.D. Rockwood ( shares),
W.A. Roper, Jr. ( shares), R.C. Smith (
shares), E.A. Straker ( shares), M.E. Trout (
shares), J.P. Walkush ( shares), J.H. Warner, Jr. (
shares), J.A. Welch ( shares), A.T. Young (
shares) and all executive officers and Directors as a group (
shares); (iii) shares held by spouses, minor children or other relatives
sharing a household with the individual, as follows: J.E. Glancy ( shares),
E.A. Straker ( shares), J.H. Warner, Jr. (
shares), J.A. Welch ( shares) and all executive officers and
Directors as a group ( shares); and (iv) shares held by
certain trusts or foundations established by the individual, as follows:
J.R. Beyster ( shares), W.A. Downing ( shares),
M.E. Trout ( shares), J.H. Warner, Jr. (
shares), J.B. Wiesler ( shares) and all executive officers
and Directors as a group ( shares).
(2) Based on shares of Class A Common Stock outstanding as of the
Record Date.
(3) Represents % 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:
% Class A Common Stock, % Class B Common Stock and % of the
voting power of the Common Stock; CODA: % Class A Common Stock, 0%
Class B Common Stock and % of the voting power of the Common Stock;
Profit Sharing Plan: % Class A Common Stock, % Class B Common
Stock and % of the voting power of the Common Stock; AMSEC Plan: %
Class A Common Stock, 0% Class B Common Stock and % of the voting power of
the Common Stock; Telcordia Technologies Savings Plans: % Class A
Common Stock, 0% Class B Common Stock and % of the voting power of the
Common Stock; TransCore Retirement Plan: % Class A Common Stock, 0%
Class B Common Stock and % of the voting power of the Common Stock.
(5) Represents % of the voting power of the Common Stock.
21
<PAGE> 24
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............................ (2) __%(3)
400 Vanguard Boulevard
Malvern, PA 19355
R.C. Cavanagh............................................... -- __%(3)
2007 Carrhill Road
Vienna, VA 22181
J.D. Cramer................................................. -- __%(3)
P.O. Box 30691
Albuquerque, NM 87190
J.L. Griggs, Jr............................................. (4) __%(3)
1516 Sagebrush Trail, S.E
Albuquerque, NM 87123
</TABLE>
- ---------------
(1) Based on 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 shares held for the account of J.L. Griggs, Jr. by
the Trustee of the Company's ESRP.
22
<PAGE> 25
THE RECAPITALIZATION PROPOSAL
The following discussion summarizes certain aspects of the Recapitalization
Proposal. This summary is not intended to be complete and is qualified in its
entirety by reference to Article Fourth of the Charter, as it is proposed to be
amended pursuant to the Recapitalization Proposal ("New Article Fourth"), a copy
of which is attached to this Proxy Statement as Annex I and incorporated herein
by reference.
GENERAL
The Recapitalization Proposal is a proposal to amend the Charter to (i)
increase the number of authorized shares of Class A Common Stock from
100,000,000 shares with a par value of $.01 per share to 1,000,000,000 shares
with a par value of $.01 per share, (ii) split each outstanding share of Class A
Common Stock into four shares of Class A Common Stock, (iii) increase the
relative voting and other rights of each share of Class B Common Stock and (iv)
clarify the treatment of employees of the Company's subsidiaries under the
Company's right of repurchase upon termination of affiliation pursuant to
Article Fourth.
Assuming the Recapitalization Proposal is approved by stockholders at the
Annual Meeting, upon the filing of a Restated Certificate of Incorporation with
the Secretary of State of the State of Delaware (the "Effective Time"), each
outstanding share of Class A Common Stock will be split into four shares of
Class A Common Stock. Consequently, after the Effective Time, each holder of
Class A Common Stock will have four times as many shares as prior to the
Effective Time, but such shares will represent the same percentage interest in
the Company and the same relative voting power. Prior to the Effective Time, the
Company generally intends to discontinue its practice of issuing physical stock
certificates to represent the ownership interest of stockholders in the Company.
Instead, stockholders will receive on a quarterly basis a written statement from
the Company detailing their stock activity and ownership of Class A Common Stock
and/or Class B Common Stock. Accordingly, although stockholders may retain their
old certificates, it will not be necessary to surrender old certificates in
order to be credited with ownership of the additional shares of Class A Common
Stock resulting from the stock split contemplated by the Recapitalization
Proposal. See "The Recapitalization Proposal -- Certificates for Class A Common
Stock."
BACKGROUND OF THE RECAPITALIZATION PROPOSAL
Since its inception, the Company has pursued a policy of remaining an
employee owned corporation. The Company believes that its success, from both a
technical and financial standpoint, has been largely attributable to widespread
employee ownership and participation. As of the Record Date, approximately
% of the outstanding Common Stock was beneficially owned by the Company's
employees, officers, directors and consultants and their family members.
The Company's success has been evidenced by a growth in revenues from $865
million in Fiscal 1989 to approximately $4.7 billion in Fiscal 1999 and an
increase in the Formula Price from $8.29 per share on April 14, 1989 to $72.41
per share on April 9, 1999. We cannot assure you that the Company will continue
to be profitable or grow at a comparable rate. However, the Board of Directors
believes that the Company's employees, officers, directors and consultants
should continue to be the beneficiaries of any future success of the Company.
In order to maintain its employee ownership structure, the Company has
traditionally only issued shares of its common stock to its employees, officers,
directors and consultants and has generally imposed restrictions on these
shares. These restrictions generally consist of: (i) a right of first refusal on
the part of the Company in the event a stockholder desires to sell his or her
shares other than in the limited market maintained by the Company (the "Limited
Market") and (ii) a right of repurchase on the part of the Company upon
termination of the stockholder's employment or affiliation with the Company.
Prior to August 1, 1984, all such restrictions were contained in stock
restriction agreements entered into between the Company and a stockholder and
were subject to termination in the event that the Company's common stock was
listed on any national securities exchange or traded on a regular basis, as
determined by the Company, in the over-the-counter market.
23
<PAGE> 26
In order to minimize the possibility that a market in the unrestricted
shares (which represented less than two percent of the then outstanding shares)
of the Company's common stock could develop outside the Limited Market with
sufficient volume and regularity to cause the restrictions on the remaining
shares of common stock to terminate and thereby destroy the Company's employee
ownership structure, in August 1984, the Company's stockholders approved a
reorganization of the Company in 1984 (the "1984 Reorganization"). Pursuant to
the terms of the 1984 Reorganization, Science Applications, Inc., which was a
wholly-owned subsidiary of the Company, was merged with and into the Company and
each share of the Company's then outstanding common stock was converted into one
share of Class A Common Stock, except that any stockholder who objected to the
1984 Reorganization and the conversion of his or her shares into shares of Class
A Common Stock was entitled to elect to have his or her shares converted into an
equal number of shares of Class B Common Stock. As of the Record Date, there
were shares of Class A Common Stock and shares of
Class B Common Stock outstanding.
The Class A Common Stock is currently subject to the same restrictions that
were generally applicable to the shares of common stock that were outstanding at
the time of the 1984 Reorganization, but such restrictions are now incorporated
into the Charter and will terminate only if the Company determines to create a
public market in its shares, either by making an underwritten offering to the
general public or by having its shares listed on a national securities exchange.
The Board of Directors is also empowered to waive the restrictions on the Class
A Common Stock in such other circumstances as it deems appropriate.
Shares of Class B Common Stock are not subject to any restrictions on
transferability pursuant to the Charter but remain subject to the same
contractual or other restrictions, if any, that were applicable to the shares of
common stock exchanged therefor in the 1984 Reorganization. No changes were made
in the termination provisions applicable to the restrictions on the shares of
common stock that were exchanged for shares of Class B Common Stock in the 1984
Reorganization. Such restrictions will terminate in the event that either class
of Common Stock is listed on a national securities exchange or traded on a
regular basis, as determined by the Company, in the over-the-counter market.
Pursuant to the terms of the 1984 Reorganization, the Company is prohibited from
issuing any additional shares of Class B Common Stock.
PURPOSE AND EFFECTS OF THE RECAPITALIZATION PROPOSAL
1. Increase Authorized Shares of Class A Common Stock
The Recapitalization Proposal will increase the Company's financial
flexibility by authorizing additional shares of Class A Common Stock for
issuance by the Board of Directors, from time to time, without the necessity of
further action or authorization by stockholders. Such additional shares of Class
A Common Stock will be available for issuance for any proper corporate purpose,
including, without limitation, issuance for cash as a means of obtaining
additional capital for use in the Company's business and issuance as part or all
of the consideration to be paid by the Company for acquisitions of other
entities or businesses. The Company has no present plans, understandings,
agreements or commitments for the issuance of additional shares of Class A
Common Stock, except for shares to be issued pursuant to the Recapitalization
Proposal, employee stock option, stock purchase, bonus, retirement and other
incentive plans, upon conversion of shares of Class B Common Stock and in
connection with acquisitions normally under consideration by the Company, from
time to time, as part of its acquisitions program.
If the Recapitalization Proposal is approved by stockholders at the Annual
Meeting, at the Effective Time (based on the number of shares outstanding on the
Record Date): (i) the number of outstanding shares of Class A Common Stock will
be increased from to ; (ii) the number of shares
of Class A Common Stock authorized for issuance under the Company's existing
stock option and other stock plans will be increased from to
and (iii) the number of shares of Class A Common Stock reserved
for issuance upon the conversion of shares of Class B Common Stock will be
increased from to .
The increase in the number of authorized shares of Class A Common Stock
will not, by itself, have any effect on the rights of existing stockholders.
However, the Company's stockholders have no preemptive rights to subscribe for
or purchase shares of the Company's capital stock and, accordingly, depending on
the
24
<PAGE> 27
circumstances, the issuance of additional shares could adversely affect existing
stockholders by diluting the voting power and earnings per share of the Common
Stock.
The increase in the number of authorized shares of Class A Common Stock
might be considered as having the effect of discouraging attempts to take
control of the Company even if a proposed transaction could be considered
generally favorable to the interests of the stockholders. For example, in the
event of an unsolicited tender offer or takeover proposal, the Board of
Directors would have the ability to issue shares of Class A Common Stock, in one
or more transactions, so as to impede or deter such an offer or proposal.
2. Split of Class A Common Stock
The Board of Directors believes that the split of the Class A Common Stock
resulting from the Recapitalization Proposal will be beneficial to the Company
and its stockholders for the following reasons: (i) it will place the Formula
Price applicable to shares of Class A Common Stock in a range that will provide
increased stockholder liquidity and (ii) the lower Formula Price that will
result from the Recapitalization Proposal will enable the Company's employees to
purchase a greater number of shares of Class A Common Stock, in furtherance of
the Company's policy of remaining essentially employee owned. If the
Recapitalization Proposal had occurred on April 9, 1999, the Formula Price would
have been $18.10 per share, rather than the actual Formula Price of $72.41 per
share.
From an accounting standpoint, the split of the Class A Common Stock
resulting from the Recapitalization Proposal will not impact the amount of the
Company's total stockholders' equity. The split will, however, quadruple the
amount of the balance of the stated capital account for the Class A Common
Stock, $.01 par value, and the balance of the additional paid-in capital account
will be reduced by the dollar amount of the increase in the stated capital
account. In this regard, if the Recapitalization Proposal had occurred on
January 31, 1999, the balance of the stated capital account for the Class A
Common Stock, $.01 par value, would have been $2,264,000 rather than its actual
value of $566,000 and the additional paid in capital balance would have been
$834,757,000 rather than its actual value of $836,455,000.
3. Increase Relative Voting and Other Rights of Class B Common Stock
Because of the termination provisions generally applicable to the
restrictions on the Class B Common Stock described above, the Board of Directors
is concerned that an increase in the number of shares of Class B Common Stock
outstanding after the Effective Time would also increase the likelihood of a
market in the unrestricted shares of Class B Common Stock developing outside the
Limited Market with sufficient volume and regularity to cause the restrictions
on the other shares of Class B Common Stock to terminate. In addition, as
described above, the Charter currently prohibits, subject to certain limited
exceptions, the issuance of any additional shares of Class B Common Stock and
the Board of Directors does not believe that amending the Charter to permit the
issuance of additional shares of Class B Common Stock pursuant to a stock split
would be in the best interest of stockholders. Accordingly, the Recapitalization
Proposal does not provide for each outstanding share of Class B Common Stock to
be split into four shares, but does provide for a corresponding increase in the
relative voting and other rights of holders of Class B Common Stock.
The Board of Directors believes that the Recapitalization Proposal results
in increased liquidity for the Company's stockholders without increasing the
risk of a market developing in the Class B Common Stock outside the Limited
Market. Currently, each share of Class B Common Stock has five votes, is
convertible into five shares of Class A Common Stock, is entitled to five times
the dividends and amounts payable upon liquidation or dissolution of the Company
with respect to each share of Class A Common Stock and is entitled to receive
five times the consideration paid in certain mergers, consolidations or business
combinations to which the Company is a party. Further, the price applicable to
shares of Class B Common Stock is equal to five times the Formula Price
applicable to the Class A Common Stock. In order to maintain the relative voting
and other rights of the holders of Class B Common Stock after the Effective
Time, as a result of the split of each outstanding share of Class A Common Stock
into four shares of Class A Common Stock pursuant to the Recapitalization
Proposal, New Article Fourth will provide that each share of Class B Common
Stock will have 20 votes, be convertible into 20 shares of Class A Common Stock
and be entitled to 20 times the dividends and amounts payable upon liquidation
or dissolution of the Company with respect to each share of
25
<PAGE> 28
Class A Common Stock. After the Effective Time, the price applicable to shares
of Class B Common Stock shall be equal to 20 times the Formula Price then
applicable to the Class A Common Stock. See"The Recapitalization
Proposal -- Description of Common Stock."
4. Clarification of Application of Company's Right of Repurchase Upon
Termination of Affiliation
Article Fourth of the Charter currently provides the Company with a right
to repurchase shares of Class A Common Stock upon termination of affiliation of
an employee, director or consultant with the Company or a subsidiary. New
Article Fourth clarifies the treatment of employees of the Company's
subsidiaries under the Company's right of repurchase upon termination of
affiliation. New Article Fourth provides that the Company's right of repurchase
must be exercised, if at all, within 60 days of the termination of the
affiliation of an employee, director or consultant of the Company or within 60
days of receipt by the Company's Corporate Secretary of written notice of the
termination of affiliation of an employee, director or consultant of a
subsidiary of the Company. New Article Fourth also empowers the Board of
Directors to designate an entity as a "subsidiary" of the Company for this
purpose, based on the Company's equity interest in, control over or relationship
with such entity. If the Company's equity interest in, control over or
relationship with such entity changes, the Board of Directors may remove the
designation. The Board of Directors believes that the clarification of the
restriction in New Article Fourth will be an administrative convenience for the
Company, reducing the risk of inadvertent waiver of the Company's right of
repurchase upon the termination of affiliation of a stockholder with a
subsidiary of the Company, consistent with the Company's policy of remaining
essentially employee owned.
DESCRIPTION OF COMMON STOCK
General
If the Recapitalization Proposal is approved by stockholders at the Annual
Meeting, New Article Fourth will provide for the authorization of 1,000,000,000
shares of Class A Common Stock with a par value of $.01 per share and five
million shares of Class B Common Stock with a par value of $.05 per share. New
Article Fourth will continue to authorize the issuance of three million shares
of Preferred Stock, par value $.05 per share (the "Preferred Stock"), which may
be issued by the Board of Directors from time to time without the necessity of
further action or authorization by stockholders. No shares of Preferred Stock
are currently outstanding and no shares of Preferred Stock will be issued
pursuant to the Recapitalization Proposal.
Voting Rights. Except as otherwise provided by law, the holders of shares
of Class A Common Stock and Class B Common Stock will vote together as a single
class in all matters, with each holder of Class A Common Stock having one vote
per share and each holder of Class B Common Stock having 20 votes per share. All
of the holders of Common Stock will be entitled to cumulate their votes in the
election of Directors.
Dividends Rights. Subject to the rights of the holders of outstanding
Preferred Stock, holders of Class A Common Stock and Class B Common Stock will
be entitled to receive, equally and ratably, such dividends as may be declared
by the Board of Directors from time to time; provided, however, that any
dividend on a share of Class B Common Stock must be equal to 20 times the
dividend on a share of Class A Common Stock.
Liquidation Rights. In the event of any dissolution or liquidation of the
Company, after payment or provision for payment of the debts and other
liabilities of the Company (including any Preferred Stock outstanding), the
holders of Class A Common Stock and Class B Common Stock will be entitled to
receive, equally and ratably, the remaining assets and funds of the Company;
provided, however, that amounts distributed with respect to each share of Class
B Common Stock must be equal to 20 times the amounts distributed with respect to
each share of Class A Common Stock.
Other. No class of Common Stock may be subdivided, consolidated,
reclassified or otherwise changed unless the relative powers, preferences,
rights, qualifications, limitations and restrictions applicable to the other
class of Common Stock are maintained.
In any merger, consolidation or business combination to which the Company
is a party (other than a merger, consolidation or business combination in which
the Company is the surviving corporation and which
26
<PAGE> 29
does not result in any change in the outstanding Common Stock), the
consideration to be received with respect to each share of Class B Common Stock
must be equal to 20 times the consideration to be received with respect to each
share of Class A Common Stock, except that if capital stock is distributed in
any such transaction, such shares may differ as to the rights of the holders
thereof only to the extent that such rights differ pursuant to New Article
Fourth.
Class A Common Stock
Pursuant to New Article Fourth, all shares of Class A Common Stock to be
issued pursuant to the Recapitalization Proposal will be generally subject to
the same restrictions (i.e., generally, a continuing right of first refusal on
the part of the Company in the event a stockholder desires to sell his or her
shares outside the Limited Market and a right of repurchase on the part of the
Company upon termination of the stockholder's employment or affiliation with the
Company) that are currently applicable to the shares of Class A Common Stock
with respect to which they are issued. New Article Fourth clarifies the
treatment of employees of the Company's subsidiaries under the right of
repurchase upon termination of affiliation in certain respects. New Article
Fourth provides that the Company's right of repurchase of Class A Common Stock
must be exercised, if at all, within 60 days of the termination of the
affiliation of an employee, director or consultant of the Company or within 60
days of receipt by the Corporate Secretary of the Company of written notice of
the termination of affiliation of an employee, director or consultant of a
subsidiary of the Company. New Article Fourth empowers the Board of Directors of
the Company to designate an entity as a "subsidiary" of the Company for this
purpose, based on the Company's equity interest in, control over or relationship
with such entity. If the Company's equity interest in, control over or
relationship with such entity changes, the Board of Directors may remove the
designation. The Board of Directors believes that the clarification of the
restrictions in New Article Fourth will be an administrative convenience for the
Company, reducing the risk of inadvertent waiver of the Company's right of
repurchase upon the termination of affiliation of a shareholder with a
subsidiary of the Company, consistent with the Company's policy of remaining
essentially employee owned.
New Article Fourth will authorize the Company to issue shares of Class A
Common Stock that are not subject to the Company's right of repurchase by way of
a stock split or stock dividend. Therefore, the shares of Class A Common Stock
to be issued at the Effective Time with respect to shares of Class A Common
Stock that currently are not subject to that restriction (generally, shares
issued in the 1984 Reorganization with respect to shares issued prior to October
1, 1981 and shares held by or distributed out of certain of the Company's
employee benefit plans) also will not be subject to a right of repurchase. New
Article Fourth will also authorize the Company to issue shares of Class A Common
Stock that are not subject to the Company's right of repurchase upon the
conversion of shares of Class B Common Stock that are not subject to that
restriction. See "The Recapitalization Proposal -- Purpose and Effects of the
Recapitalization Proposal."
All shares of Class A Common Stock issued pursuant to the Recapitalization
Proposal with respect to shares of Class A Common Stock that are currently
subject to forfeiture in the event that the stockholder's employment or
affiliation with the Company is terminated prior to the expiration of certain
vesting periods, will be subject to forfeiture following the Effective Time in
the same manner and to the same extent as the shares of Class A Common Stock
with respect to which they are issued.
All of the restrictions on the Class A Common Stock will continue to be
subject to termination if the Company makes an underwritten offering of any
class of its Common Stock or applies to have any class of its Common Stock
listed on a national securities exchange. In addition, the Board of Directors
will continue to have the authority to waive any or all of the restrictions on
the Class A Common Stock in such circumstances as it deems appropriate.
As a result of the split of each outstanding share of Class A Common Stock
into four shares of Class A Common Stock pursuant to the Recapitalization
Proposal, the Formula Price applicable to a share of Class A Common Stock
immediately after the Effective Time will be equal to one-fourth of the Formula
Price in effect immediately prior to the Effective Time. See "The
Recapitalization Proposal -- Purpose and Effects of the Recapitalization
Proposal."
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Class B Common Stock
After the Effective Time, the shares of Class B Common Stock will remain
subject to the same contractual restrictions, if any, that were applicable to
such shares prior to the Effective Time. Such restrictions are generally subject
to termination in the event that the Common Stock is listed on any national
securities exchange or traded on a regular basis, as determined by the Company,
in the over-the-counter market. See "The Recapitalization Proposal -- Background
of the Recapitalization Proposal."
Currently, each share of Class B Common Stock has five votes, is
convertible into five shares of Class A Common Stock, is entitled to receive
five times the dividends and amounts payable upon liquidation or dissolution of
the Company with respect to each share of Class A Common Stock and is entitled
to receive five times the consideration paid in certain mergers, consolidations
or business combinations to which the Company is a party. The price applicable
to shares of Class B Common Stock is equal to five times the Formula Price
applicable to the Class A Common Stock. As a result of the split of each
outstanding share of Class A Common Stock into four shares of Class A Common
Stock pursuant to the Recapitalization Proposal, New Article Fourth will provide
that each share of Class B Common Stock will be convertible, at any time, at the
option of the holder thereof, into 20 shares of Class A Common Stock; and any
shares of Class A Common Stock that are issued upon conversion of shares of
Class B Common Stock that are not subject to a contractual right of repurchase
upon termination of affiliation will also not be subject to that restriction.
Pursuant to New Article Fourth, the price applicable to shares of Class B Common
Stock shall be equal to 20 times the Formula Price then applicable to the Class
A Common Stock.
New Article Fourth will continue to prohibit the issuance of any additional
shares of Class B Common Stock. All shares of Class B Common Stock reacquired by
the Company upon conversion, in the Limited Market or otherwise, will be retired
and will not be available for reissuance.
CERTIFICATES FOR CLASS A COMMON STOCK
If the Recapitalization Proposal is approved by stockholders at the Annual
Meeting, each share of Class A Common Stock that is outstanding at the Effective
Time will be split into four shares of Class A Common Stock. Prior to the
Effective Time, the Company generally intends to discontinue its practice of
issuing physical stock certificates to represent the ownership interest of
stockholders in the Company. Instead, stockholders will receive on a quarterly
basis a written statement from the Company detailing their stock activity and
ownership of Class A Common Stock and/or Class B Common Stock. Accordingly,
although stockholders may retain their old stock certificates, it will not be
necessary to surrender old certificates in order to be credited with ownership
of the additional shares of Class A Common Stock resulting from the stock split
contemplated by the Recapitalization Proposal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised by its counsel that, in general, for federal
income tax purposes (i) no income, gain or loss will be recognized by any holder
of Class A Common Stock on the receipt of additional shares of Class A Common
Stock solely as a result of the split of each share of Class A Common Stock into
four shares of Class A Common Stock; (ii) the basis of each share of Class A
Common Stock held by a stockholder immediately prior to the Effective Time will
be allocated equally among the four shares of Class A Common Stock held in
respect of such share after the Effective Time; (iii) the holding period for
each share of Class A Common Stock received as a result of the split of Class A
Common Stock will be the same as the holding period for the share of Class A
Common Stock in respect of which it is received; and (iv) no income, gain or
loss will be recognized by any holder of Class B Common Stock as a result of the
increase in the relative voting and other rights of each share of Class B Common
Stock.
EFFECTIVE TIME
Subject to the approval of the Recapitalization Proposal by stockholders at
the Annual Meeting (see "The Recapitalization Proposal -- Recommendation of the
Board of Directors; Vote Required"), the Recapitalization Proposal will become
effective upon the filing of a Restated Certificate of Incorporation with
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the Secretary of State of the State of Delaware. It is currently anticipated
that such filing will be made on or about August , 1999.
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
Approval of the Recapitalization Proposal requires the affirmative vote of
(i) the holders of a majority of the outstanding shares of Class A Common Stock
and Class B Common Stock, voting together as a single class, and (ii) the
holders of a majority of the outstanding shares of Class A Common Stock, voting
as a separate class.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF THE RECAPITALIZATION PROPOSAL.
APPROVAL OF THE 1999 STOCK INCENTIVE PLAN
GENERAL
On April 9, 1999, the Board of Directors of the Company approved the 1999
Stock Incentive Plan (the "1999 Plan"), subject to stockholder approval. If
approved by stockholders, the 1999 Plan will provide for the granting of
stock-based awards to employees, directors and consultants of the Company and
its affiliates, in order to assist in attracting, retaining and motivating such
personnel by providing an opportunity to participate in the increased value of
the Company. The 1999 Plan authorizes the grant to eligible participants of
options, stock appreciation rights ("SARs"), vested stock, restricted stock and
restricted stock units, performance units, other stock-based awards, or any
combination thereof (each, an "Award"). However, with respect to SARs,
restricted stock units and other stock-based awards, the Board of Directors must
specifically authorize the grant of such types of Awards before they can be
awarded.
The following summary of the material terms and provisions of the 1999 Plan
is qualified in its entirety by reference to the full text of the 1999 Plan, a
copy of which is attached to this Proxy Statement as Annex II and incorporated
herein by this reference. Certain capitalized terms have the meanings assigned
to those terms in the 1999 Plan. Any reference to number of shares relating to
the 1999 Plan contained in this summary are presented on a basis before giving
effect to the stock split contemplated by the Recapitalization Proposal. See
"The Recapitalization Proposal -- Purpose and Effect of the Recapitalization
Proposal."
SHARES AUTHORIZED UNDER THE 1999 PLAN
The 1999 Plan will, if approved by the stockholders, authorize the grant of
Awards with respect to 6,000,000 shares of Class A Common Stock, plus any shares
of Class A Common Stock available for future awards under the Company's 1998
Stock Option Plan as of September 30, 1999 (following which date no further
grants will be made under the 1998 Stock Option Plan). In addition, for each
calendar year after 1999, 5% of the Company's outstanding shares of Class A
Common Stock (as of the first day of such calendar year) will be added to the
number of shares authorized for issuance under the 1999 Plan; provided, however,
that in no event shall the number of shares authorized for issuance under the
1999 Plan exceed 15% of the Company's outstanding shares of Class A Common Stock
and Class B Common Stock. The 1999 Plan provides that the maximum number of
shares of Class A Common Stock that may be issued pursuant to incentive stock
options is 8,000,000. Shares covered by Awards under the 1999 Plan or the 1998
Stock Option Plan that are not delivered to a participant because the Award is
forfeited, canceled or expires, or is settled in cash or the shares are used to
satisfy tax withholding obligations, will not count against the number of shares
available under the 1999 Plan, but if tax withholding is applied to incentive
stock options and shares are withheld to satisfy such withholding obligation,
these shares will be deemed delivered for purposes of the 8,000,000 share limit
on incentive stock options. In addition, Awards may be made under the 1999 Plan
in substitution for awards granted by a company acquired by the Company. Such
substitute Awards will not count against the number of shares available under
the 1999 Plan. Awards may not be granted to any individual in any calendar year
with respect to more than 500,000 shares of Class A Common Stock.
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The 1999 Plan provides, in the discretion of the Committee, for adjustments
in the aggregate number of shares subject to the 1999 Plan, the maximum number
of shares as to which Awards may be granted to any one participant thereunder
and the number of shares and the exercise price per share and other terms of
outstanding Awards, in the event of any corporate transaction or distribution
(including any stock split, stock dividend, recapitalization, spin-off,
combination or exchange of securities, or other similar transaction).
Pursuant to the Company's Charter, all shares of Class A Common Stock
acquired pursuant to Awards under the 1999 Plan are 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 are also subject to the Company's right of first refusal if a participant
desires to sell such shares other than in the Company's Limited Market. As of
April 9, 1999, the market value of the Class A Common Stock (as reflected by the
Formula Price) was $72.41 per share.
ELIGIBLE PARTICIPANTS
Employees, directors and consultants of the Company and its affiliates are
eligible to participate in the 1999 Plan. As of the Record Date, the Company and
its subsidiaries had eight directors who were not also employees and
approximately employees and consultants.
ADMINISTRATION
The 1999 Plan will be administered by the "Committee" as defined in the
1999 Plan. The 1999 Plan defines the "Committee" as any of: (i) the Board of
Directors of the Company (the "Board"), (ii) the Stock Option Committee of the
Board (or such other committee of the Board as is appointed to administer the
1999 Plan) or (iii) in the case of certain Awards, an individual or individuals
appointed by the Board to administer the 1999 Plan. In the case of awards to
certain individuals, the composition of the Committee must conform to the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), or Rule 16b-3 under the Securities Exchange Act of 1934.
The Committee is authorized to determine the eligible individuals who will
be granted Awards under the 1999 Plan and to establish the terms and conditions
of such Awards. The Committee also has the power to modify or amend the terms of
an outstanding Award, accelerate or defer the exercise date of an Award, or
reprice, cancel, regrant or otherwise adjust the exercise price of an Award. The
Committee is also authorized to interpret the 1999 Plan and to adopt the rules
and regulations for its administration.
Generally, each Award (other than an Award of vested stock) will be
evidenced by an award agreement delivered to the participant specifying the
terms and conditions of the Award and any rules applicable to such Award. The
material terms and features of the various forms of Awards available under the
1999 Plan are set forth below.
TYPES OF AWARD
Options -- An option represents the right to purchase shares of Class A
Common Stock upon payment of a pre-established exercise price. The exercise
price, vesting schedule (if any) and other terms and conditions of options
granted under the 1999 Plan are established at the time of grant by the
Committee. Options granted pursuant to the 1999 Plan may be nonqualified stock
options or incentive stock options within the meaning of Section 422 of the
Code.
SARs -- A SAR represents the right to receive an amount equal to the
appreciation of shares of Class A Common Stock over a pre-established exercise
price. The exercise price, vesting schedule (if any) and other terms and
conditions of SARs granted under the 1999 Plan are established at the time of
grant by the Committee.
Vested Stock -- These awards are grants of shares of Class A Common Stock
to participants.
Restricted Stock -- Restricted Stock Awards are grants of shares of Class A
Common Stock subject generally to forfeiture and transfer restrictions which
lapse in accordance with a vesting schedule or upon the
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satisfaction of specified conditions. The vesting schedule or conditions to
which a Restricted Stock Award is subject are established by the Committee at
the time of grant.
Restricted Stock Units -- Restricted Stock Units are rights to receive
shares of Class A Common Stock at a future date, in accordance with a vesting
schedule or upon satisfaction of other specified conditions. The vesting
schedule or other conditions are established by the Committee at the time of
grant.
Performance Awards -- Performance Awards are rights to receive amounts,
denominated in cash or shares of Class A Common Stock, based upon the Company's
or a participant's performance during the period between the date of grant and a
pre-established future date. Performance criteria, the length of the performance
period, and the form and time of payment of the Award are established by the
Committee at the time of grant. The performance measures to be used for purposes
of Awards to employees whose compensation is subject to Section 162(m) of the
Code (see "Federal Income Tax Consequences" below) must be chosen by the
Committee from among the following: (i) earnings per share, (ii) net income,
(iii) income from operations, (iv) earnings before interest and taxes, (v)
earnings before interest, taxes, depreciation and amortization, (vi) return on
assets, (vii) return on equity, (viii) return on capital, (ix) total stockholder
return, (x) revenue growth, (xi) new business generation, (xii) cash flow,
(xiii) employee turnover, (xiv) human resources, (xv) mergers, acquisitions,
investments, joint ventures or sales or divestitures of assets, businesses or
subsidiaries, (xvi) litigation, (xvii) information services and (xviii) cost
reductions or savings.
Other Stock-Based Awards -- These are Awards based on, or related to,
shares of Class A Common Stock that do not constitute any of the Awards
described above. Such Awards shall have such terms and conditions as are
established by the Committee.
CHANGE IN CONTROL
The 1999 Plan provides that, except as provided in the relevant Award
Agreement, outstanding Awards will become fully vested on the occurrence of a
Change in Control of the Company.
NON-TRANSFERABILITY
Except as otherwise provided in the relevant Award Agreement, Awards
granted pursuant to the 1999 Plan are not transferable and, during a
participant's life, options and SARs may only be exercised by the participant or
his or her legal representative.
AMENDMENT, SUSPENSION AND TERMINATION
The Board of Directors or the Operating Committee of the Board of Directors
(the "Operating Committee") may at any time amend, suspend or terminate the 1999
Plan; provided, however, that no such amendment may, without the affirmative
vote of a majority of the voting power of the Company's capital stock, increase
the maximum number of shares for which Awards may be granted (in the aggregate
or to any single individual) or change the class of individuals eligible to
participate in the 1999 Plan. Unless terminated by the Operating Committee or
the Board of Directors of the Company, the 1999 Plan shall continue until April
9, 2019; provided, however, that incentive stock options may not be granted
under the 1999 Plan after April 9, 2009.
PLAN BENEFITS
Subject to the provisions of the 1999 Plan, the Committee has full
discretion to determine the number and amount of awards to be granted under the
1999 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 1999 Plan are not presently determinable. Details on stock
option, bonus, restricted stock awards and other compensation received by the
Named Executive Officers for the last fiscal year are presented in the tables
entitled "Summary Compensation Table" and "Option Grants in Last Fiscal Year" on
pages 10 and 13 hereof.
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FEDERAL INCOME TAX CONSEQUENCES
Nonqualified Stock Options
Options granted under the 1999 Plan may be nonqualified options or
incentive stock options, as determined by the Committee at the time of grant.
Generally, under Section 83 of the Code, 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 Class A Common 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 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 stock on the date of exercise is generally taxable as
long-term or short-term capital gain or loss (provided the stock is a capital
asset in the holder's hands) depending upon whether the holding period for such
stock at the time of disposition is more than one year or one year or less,
respectively.
Incentive Stock Options
Options granted under the 1999 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 or its
subsidiary 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 stock received upon such exercise, except as noted
below, the optionee will recognize long-term capital gain or loss (if the 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 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 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 stock on the date the incentive stock
option is exercised or the amount realized on such disqualifying disposition and
(ii) if the 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 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 stock at the time of disposition is more than
12 months; otherwise, it will be short-term capital gain.
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.
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Exercise With Shares of Stock
If payment of the exercise price of a nonqualified stock option is made by
surrendering previously owned shares of 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.
If payment for the exercise price of an incentive stock option is made by
surrendering previously owned shares of the stock, the following rules apply:
If shares of "statutory option stock" (i.e., stock previously acquired
pursuant to the exercise of an incentive stock option) are surrendered in
payment of the exercise price of an incentive stock option and if, at the date
of surrender, the applicable holding period for such shares has not been met
(e.g., if shares previously acquired upon the exercise of an incentive stock
option are surrendered within two years from the date of grant or within one
year from the date the shares were transferred to the optionee), such surrender
will constitute a "disqualifying disposition" and any gain realized on such
transfer will thus be taxable according to the rules described above for
disqualifying dispositions. If the shares surrendered are not statutory option
stock, or if they are statutory option stock but have been held for the
requisite holding period, no gain or loss should be recognized upon such
surrender. Although the Internal Revenue Service will not issue any rulings as
to the effect of such an exercise, it has issued a published ruling stating that
no gain or loss will be recognized upon the surrender of shares upon exercise of
a nonqualified stock option, and the Treasury Department has issued proposed
regulations which, if adopted in their current form, would appear to provide
that, except as discussed above, in general, when shares are surrendered upon
exercise of an incentive stock option:
(a) No gain or loss will be recognized as a result of the exchange.
(b) A number of shares received which is equal in number to the shares
surrendered will have a basis equal to the shares surrendered and (except
for purposes of determining whether a disposition will be a disqualifying
disposition) will have a holding period which includes the holding period
of the shares exchanged.
(c) Any additional shares received will have a zero basis and will
have a holding period which begins on the date of the exchange. If any of
the shares received are disposed of within two years of the date of grant
of the incentive stock option or within one year after the date shares were
transferred to the optionee, the shares with the lowest basis (i.e., a zero
basis) will be deemed to be disposed of first and such disposition will be
a disqualifying disposition giving rise to ordinary income as discussed
above.
Restricted Stock
Restricted Stock Awards are taxable as ordinary income to the recipient at
the time, and to the extent, the Award becomes nonforfeitable in an amount equal
to the value of the Class A Common Stock subject to the Award, or portion
thereof becoming nonforfeitable, at such time. The recipient may, however, elect
to recognize, for federal income tax purposes, the value of the Award of shares
of Class A Common Stock on the date such shares are received, even though the
shares remain subject to forfeiture at that time. The election must be made
within 30 days after the Award of shares.
If such an election is made, future appreciation in the value of the shares
of Class A Common Stock will not be treated as taxable compensation. However, if
the shares are forfeited after the taxable year in which
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such election is made, no deduction will be allowed to the recipient. The
Company is entitled to a deduction at the time the recipient recognizes the
Award (or a portion thereof) as taxable income in an amount equal to the amount
recognized by the recipient as taxable income.
Restricted Stock Units
Generally, Restricted Stock Units will be taxable for federal income tax
purposes as ordinary income to the recipient at the time, and to the extent, the
Award becomes nonforfeitable in an amount equal to the value of the Class A
Common Stock subject to the Award, or portion thereof, becoming nonforfeitable,
at such time. The Company is entitled to a deduction at the time the recipient
recognizes taxable income in an amount equal to the amount recognized by the
recipient as taxable income.
SARs
SARs are generally taxed at the time of exercise rather than at grant or
vesting. The recipient will recognize ordinary income for federal income tax
purposes in an amount equal to the value of the cash and/or shares of Class A
Common Stock delivered to the recipient upon exercise of the SAR. The Company is
entitled to a deduction at the time the recipient recognizes taxable income in
an amount equal to the amount recognized by the recipient as taxable income.
Performance Awards
Performance Awards are generally taxed as ordinary income to the recipient,
at the time paid or payable (or when no longer subject to forfeiture
restrictions, if earlier) equal to the value of shares of Class A Common Stock
and/or cash payable under the Award at such time. The Company is entitled to a
deduction at the time the recipient recognizes taxable income in an amount equal
to the amount recognized by the recipient as taxable income.
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 ("Named Executive Officers"),
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 1999 Plan so that compensation to the
Named Executive Officers 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 1999 Plan.
Section 280G of the Code
Under certain circumstances, the accelerated vesting or exercise of Awards
in connection with a Change in Control (as defined in the 1999 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.
Summary
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 1999 Plan. Accordingly, holders
of Awards granted under the 1999 Plan should consult their own tax advisors for
specific advice with respect to all federal, state or local tax effects before
exercising any options or SARs and before disposing of any shares of stock
acquired pursuant to an Award. Moreover, the Company does not represent that the
foregoing tax consequences apply to any particular Award holder's specific
circumstances or will
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continue to apply in the future and makes no undertaking to maintain the tax
status (e.g., as an incentive stock option) of any Award.
The 1999 Plan is not subject to any provision of ERISA, nor is it a
qualified employee benefit plan under Section 401(a) of the Code.
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
The Board of Directors believes that approval of the 1999 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 1999 PLAN AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE 1999 PLAN.
The affirmative vote of the holders of a majority of the voting power of
Class A Common Stock and Class B Common Stock, voting together as a single
class, represented and voted at the Annual Meeting is required to approve the
1999 Plan. If the 1999 Plan is not approved by the Company's stockholders, it
will not be implemented.
APPROVAL OF AMENDED AND RESTATED
1984 BONUS COMPENSATION PLAN
GENERAL
In 1984, the Company's stockholders approved the 1984 Bonus Compensation
Plan (the "1984 Plan"), which provides for the grant of annual and long-term
bonuses and other stock- and cash-based performance awards. In order to improve
administrative flexibility under the 1984 Plan, on April 9, 1999, the Company's
Board of Directors approved, subject to stockholder approval, an amended and
restated version of the 1984 Plan (the "Restated 1984 Plan"). Adoption of the
Restated 1984 Plan is being submitted for stockholder approval.
The following summary of the material terms and provisions of the Restated
1984 Plan is qualified in its entirety by reference to the full text of the
Restated 1984 Plan, a copy of which is attached to this Proxy Statement as Annex
III and incorporated herein by this reference. Certain capitalized terms have
the meanings assigned to those terms in the Restated 1984 Plan. Any reference to
number of shares relating to the Restated 1984 Plan contained in this summary
are presented on a basis before giving effect to the stock split contemplated by
the Recapitalization Proposal. See "The Recapitalization Proposal -- Purpose and
Effect of the Recapitalization Proposal."
AWARDS AUTHORIZED UNDER THE RESTATED 1984 PLAN
The Restated 1984 Plan will, if approved by the stockholders, authorize the
grant to eligible participants of Bonus Awards in each Company fiscal year with
an aggregate fair market value of up to the "Bonus Pool" for that year. The
Bonus Pool for each fiscal year will be established by the Committee, but may
not exceed 7.5% of the Company's consolidated revenue for the year. The maximum
fair market value of awards that may be granted to any individual during a
fiscal year under the Plan is $25,000,000. Bonus Awards may be denominated in
cash or shares of Class A Common Stock.
ELIGIBLE PARTICIPANTS
Employees, directors and consultants of the Company and its affiliates are
eligible to participate in the Restated 1984 Plan. As of the Record Date, the
Company and its subsidiaries had eight directors who were not also employees and
approximately employees and consultants.
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ADMINISTRATION
The Restated 1984 Plan will be administered by the "Committee," as defined
in the plan. The Restated 1984 Plan defines the "Committee" as any of: (i) the
Board of Directors of the Company, (ii) the Compensation Committee of the Board
of Directors (or such other committee of the Board of Directors as is appointed
to administer the Restated 1984 Plan), (iii) the Chief Executive Officer of the
Company with respect to Bonus Awards under the CEO Bonus Fund (described below)
and (iv) Group Managers, with respect to Bonus Awards from the Group Bonus Pools
(described below). In the case of Bonus Awards to certain individuals, the
composition of the Committee must conform to the requirements of Section 162(m)
of the Code or Rule 16b-3 under the Securities Exchange Act of 1934 (for
stock-based awards).
The Committee is authorized to determine the eligible individuals who will
be granted Bonus Awards under the Restated 1984 Plan and to establish the form
of such Bonus Awards and their terms and conditions. The Committee also has the
power to modify, amend, cancel or suspend an outstanding Bonus Award. The
Committee is also authorized to interpret the Restated 1984 Plan and to adopt
the rules and regulations for its administration.
FORMS OF BONUS AWARD
Bonus Awards under the Restated 1984 Plan may be granted in the form of
cash, Restricted Stock or Vested Stock. Restricted Stock awards are grants of
shares of Class A Common Stock, subject generally to forfeiture and transfer
restrictions which lapse in accordance with a vesting schedule or upon the
satisfaction of specified conditions. The vesting schedule or conditions are
established by the Committee at the time of grant. Vested Stock awards are
grants of shares of Class A Common Stock other than Restricted Stock.
BONUS PROGRAMS
Awards under the Restated 1984 Plan are granted under one of several
programs, as described below.
CEO Bonus Program -- The CEO Bonus Program is primarily intended to provide
for the grant of Bonus Awards to especially deserving employees, employees
involved in corporate development or administration and the Company's most
senior employees (other than executives whose compensation is subject to the
deduction limitations of Section 162(m) of the Code). Under the CEO Bonus
Program, the Company's Chief Executive Officer determines, for each fiscal year,
the amount of the CEO Bonus Fund and submits recommendations to the Committee of
the amount, form and terms of individual Bonus Awards. Based upon such
recommendations, the Committee grants Bonus Awards under the CEO Bonus Program
up to the amount of the CEO Bonus Fund for the year.
Group Bonus Program -- The Group Bonus Fund provides for the grant of Bonus
Awards to individuals who contribute to the success of each of the Company's
major operating groups of the Company ("Groups"). Under the Group Bonus Program,
the Committee determines the maximum aggregate fair market value of awards for
each Group for each fiscal year or the formula or mechanism by which such amount
is determined (the "Group Bonus Fund"). The manager responsible for each Group
(the "Group Manager") submits recommendations to the Committee of the amount,
form and terms of individual Bonus Awards. Based upon such recommendations, the
Committee grants Bonus Awards up to the amount of the applicable Group Bonus
Fund for the year. In addition, each Group Manager has discretion to grant cash
or stock bonuses ("Spot Bonuses") to reward extraordinary effort or special
achievement when the timeliness of the Bonus Award is particularly important.
Committee approval is required in order to grant Spot Bonuses in excess of
$10,000 (which amount may be adjusted, from time to time by the Committee).
Performance Awards -- Performance Awards are rights to receive amounts,
denominated in cash or shares of Class A Common Stock, based upon the Company's
or a participant's performance during the period between the date of grant and a
pre-established future date. Performance criteria, the length of the performance
period, and the form and time of payment of the Award are established by the
Committee at the time of grant. The performance measures to be used for purposes
of Awards to employees whose compensation is subject to Section 162(m) of the
Code (see "Federal Income Tax Consequences" below)
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must be chosen by the Committee from among the following: (i) earnings per
share, (ii) net income, (iii) income from operations, (iv) earnings before
interest and taxes, (v) earnings before interest, taxes, depreciation and
amortization, (vi) return on assets, (vii) return on equity, (viii) return on
capital, (ix) total stockholder return, (x) revenue growth, (xi) new business
generation, (xii) cash flow, (xiii) employee turnover, (xiv) human resources,
(xv) mergers, acquisitions, investments, joint ventures or sales or divestitures
of assets, businesses or subsidiaries, (xvi) litigation, (xvii) information
services and (xviii) cost reductions or savings.
Other Bonus Programs -- The Restated 1984 Bonus Plan provides that the
Committee may also establish, from time to time, other bonus programs and
arrangements under the Plan, subject to the Plan's overall limits on the value
of awards.
CHANGE IN CONTROL
The Restated 1984 Plan provides that, except as provided in the relevant
Award Agreement, outstanding Bonus Awards will become fully vested on the
occurrence of a Change in Control of the Company.
NON-TRANSFERABILITY
Except as otherwise provided in the relevant Award Agreement, Bonus Awards
granted pursuant to the Restated 1984 Plan are not transferable.
Pursuant to the Company's Charter, all shares of Class A Common Stock
acquired pursuant to Bonus Awards under the Restated 1984 Plan are 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 are also subject to the Company's right of first refusal if a
participant desires to sell such shares other than in the Company's Limited
Market. As of April 9, 1999, the market value of the Class A Common Stock (as
reflected by the Formula Price) was $72.41 per share.
AMENDMENT, SUSPENSION AND TERMINATION
The Board of Directors or the Operating Committee may at any time amend,
suspend or terminate the Restated 1984 Plan. Unless terminated by the Operating
Committee or the Board of Directors of the Company, the Restated 1984 Plan shall
continue indefinitely.
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 Restated 1984
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 Restated 1984 Plan are not presently determinable. Details on bonus,
restricted stock awards and other compensation received by the Named Executive
Officers for the last fiscal year are presented in the table entitled "Summary
Compensation Table" on page 10 hereof.
Federal Income Tax Consequences
Awards under the Restated 1984 Plan of cash bonuses and shares of Class A
Common Stock that are not subject to forfeiture are taxable as ordinary income
to the recipient in the year received. Awards of shares of Class A Common Stock
that are subject to forfeiture will not be recognized for federal income tax
purposes by the recipient at the time such awards are made, unless the recipient
makes an election, as discussed below, to recognize the award as income at the
time received.
The recipient of shares of Class A Common Stock that are subject to
forfeiture will recognize income at the time all or a portion of the award
becomes nonforfeitable to the extent of the value of such nonforfeitable shares
at such time. Such recipient may, however, elect to recognize, for federal
income tax purposes, the value of an award of shares of Class A Common Stock on
the date such shares are received, even though the
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shares remain subject to forfeiture at that time. The election must be made
within 30 days after the award of shares.
If such an election is made, future appreciation in the value of the shares
of Class A Common Stock will not be treated as taxable compensation. However, if
the shares are forfeited after the taxable year in which such election is made,
no deduction will be allowed to the recipient. The Company is entitled to a
deduction at the time the recipient recognizes the award (or a portion thereof)
as taxable income in an amount equal to the amount recognized by the recipient
as taxable income.
The foregoing discussion is intended only as a summary of certain federal
income tax consequences and does not purport to be a complete discussion of all
of the tax consequences of participation in the Restated 1984 Plan. Accordingly,
recipients of awards under the Restated 1984 Plan should consult their own tax
advisors with respect to all federal, state and local tax effects of
participation in the Restated 1984 Plan. Moreover, the Company does not
represent that the foregoing tax consequences will apply to any particular
recipient's specific circumstances.
The Restated 1984 Plan is not subject to any provision of ERISA nor is it a
qualified employee benefit plan under Section 401(a) of the Code.
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
The Board of Directors believes that approval of the Restated 1984 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 RESTATED 1984 PLAN AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE RESTATED 1984 PLAN.
The affirmative vote of the holders of a majority of the voting power of
Class A Common Stock and Class B Common Stock, voting together as a single
class, represented and voted at the Annual Meeting is required to approve the
Restated 1984 Plan. If the Restated 1984 Plan is not approved by the Company's
stockholders, the 1984 Plan will continue to be effective in accordance with its
current terms.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Any stockholder proposals intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Company no later than February
, 2000 in order to be considered for inclusion in the Company's Proxy
Statement and form of proxy relating to that meeting. In addition, Section 2.01
of the Company's Bylaws provides that in order for a stockholder to propose any
matter for consideration at an annual meeting of the Company (other than by
inclusion in the Company's Proxy Statement), such stockholder must have given
timely prior written notice to the Corporate Secretary of the Company of his or
her intention to bring such business before the meeting. To be timely, notice
must be received by the Company not less than 50 days nor more than 75 days
prior to the meeting (or if fewer than 65 days' notice or prior public
disclosure of the meeting date is given or made to stockholders, not later than
the 15th day following the day on which the notice of the date of the meeting
was mailed or such public disclosure was made). Such notice must contain certain
information, including a brief description of the business the stockholder
proposes to bring before the meeting, the reasons for conducting such business
at the annual meeting, the class and number of shares of Common Stock
beneficially owned by the stockholder who proposes to bring the business before
the meeting and any material interest of such stockholder in the business so
proposed.
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ANNUAL REPORT
The Company's 1999 Annual Report to Stockholders for the year ended January
31, 1999, 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, 1999
(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 , 1999
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ANNEX I
ARTICLE FOURTH OF THE
RESTATED CERTIFICATE OF INCORPORATION OF
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
FOURTH: The total number of shares of capital stock of all classes which
the Corporation shall have the authority to issue is one billion eight million
(1,008,000,000) shares. One billion (1,000,000,000) shares shall be Class A
Common Stock, par value $.01 per share, five million (5,000,000) shares shall be
Class B Common Stock, par value $.05 per share, and three million (3,000,000)
shares shall be Preferred Stock, par value $.05 per share.
The Board of Directors is expressly authorized to provide for the issuance
of all or any shares of the Preferred Stock, in one or more classes or series,
and to fix for each such class or series such voting powers, full or limited, or
no voting powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of such class or series and as may be permitted by the General
Corporation Law of the State of Delaware (the "DGCL"), including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, of the Corporation at
such price or prices or at such rates of exchange and with such adjustments; all
as may be stated in such resolution or resolutions.
The designation and the powers, preferences, rights, qualifications,
limitations and restrictions applicable to the shares of Class A Common Stock
and Class B Common Stock (collectively, the "Common Stock") which the
Corporation is authorized to issue shall be as follows:
(A) VOTING RIGHTS.
Except as otherwise provided by the DGCL, the holders of Class A Common
Stock and Class B Common Stock shall in all matters vote together as a single
class. In all matters requiring a stockholder vote, each holder of Class A
Common Stock shall have one vote per share, and each holder of Class B Common
Stock shall have 20 votes per share, except as otherwise provided in Article
TENTH.
(B) DIVIDENDS RIGHTS.
Subject to the rights of the holders of outstanding Preferred Stock, if
any, holders of Class A Common Stock and Class B Common Stock shall be entitled
to receive, equally and ratably, such dividends, payable in cash, stock or
otherwise, as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available therefor;
provided, however, that any dividend declared and paid with respect to each
share of Class B Common Stock, whether payable in cash, stock or other property,
shall be equal to 20 times the per share dividend declared and paid with respect
to each share of Class A Common Stock.
(C) LIQUIDATION RIGHTS.
In the event of any dissolution, liquidation or winding up of the affairs
of the Corporation, whether voluntary or involuntary, after payment or provision
for payment of the debts and other liabilities of the Corporation, including,
without limitation, all amounts payable with respect to outstanding Preferred
Stock, if any, the holders of Class A Common Stock and Class B Common Stock
shall be entitled to receive, equally and ratably, the remaining assets and
funds of the Corporation; provided, however, that the amount of such
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assets and funds distributed with respect to each share of Class B Common Stock
shall be equal to 20 times the per share amount distributed with respect to each
share of Class A Common Stock. A merger or consolidation of the Corporation with
or into any other corporation or a sale or conveyance of all or any part of the
assets of the Corporation (which shall not in fact result in the liquidation of
the Corporation and the distribution of assets to stockholders) shall not be
deemed to be a voluntary or involuntary liquidation or dissolution or winding up
of the Corporation within the meaning of this Section (C).
(D) RECLASSIFICATION, ETC.
No class of Common Stock may be subdivided, consolidated, reclassified or
otherwise changed unless the relative powers, preferences, rights,
qualifications, limitations and restrictions applicable to the other class of
Common Stock are maintained.
(E) MERGERS, CONSOLIDATIONS, ETC.
In any merger, consolidation or business combination to which the
Corporation is a party (other than a merger, consolidation or business
combination in which the Corporation is the surviving corporation and which does
not result in any reclassification of or change in outstanding shares of Common
Stock), the consideration to be received with respect to each share of Class B
Common Stock in such merger, consolidation or business combination must be equal
to 20 times the consideration to be received with respect to each share of Class
A Common Stock; provided, however, that in any such transaction in which shares
of capital stock are distributed, such shares may differ as to the rights of the
holders thereof to the extent and only to the extent that such rights differ as
provided herein.
(F) RESTRICTIONS ON CLASS A COMMON STOCK
(1) Corporation's Right to Repurchase upon Termination of Affiliation. All
shares of Class A Common Stock held of record by a person who is an employee or
director of, or a consultant to, the Corporation or any of its Subsidiaries
shall be subject to the Corporation's right to repurchase all of such shares in
the event that such holder's affiliation with the Corporation as an employee,
director or consultant is terminated. Such right of repurchase upon termination
of affiliation shall also be applicable to all shares of Class A Common Stock
which such person has the right to acquire subsequent to such person's
termination of affiliation pursuant to any of the Corporation's employee benefit
plans (other than shares distributable to such person under the Employee Stock
Retirement Plan, or any other retirement or pension plan adopted by the
Corporation or any of its Subsidiaries which, by its terms, provides that the
Corporation's right to repurchase shares issued thereunder upon termination of
affiliation shall not apply) or pursuant to any option or other contractual
right to acquire shares of Class A Common Stock which was outstanding at the
date of such termination of affiliation. An authorized leave of absence approved
in accordance with the Corporation's policy shall not constitute a termination
of affiliation for purposes of this subparagraph (1); provided, however, that
the issuance of a formal personnel action notice by the Corporation's human
resources department advising an employee that such employee's leave of absence
is terminated shall constitute a termination of affiliation for purposes of this
subparagraph (1). The Corporation's right of repurchase shall be exercised by
mailing written notice to such holder's address of record on the Corporation's
stock record books within sixty (60) days following (i) the date of termination
of such affiliation with respect to employees, directors or consultants of the
Corporation, or (ii) the date on which the Corporate Secretary of the
Corporation receives written notice of the termination of affiliation of an
employee, director or consultant of a Subsidiary. If the Corporation repurchases
the shares, the price shall be the Formula Price (as hereinafter defined) per
share (i) on the date of such termination of affiliation, in the case of shares
held of record by such holder at that date and shares issuable to such holder
subsequent to that date pursuant to any option or other contractual right to
acquire shares of Class A Common Stock which was outstanding at that date; or
(ii) on the date such shares are distributed to such holder, in the case of
shares distributable to such holder subsequent to such holder's termination of
affiliation pursuant to any of the Corporation's employee benefit plans. The
Corporation shall, in the event it exercises its right to repurchase such shares
of Class A Common Stock as provided in this subparagraph (1), pay for such
shares in cash within 90 days after (i) the date of such termination of
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affiliation (such 90-day period shall commence on such date of termination of
affiliation and shall not be extended by accrued vacation, sick days or similar
accruals) or the date on which the Corporate Secretary of the Corporation
receives written notice of the termination of affiliation of an employee,
director or consultant of a Subsidiary, in the case of shares held of record by
such holder at that date and shares issuable to such holder subsequent to that
date pursuant to any option or other contractual right to acquire shares of
Class A Common Stock which was outstanding at that date; or (ii) the date such
shares are distributed to such holder, in the case of shares distributable to
such holder subsequent to such holder's termination of affiliation pursuant to
any of the Corporation's employee benefit plans. If the Corporation is unable to
make such payment directly to such holder, then the Corporation may satisfy its
obligation to make such payment by depositing the purchase price within such
90-day period in an account for the benefit of such holder and such shares of
Class A Common Stock shall thereby be deemed to have been transferred to the
Corporation and no longer outstanding with all rights of such holder with regard
to such shares terminated. Notwithstanding the foregoing, the right of
repurchase upon termination of affiliation set forth in this subparagraph (1)
shall not be applicable to shares of Class A Common Stock held by a holder who
received such shares (i) in the merger (the "Merger") of Science Applications,
Inc. with and into the Corporation in exchange for shares of Common Stock, par
value $.05 per share, of the Corporation ("Old Common Stock") which immediately
prior to the effective time of the Merger (the "Effective Time") were not
subject to a right of repurchase upon termination of affiliation on the part of
the Corporation; (ii) upon exercise of a "non-qualified" stock option granted
prior to October 1, 1981 under the Corporation's 1979 Stock Option Plan which
was not converted into an "incentive stock option;" (iii) in exchange for shares
of Class B Common Stock pursuant to Section (I) of this Article FOURTH which
were not subject to a right of repurchase upon termination of affiliation on the
part of the Corporation; or (iv) by way of a stock dividend or a stock split on
the outstanding shares of Class A Common Stock which have been theretofore
issued under the circumstances described in clauses (i), (ii) or (iii) or this
clause (iv) of this sentence.
(2) Corporation's Right of First Refusal. If at any time a holder of Class
A Common Stock desires to sell any of such shares (other than through the
limited market maintained by the Corporation), such holder shall first give
notice to the Secretary of the Corporation containing:
(a) A statement signed by such holder notifying the Corporation that
such holder desires to sell shares of Class A Common Stock and has received
a bona fide offer to purchase such shares.
(b) A statement signed by the intended purchaser containing:
(i) the intended purchaser's full name, address and taxpayer
identification number;
(ii) the number of shares to be purchased;
(iii) the price per share to be paid;
(iv) other terms under which the purchase is intended to be made;
and
(v) a representation that the offer, under the terms specified, is
bona fide.
(c) If the purchase price is payable in cash, in whole or in part, a
copy of a certified check, cashier's check or money order payable to such
holder from the purchaser in the aggregate amount of the purchase price
which is to be paid in cash.
The Corporation shall thereupon have an option exercisable within fourteen
(14) days of receipt of such notice by the Secretary to purchase all, but not
less than all, of the shares specified in the notice at the offer price and upon
the same terms as set forth in the notice, accompanied by payment of the
purchase price; provided, however, that if the offer price is payable, in whole
or in part, other than in cash, the Corporation shall pay the equivalent value
of any noncash consideration as mutually agreed upon between the holder and the
Corporation. Such option shall be exercised by the Corporation by mailing
written notice to such holder at such holder's address of record on the
Corporation's stock record books. In the event the Corporation does not exercise
such option, such holder may sell the shares specified in the notice within 30
days thereafter to the person, at the price and upon the terms and conditions
set forth therein. The holder may not sell such shares to
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any other person, or at any different price, or on any different terms without
first re-offering such shares to the Corporation.
(3) Election of Rights by Corporation. In the event circumstances shall
occur which would ordinarily permit the Corporation to exercise its rights under
either subparagraphs (1) or (2) of this paragraph (F) at a time when the
Corporation's rights under the other subparagraph have become and remain
exercisable, the Corporation in its sole discretion may elect which of such
rights it shall exercise. The Corporation may designate one or more nominees to
purchase any shares of Class A Common Stock which it has the right to purchase
pursuant to subparagraphs (1) or (2) of this paragraph (F), in lieu of
purchasing such shares itself.
(4) Other Transfers. Except for sales in the limited market maintained by
the Corporation and as provided in subparagraphs (1) or (2) of this paragraph
(F), no holder of shares of Class A Common Stock may sell, assign, pledge,
transfer or otherwise dispose of or encumber any shares of Class A Common Stock
without the prior written approval of the Corporation, and any attempt to so
sell, assign, pledge, transfer or otherwise dispose of or encumber such shares
without such prior approval shall be null and void. The Corporation is expressly
authorized to condition its approval of a transfer other than by sale of any
shares of Class A Common Stock by an employee or director of, or a consultant
to, the Corporation or by a person who acquired such shares other than by
purchase, directly or indirectly, from an employee or director of, or a
consultant to, the Corporation upon the transferee's agreement to hold such
shares subject to the Corporation's right to repurchase such shares pursuant to
subparagraph (1) of this paragraph (F) upon the termination of affiliation of
the employee, director or consultant.
(5) Definitions. As used in this Article FOURTH, the following terms shall
have the indicated meanings:
(a) "Formula Price" shall mean the price determined pursuant to the
formula adopted by the Board of Directors of the Corporation for the
purpose of determining the fair market value of the Corporation's Class A
Common Stock, as such formula may be modified from time to time by the
Board of Directors.
(b) "Subsidiary" shall mean an entity designated as such by the Board
of Directors (or a committee of the Board of Directors empowered to make
such determination) based on the Corporation's equity interest in, control
over or relationship with such entity. If the Board of Directors (or such
committee) determines that the Corporation's equity interest in, control
over or relationship with such entity has changed in a way that makes the
entity's status as a Subsidiary no longer appropriate, the Board of
Directors (or such a committee) may remove the designation.
(G) RESTRICTIONS ON CLASS B COMMON STOCK.
(1) All shares of Class B Common Stock issued in the Merger in exchange for
shares of Old Common Stock shall be subject to the same contractual or other
restrictions, if any, that were applicable immediately prior to the Effective
Time to the shares of Old Common Stock which were so converted into such shares
of Class B Common Stock.
(2) All shares of Class B Common Stock issued subsequent to the Effective
Time upon exercise of options granted prior to the Effective Time under any of
the Corporation's stock option plans ("Options"), which were not converted in
the Merger into Options to purchase shares of Class A Common Stock shall be
subject to the same contractual or other restrictions, if any, that would have
been applicable to the shares of Old Common Stock issuable upon exercise of such
Options if such Options had been exercised immediately prior to the Effective
Time.
(H) LAPSE OR WAIVER OF RESTRICTIONS ON CLASS A COMMON STOCK.
(1) Lapse. All restrictions upon the shares of Class A Common Stock set
forth in paragraph (F) above shall automatically lapse and be of no further
force or effect if:
(a) the Corporation makes an underwritten offering of any class of its
Common Stock (or any class of securities convertible into any class of its
Common Stock) to the general public; or
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(b) the Corporation applies to have any class of its Common Stock (or
any class of securities convertible into any class of its Common Stock)
listed on a national securities exchange.
(2) Waiver. The Corporation may, by resolution of its Board of Directors,
acting in its sole discretion, waive any or all of the restrictions upon the
shares of Class A Common Stock set forth in paragraph (F) above in such
circumstances as the Board of Directors deems appropriate, and such waiver may
be effective as to any or all of the shares of Class A Common Stock, or as to
any or all of the holders thereof.
(I) CONVERSION OF CLASS B COMMON STOCK INTO CLASS A COMMON STOCK.
Each share of Class B Common Stock shall be convertible at any time, at the
option of the holder thereof, in accordance with such procedures and subject to
such terms and conditions as the Board of Directors may establish, into 20 fully
paid and nonassessable shares of Class A Common Stock.
(J) LIMITATIONS ON FUTURE ISSUANCE OF CLASS B COMMON STOCK.
The Corporation shall not issue any additional shares of Class B Common
Stock after the Effective Time, except for shares issuable upon the exercise of
Options to purchase shares of Old Common Stock which were outstanding
immediately prior to the Effective Time and which were not converted in the
Merger into Options to purchase shares of Class A Common Stock. Additionally,
any shares of Class B Common Stock purchased or otherwise reacquired by the
Corporation shall be retired and shall no longer be authorized or otherwise
available for reissuance by the Corporation.
(K) NO CHANGE IN FORFEITURE PROVISIONS.
All shares of Class A Common Stock and Class B Common Stock issued in the
Merger in exchange for shares of Old Common Stock, which immediately prior to
the Effective Time were subject to forfeiture, in whole or in part, in the event
of the termination of the holder's employment or affiliation with the
Corporation prior to the expiration of certain vesting periods, shall be subject
to forfeiture in the same manner and to the same extent as were the shares of
Old Common Stock which were so converted into such shares of Class A Common
Stock or Class B Common Stock.
All shares of Class A Common Stock issued by way of a stock dividend or
stock split on shares of Common Stock which are subject to forfeiture, in whole
or in part, in the event of the termination of the holder's employment or
affiliation with the Corporation prior to the expiration of certain vesting
periods, shall be subject to forfeiture in the same manner and to the same
extent as are the shares of Common Stock with respect to which they are issued.
(L) FORMULA PRICE FOR CLASS B COMMON STOCK.
The formula price for shares of Class B Common Stock at all times shall be
equal to 20 times the Formula Price.
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ANNEX II
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1999 STOCK INCENTIVE PLAN
1. PURPOSE
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1999 Stock
Incentive Plan (the "Plan") effective July 9, 1999. The purposes of the Plan are
to advance the interests of the Company and its stockholders by providing a
means by which the Company and its Affiliates can attract, retain and motivate
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
2.1 "AFFILIATE" means (i) any Subsidiary and (ii) any other entity in
which the Company has an equity interest or significant business relationship
and which has been designated as an "Affiliate" by the Committee for purposes of
the Plan.
2.2 "AWARD" means any award, grant or benefit provided under the Plan,
including, without limitation, any Option, SAR, Vested Stock Award, Restricted
Stock Award, Restricted Stock Unit Award and Performance Award.
2.3 "AWARD AGREEMENT" means any written agreement, contract or other
instrument or document evidencing any Award, which may, but need not (as
determined by the Committee) be required to be executed or acknowledged by a
Participant as a condition precedent to receiving an Award or the benefits under
an Award.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CHANGE OF CONTROL" of the Company means, and shall be deemed to have
occurred upon, any of the following events:
(a) The acquisition by any person (as defined in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d) and 14(d) thereof including a
group as defined in Section 13(d) thereof) of beneficial ownership (as
defined in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act) of twenty-five percent (25%) or more of the Outstanding
Voting Securities; provided, however, that the following acquisitions shall
not constitute a Change in Control for purposes of this subparagraph (a):
(A) any acquisition directly from the Company; (B) any acquisition by the
Company or any of its Subsidiaries; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any of its Subsidiaries; or (D) any acquisition by any corporation pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of
subparagraph (c) below; or
(b) Individuals who, as of July 9, 1999, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual who becomes a Director
subsequent to July 9, 1999 and whose election, or whose nomination for
election by the Company's stockholders, to the Board was either (i)
approved by a vote of at least a majority of the Directors then comprising
the Incumbent Board or (ii) recommended by a Nominating Committee comprised
entirely of Directors who are then Incumbent Board members shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act), other actual or threatened
solicitation of proxies or consents or an actual or threatened tender
offer; or
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(c) Consummation of a reorganization, merger, or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case unless following such
Business Combination, (i) all or substantially all of the persons who were
the Beneficial Owners, respectively, of the Outstanding Shares and
Outstanding Voting Securities immediately prior to such Business
Combination own, directly or indirectly, more than fifty percent (50%) of
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of Directors, as the case may
be, of the entity resulting from the Business Combination (including,
without limitation, an entity which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Voting Securities (provided, however, that
for purposes of this clause (i) any shares of common stock or voting
securities of such resulting entity received by such Beneficial Owners in
such Business Combination other than as the result of such Beneficial
Owners' ownership of Outstanding Shares or Outstanding Voting Securities
immediately prior to such Business Combination shall not be considered to
be owned by such Beneficial Owners for the purposes of calculating their
percentage of ownership of the outstanding common stock and voting power of
the resulting entity); (ii) no person (excluding any entity resulting from
such Business Combination or any employee benefit plan (or related trust)
of the Company or such entity resulting from the Business Combination)
beneficially owns, directly or indirectly, twenty-five percent (25%) or
more of the combined voting power of the then outstanding voting securities
of such entity resulting from the Business Combination unless such person
owned twenty-five percent (25%) or more of the Outstanding Shares or
Outstanding Voting Securities immediately prior to the Business
Combination; and (iii) at least a majority of the members of the Board of
the entity resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
the action of the Board, providing for such Business Combination; or
(d) Approval by the Company's stockholders of a complete liquidation or
dissolution of the Company.
For purposes of clause (c), any person who acquires Outstanding Voting
Securities of the entity resulting from the Business Combination by virtue of
ownership, prior to such Business Combination, of Outstanding Voting Securities
of both the Company and the entity or entities with which the Company is
combined shall be treated as two persons after the Business Combination, who
shall be treated as owning Outstanding Voting Securities of the entity resulting
from the Business Combination by virtue of ownership, prior to such Business
Combination of, respectively, Outstanding Voting Securities of the Company, and
of the entity or entities with which the Company is combined.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
2.7 "COMMITTEE" means any of (i) the Board, (ii) the Stock Option
Committee of the Board or any other committee of the Board that is appointed by
the Board to administer the Plan with respect to grants of Awards, (iii) with
respect to grants of Awards to Eligible Individuals who are not Insiders or
Named Executive Officers, any individual or committee or individuals (who need
not be Directors) that the Committee described in clause (ii) or the Board may
appoint from time to time to administer the Plan, (iv) with respect to Awards to
Insiders, the Committee (or any subcommittee thereof) comprised of two or more
Directors who are "non-employee directors" within the meaning of rule 16b-3
adopted under the Exchange Act, and (v) with respect to Awards to Named
Executive Officers intended to comply with the Performance-Based Exception, a
committee comprised of two or more Directors who are "outside directors" within
the meaning of Code section 162(m).
2.8 "DIRECTOR" means any individual who is a member of the Board.
2.9 "ELIGIBLE INDIVIDUAL" means an employee, Director, or consultant of
the Company or an Affiliate.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor thereto.
2.11 "EXERCISE PRICE" means the price at which a share of Stock may be
purchased by a Participant pursuant to an Option, or the measuring price for
calculating the appreciation in an SAR, as applicable.
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2.12 "FAIR MARKET VALUE" means, so long as the Stock is not listed on any
national securities exchange or traded on a regular basis (as determined by the
Board or a committee to which the Board has delegated the authority to make such
determination) on the over-the-counter market, the Formula Price in effect on
the relevant date; otherwise, the closing price on the national exchange or the
mean between the highest bid and lowest asked prices as reported on the NASDAQ
OTC Bulletin Board Service or by the National Quotation Bureau, Incorporated or
comparable service selected by the Board or such committee.
2.13 "FORMULA PRICE" means the price per share of Stock as established by
the Board, or pursuant to procedures established by the Board from time to time.
2.14 "INCENTIVE STOCK OPTION" means an option to purchase Stock granted to
an Eligible Individual who is an employee of the Company or a Subsidiary and
which is intended to meet the requirements of Code Section 422 and to be
governed thereunder.
2.15 "INSIDER" means an individual who is, on the relevant date, an
executive officer, Director or ten percent (10%) beneficial owner of any class
of Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, and as defined under Section 16 of the Exchange Act and the rules
thereunder.
2.16 "NAMED EXECUTIVE OFFICER" means, for a given fiscal year, a
Participant who is one of the group of "covered employees" for such fiscal year
within the meaning of Code section 162(m).
2.17 "NONQUALIFIED STOCK OPTION" means an option to purchase Stock granted
to Eligible Individuals under the Plan which is not intended to meet the
requirements of Code section 422 or to be governed thereunder.
2.18 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.19 "OUTSTANDING SHARES" means the then outstanding shares of Stock.
2.20 "PARTICIPANT" means an Eligible Individual or any permitted
transferee under the Plan of an Eligible Individual who has outstanding an
Award.
2.21 "PERFORMANCE AWARD" means an Award under Section 8 of the Plan which
relates to shares of Stock or the value of shares of Stock and is subject to one
or more performance goals or restrictions.
2.22 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
set forth in Code section 162(m)(4)(C) from the deductibility limitations of
Code section 162(m).
2.23 "RESTRICTED STOCK" means a share of Stock subject to restrictions set
forth in an Award Agreement granted under Section 7 of the Plan.
2.24 "RESTRICTED STOCK UNIT" shall mean a unit measured by the Fair Market
Value of a share of Stock and subject to restriction of other terms and
conditions of an Award Agreement which is granted under Section 7 of the Plan.
2.25 "STOCK" means Class A Common Stock of the Company.
2.26 "SAR" means a stock appreciation right as described in Section 6.
2.27 "SUBSIDIARY" means any company during any period in which it is a
"subsidiary corporation" as that term is defined in Code section 424(f) with
respect to the Company.
2.28 "SUBSTITUTE AWARD" means an Award granted pursuant to Section 5.1 in
assumption of, or as an alternative to or replacement of, an outstanding award
previously granted by a business or entity all or a portion of which is acquired
by the Company or its Affiliate, or with which the Company or its Affiliate
combines.
2.29 "VESTED STOCK" means a share of stock (other than Restricted Stock)
granted under Section 7 of the Plan.
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3. ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by the Committee.
3.2 AUTHORITY 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:
(a) to select from among the Eligible Individuals those persons who
shall receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of shares of Stock covered by
the Awards, to establish the terms, conditions, performance criteria,
restrictions and other aspects of the Awards and the provisions of the
applicable Award Agreement and (subject to the restrictions of Section 4.2)
to modify, amend, cancel or suspend Awards;
(b) to interpret the Plan;
(c) to prescribe, amend and rescind any rules and regulations relating
to the Plan;
(d) to determine whether, to what extent and under what circumstances
Awards may be settled in cash, Stock, other Awards or other property, or
canceled, forfeited or suspended and the method or methods by which Awards
may be settled, exercised, canceled, forfeited or suspended;
(e) to determine whether, to what extent and under what circumstances
cash, Stock, other Awards, other property and any other amounts payable
with respect to an Award shall or may be deferred either automatically or
at the election of the Participant or of the Committee;
(f) to reprice, cancel and regrant, accelerate vesting or otherwise
adjust the Exercise Price of an Award previously granted under the Plan;
(g) to establish sub-plans under this Plan pursuant to which specified
Awards shall be made and governed; and
(h) to make all other determinations and findings, including factual
findings, deemed necessary or advisable for the administration of the Plan.
3.3 COMMITTEE DISCRETION. In exercising its authority, the Committee shall
have the broadest possible discretion. Unless otherwise expressly provided in
the Plan, all designations, determinations, interpretations and other decisions
made in good faith by the Committee under or with respect to the Plan shall be
binding and conclusive on Eligible Individuals, Participants and other persons
claiming entitlements under the Plan. In no event shall a Committee
determination with respect to a particular Participant or Eligible Individual or
with respect to a particular Plan provision be binding with respect to any other
person (even if similarly situated) nor with respect to any future determination
regarding the same or other provision of the Plan.
3.4 COMMITTEE DELEGATION. Except with respect to making grants of Awards
to Insiders or Named Executive Officers, the Committee may delegate its
authority, or specified items thereof, to one or more designated individuals or
other Committees.
4. SHARES OF STOCK SUBJECT TO THE PLAN
4.1 GENERAL LIMITATION. Subject to the provisions of Section 4.2, the
maximum number of shares of Stock that may be delivered to Participants and
their beneficiaries under the Plan shall be equal to the sum of: (i) 6,000,000
shares of Stock; (ii) any shares of Stock available for future awards under the
Science Applications International Corporation 1998 Stock Option Plan ("1998
Plan") as of September 30, 1999, and any shares of Stock that are represented by
Options granted under the 1998 Plan which are forfeited, expire or are canceled
without delivery of shares of Stock, which are used to satisfy tax withholding
on option exercises or which result in the forfeiture of shares of Stock back to
the Company on or after September 30, 1999; and (iii) for each calendar year
after 1999, there shall be added five percent (5%) of the Outstanding Shares of
Stock as of the first business day of such calendar year; provided, however, in
no event shall the number of shares of Stock available for future awards under
the 1998 Plan ever exceed fifteen percent (15%) of the Outstanding Shares.
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To the extent any shares of Stock covered by an Award are not delivered to
a Participant or beneficiary because the Award is forfeited, canceled, expires
without being exercised, or the shares of Stock are not delivered because the
Award is settled in cash or used to satisfy applicable tax withholding
obligations, such shares shall not be deemed to have been delivered for purposes
of determining the maximum number of shares of Stock available for delivery
under the Plan.
If the Exercise Price of any Option granted under the Plan or the 1998 Plan
is satisfied by tendering shares of Stock to the Company (by either actual
delivery or by attestation), only the number of shares of Stock issued net of
the shares of Stock tendered shall be deemed delivered for purposes of
determining the maximum number of shares of Stock available for delivery under
the Plan.
Any shares of Stock covered by a Substitute Award shall not be deemed to
have been delivered for purposes of determining the maximum number of shares of
Stock available for delivery under the Plan.
4.2 ADDITIONAL LIMITATIONS. The following additional maximum limitations
on shares of Stock that may be delivered are imposed under the Plan:
(a) The maximum number of shares of Stock that may be issued under
Options intended to be Incentive Stock Options shall be 8,000,000 shares;
(b) The maximum number of shares of Stock that may be covered by
Awards granted to any one Eligible Individual shall be 500,000 shares
during any calendar year;
(c) To the extent that the aggregate Fair Market Value (determined on
the date of grant) of Shares subject to an Option designated as an
Incentive Stock Option becomes exercisable for the first time by an
Eligible Individual in any calendar year exceeds $100,000 (or such greater
amount as may be established in the Code, from time to time), then to that
extent the Option shall not be treated as an Incentive Stock Option, but
the remaining portion shall retain eligibility as an Incentive Stock
Option.
In determining the maximum number of shares of Stock in Section 4.2(a),
shares used to satisfy applicable tax withholding requirements, if any, shall be
deemed delivered and the gross number of shares which would have been issued in
a cash exercise shall be deemed delivered even if the Exercise Price is
satisfied by tendering shares of Stock to the Company.
4.3 ADJUSTMENTS. In the event that the Committee determines that any
corporate transaction or distribution (including, without limitation, any stock
split, stock dividend, extraordinary cash dividend, issuance of warrants or
other rights to purchase Stock or other securities of the Company,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
repurchase, combination or exchange of shares) affects the Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number of shares of Stock or
other securities of the Company (or number and kind of other securities or
property) with respect to which Awards may be granted under Sections 4.1 and
4.2; (ii) the number of shares of Stock or other securities of the Company (or
number and kind of other securities and property) subject to outstanding Awards;
and (iii) the Exercise Price or other terms and conditions of any Award or, if
deemed appropriate, the Committee may make provision for a cash payment to the
holder of an outstanding Award in full satisfaction of such Award.
5. ELIGIBILITY AND PARTICIPATION
5.1 GENERAL. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Individuals (including transferees of Eligible Individuals to be extent
the transfer is permitted by the Plan and the applicable Award Agreement) those
persons who will be granted one or more Awards under the Plan and thereby become
Participants in the Plan, provided that no Incentive Stock Option shall be
granted to any person who, at the time of the grant, is not an employee of the
Company or a Subsidiary. Awards may be granted on conditions specified by the
Committee, including, without limitation, the condition that the Eligible
Individual acquire, agree to acquire or maintain
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ownership of a specified number of shares of Stock. Awards may be granted as
alternatives to or replacement of Awards outstanding under the Plan or any other
plan or arrangement of the Company or an Affiliate (including a plan or
arrangement of a business or entity, all or a portion of which is acquired by
the Company or an Affiliate).
5.2 NON-U.S. ELIGIBLE INDIVIDUALS AND AFFILIATES. 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 in
other countries in which the Company or its Affiliates operate or have employees
or consultants, the Committee, in its discretion, shall have the power and
authority to (i) determine which (if any) Eligible Individuals rendering
services or employed outside the United States are eligible to participate in
the Plan or any type of Award hereunder; (ii) determine which non-United
States-based Affiliates or operations (e.g., branches, representative offices)
participate in the Plan or any type of Award hereunder; (iii) modify the terms
and conditions of any Awards made to such Eligible Individuals or with respect
to such non-United States-based Affiliates or operations; and (iv) establish
sub-plans, modified exercise, payment and other terms and procedures to the
extent deemed necessary or desirable by the Committee.
6. OPTIONS AND SARS
6.1 OPTIONS. The Options granted pursuant to the Plan may be Incentive
Stock Options or Nonqualified Stock Options, as determined by the Committee and
reflected in the Award Agreement.
6.2 SARS. A SAR entitles the Participant to receive in cash or shares of
Stock (as determined in accordance with subsection 6.4) value equal to (or
otherwise based on) the excess of (i) the Fair Market Value of the number of
shares of Stock specified in the Award Agreement over (ii) the Exercise Price
for the SAR Award established by the Committee. Prior to the grant of any SARs
under the Plan, the Board of Directors must specifically authorize the Committee
to award SARs.
6.3 EXERCISE PRICE. The Exercise Price of each Option and SAR shall be
established by the Committee or shall be determined by a method or formula
established by the Committee at the time the Option or SAR is granted. Unless
otherwise specified in the Award Agreement, the Exercise Price shall be the Fair
Market Value of a share of Stock on the date of grant.
6.4 TERMS OF EXERCISE.
(a) An Option or a SAR shall be exercisable only in accordance with
such terms and conditions and during such periods as may be established by
the Committee in the Award Agreement or otherwise in accordance with the
Plan and the Award Agreement. The Committee may, in its discretion, provide
that such an Option or SAR may be exercised in whole or in part, in
installments, cumulative or otherwise, for any period of time specified by
the Committee or based on performance on other criteria established by the
Committee. The Committee may authorize loans in connection with Option
exercises on terms established by the Committee.
(b) Options and SARs shall be exercised pursuant to procedures
established by the Committee, which may include written, electronic or
voice procedures as may be specified by the Committee. The Committee may
require full payment of the Exercise Price (in the case of an Option) plus
payment of any required withholding amounts as a condition to exercise or
may, in the alternative, satisfy such withholding obligation by withholding
shares of Stock or cash, or any combination thereof, otherwise payable in
settlement of the exercise of an Award, or by any exercise and withholding
procedures it determines to be applicable to a particular Option or SAR.
The Committee may also permit payment of all or part of the Exercise Price
to be satisfied by tendering (either by actual delivery or by attestation)
shares of Stock acceptable to the Committee (which may be required to have
been held by the Participant for at least six months) valued at their Fair
Market Value as of the date of exercise.
6.5 EXPIRATION AND TERMINATION. An Option and all rights and obligations
thereunder shall expire on the date to be determined by the Committee and set
forth in the Award Agreement; provided, however, that in no event shall such
date be later than ten (10) years from the date an Incentive Stock Option is
granted. A
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SAR and all rights and obligations thereunder shall terminate upon the
occurrence of such events as determined by the Committee and set forth in the
Award Agreement.
6.6. SETTLEMENT OF AWARD. Shares of Stock delivered pursuant to the
exercise of an Option or, if applicable, a SAR shall be subject to such
conditions, restrictions and contingencies as the Committee may establish
pursuant to the Plan and Award Agreement. Settlement of SARs may be made in
shares of Stock (valued at their Fair Market Value at the time of exercise), in
cash or in a combination thereof, as determined in the discretion of the
Committee.
6.7 AMENDMENT TO AWARDS. The Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
any Award theretofore granted, prospectively or retroactively.
6.8 CANCELLATION OF AWARDS. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may cause any Award
granted hereunder to be canceled in consideration of a cash payment or
alternative Award made to the holder of such canceled Award equal in value to
the Fair Market Value of such canceled Award.
7. VESTED STOCK, RESTRICTED STOCK AND RESTRICTED STOCK UNITS.
7.1 GRANT. Subject to the terms and provisions of the Plan, the Committee,
at any time and from time to time, may grant Awards of Vested Stock, Restricted
Stock or Restricted Stock Units in such amounts and to such Eligible Individuals
as the Committee shall determine; provided, however, that prior to the grant of
any Awards of Restricted Stock Units under the Plan, the Board of Directors must
specifically authorize the Committee to award Restricted Stock Units. With
respect to Awards of Restricted Stock or Restricted Stock Units, the applicable
Award Agreement shall contain the terms and conditions of each such grant, which
may include, without limitation, the duration of the Award, vesting and
forfeiture provisions, a requirement that Participants pay a specified price for
each share of Restricted Stock, restrictions based on achievement of specified
performance goals and restrictions under federal, state or foreign securities
laws.
7.2 PAYMENT. Unless otherwise specified on the Award Agreement, Restricted
Stock Units shall have a value equal to the Fair Market Value of a share of
Stock and shall be paid in cash, share(s) of Stock or other securities or
property or any combination thereof, as determined by the Committee, upon the
lapse of restrictions applicable to the grant or otherwise in accordance with
the applicable Award Agreement.
7.3 DIVIDENDS, DISTRIBUTIONS AND VOTING RIGHTS. If a dividend or other
distribution is made with respect to the Stock during a period in which
restrictions apply to a Restricted Stock Award or prior to payment of a
Restricted Stock Unit Award, the Committee, either in the Award Agreement or at
the time of distribution if not otherwise specified in the Award Agreement,
shall determine how such dividend or distribution shall affect the applicable
Award, whether by payment of the dividend or distribution to the Award holder,
by adjustment of the Award or otherwise. Unless otherwise specified in the Award
Agreement, a holder of Restricted Stock shall have full voting rights with
respect to shares of Restricted Stock and holders of Restricted Stock Units
shall have no voting rights with respect to shares of Stock to which the Award
relates.
8. PERFORMANCE AWARDS.
8.1 GRANT. Subject to the terms and provisions of the Plan, the Committee
shall have the authority to grant Performance Awards, which consist of rights
which are:
(a) denominated in cash or shares of Stock;
(b) valued in relation to the achievement of performance goals during
such reference periods as the Committee shall establish; and
(c) payable at such time or times and in such form as the Committee
shall determine.
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8.2 TERMS AND CONDITIONS. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall establish the performance
measure(s) to be achieved during any performance period, the length of the
performance period, the amount of any Performance Award and the amount and kind
of any payment or transfer to be made pursuant to any Performance Award.
8.3 PERFORMANCE MEASURES. The performance measure(s) to be used for
purposes of Awards to Named Executive Officers which are designed to qualify for
the Performance-Based Exception shall be chosen from among the following
alternatives:
(a) earnings per share;
(b) net income;
(c) income from operations;
(d) earnings before interest and taxes;
(e) earnings before interest, taxes, depreciation and amortization;
(f) return on assets;
(g) return on equity;
(h) return on capital;
(i) total stockholder return;
(j) revenue growth;
(k) new business generation;
(l) cash flow;
(m) employee turnover;
(n) human resources;
(o) mergers, acquisitions, investments, joint ventures or sales or
divestitures of assets, businesses or subsidiaries;
(p) litigation;
(q) information services; or
(r) cost reductions or savings.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception and which are held by Named Executive Officers, may not be adjusted
upward (the Committee shall retain the discretion to adjust each Award
downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the applicable performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval.
9. OTHER STOCK-BASED AWARDS.
The Committee, subject to the terms of the Plan, shall have the authority
to grant to Eligible Individuals other Stock-based Awards, which encompass any
type of Award which is related to shares of Stock, whether or not payable in
shares of Stock, deemed by the Committee to be consistent with the purposes of
the Plan. Subject to the terms of the Plan and any applicable Award Agreement,
the Committee shall determine the terms and conditions of any such other
Stock-based Award and make grants of such Awards to Eligible Individuals as
determined by the Committee.
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10. CHANGE IN CONTROL.
Subject to the provisions of Section 4.3 (relating to the adjustment of
shares of Stock) and except as provided in the Award Agreement reflecting the
applicable Award, upon the occurrence of a Change in Control, all outstanding
Awards shall become fully vested and all outstanding Options and SARs shall
become immediately exercisable.
11. BENEFICIARY DESIGNATION.
In the event of the death of a Participant holding an Award which provides
for some payment or benefit following the death of the Participant, the benefit
or payment payable under the Award upon the death of the Participant shall be
payable to the estate of the Participant, provided that, in its discretion, the
Committee may, in the Award Agreement or pursuant to the Award Agreement, permit
the Participant to name a beneficiary or beneficiaries to whom any benefit under
the Award is to be paid in case of the Participant's death. Any such
designation, if permitted by the Committee, shall be effective only in
accordance with such procedures as may be established by the Committee and on
forms prescribed by the Committee.
12. DEFERRALS.
The Committee, in an Award Agreement or otherwise, may permit a Participant
to defer such Participant's receipt of the payment of cash or delivery of shares
of Stock that would otherwise be due to such Participant by virtue of the
exercise of an Option or a SAR, the lapse or waiver of restrictions with respect
to Restricted Stock or Restricted Stock Units or the satisfaction of any
requirements or goals with respect to Performance Awards.
13. TAX WITHHOLDING.
All distributions under the Plan are subject to withholding of all
applicable taxes, and the Committee may condition the delivery of shares of
Stock or other benefits on satisfaction of all applicable withholding
requirements. The Committee, in its discretion and subject to such requirements
as the Committee may prescribe, may permit such withholding obligations to be
satisfied through any combination of the following: cash payment by the
Participant, payroll withholding of the Participant's salary, wages or other
compensation, surrender of shares of Stock which the Participant already owns
(either by actual surrender or attestation) or surrender of shares of Stock or
other benefits to which the Participant is otherwise entitled (e.g., upon
exercise of an Option or a SAR) under the terms of the Plan.
14. TRANSFERABILITY.
Except as otherwise provided by the Committee in an Award Agreement or
otherwise, Awards under the Plan may not be anticipated, assigned, attached,
garnished, optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. Except as otherwise
provided in an Award Agreement, an Option or a SAR may be exercised during the
lifetime of the Optionee or Award holder only by him or her or by his or her
legal representative. This Section 14 shall not preclude a Participant from
designating a beneficiary if permitted by the Committee pursuant to Section 11
of the Plan.
15. LIMITATION ON IMPLIED RIGHTS.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Affiliate whatsoever including without
limitation, any specific funds, assets or other property which the Company or
any Affiliate, in its or their sole discretion, may set aside in anticipation of
a liability under the Plan. A Participant shall have only a contractual right to
the Stock or amounts, if any, payable under the Plan, unsecured by any assets of
the Company or any Affiliate, and nothing contained in the Plan shall constitute
a representation or guarantee that the assets of the Company or any Affiliate
shall be sufficient to pay any benefits to any person.
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(b) An Eligible Individual's or Participant's employment with the Company
or an Affiliate, if applicable, is not for any specified term and may be
terminated by such Eligible Individual/Participant or the Company or the
Affiliate at any time, for any reason, with or without cause, notwithstanding
the vesting or other terms and conditions of any outstanding Awards. Nothing in
this Plan nor in any Award Agreement shall confer upon any Eligible Individual
or Participant any promise or commitment by the Company or an Affiliate
regarding future positions, future work assignments, future compensation or any
other term or condition of employment or affiliation.
16. GOVERNMENT AND STOCK EXCHANGE REGULATIONS.
The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines
that the issuance or transfer of such Shares or such other consideration might
violate any applicable law or regulation or entitle the Company to recover the
same under Section 16(b) of the Exchange Act, and any payment tendered to the
Company by a Participant, other holder or beneficiary in connection with the
exercise of such Award shall be promptly refunded to the relevant Participant,
holder or beneficiary. Without limiting the generality of the foregoing, no
Award granted hereunder shall be construed as an offer to sell securities of the
Company, and no such offer shall be outstanding, unless and until the Committee
in its sole discretion has determined that any such offer, if made, would be in
compliance with all applicable requirements of the U.S. federal and state
securities laws and any other laws to which such offer, if made, would be
subject.
Upon the exercise of an Option (or upon a payment event under another
Award) 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 or payment 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.
The Company is under no duty to ensure that shares of Stock may legally be
delivered under the Plan, and shall have no liability to Award recipients in the
event such delivery of shares of Stock may not be made.
17. AMENDMENTS, SUSPENSIONS 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 Awards 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 votes cast at a duly held stockholders meeting (at which a
quorum representing a majority of all outstanding voting stock is, either in
person or by proxy, present and voting on the Plan amendment), increase the
maximum number of shares for which Awards may be granted under the Plan (in the
aggregate or to any single individual), except as specified in Section 4.3, or
change the class of employees eligible to participate in the Plan.
18. 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
Eligible Individuals, Participants or others claiming entitlement under the Plan
or any obligations on the part of the Company, any Affiliate or the Committee,
except as expressly provided herein. In particular, no third-party beneficiary
rights shall be created under the Plan.
Without limiting the generality of the foregoing, the Company disavows any
undertaking to maintain the tax-qualified status of Options designated as
Incentive Stock Options or to assure the tax treatment of any particular Award,
including the deferral or transfer of any Award benefits, as may be permitted by
the Committee.
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19. AWARDS UNDER OTHER PLANS OR SUB-PLANS.
The Company or an Affiliate may grant awards relating to Stock under other
plans or programs. The Committee in its discretion may determine that such
awards shall be settled in the form of shares of Stock issued under this Plan.
Such shares of Stock shall be treated for all purposes under the Plan similar to
shares of Stock issued in settlement of Awards and shall, when issued, reduce
the number of shares of Stock available under Section 4, in accordance with the
same principles applicable under Section 4 in the case of Awards originally
granted under the Plan.
20. NO TRUST OR FUND CREATED.
Neither the Plan or any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Company or any Affiliate and a Participant or any other person. To the extent
that any person acquires a right to receive payments from the Company or any
Affiliate pursuant to an Award, such right shall be no greater than the right of
any unsecured general creditor of the Company or any Affiliate.
21. TERMINATION.
The Plan shall continue in effect until April 9, 2019, unless earlier
terminated by the Board or Operating Committee pursuant to Section 17, provided
that no Incentive Stock Options may be granted after April 9, 2009.
22. GOVERNING LAW.
The validity, construction and effect of the Plan, the Award Agreements and
any rules, regulations or procedures relating thereto shall be determined in
accordance with the laws of the State of Delaware.
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ANNEX III
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1984 BONUS COMPENSATION PLAN
(AS RESTATED EFFECTIVE JULY 9, 1999)
1. PURPOSE
The purpose of the 1984 Bonus Compensation Plan (the "Plan") is to advance
the interests of the Company and its stockholders by providing special financial
rewards to attract, retain and motivate employees, directors and consultants of
the Company and its Affiliates and reward them for their contributions of
effort, initiative and skill to the Company and its Affiliates.
2. DEFINITIONS
Unless otherwise required by the context, the terms used in the Plan shall
have the meanings set forth in this Section 2.
2.1 "AFFILIATE" means (i) any Subsidiary and (ii) any other entity in
which the Company has an equity interest or significant business relationship
and which has been designated as an "Affiliate" by the Committee for purposes of
the Plan.
2.2 "AWARD AGREEMENT" means any written agreement, contract or other
instrument or document evidencing any Bonus Award, which may, but need not (as
determined by the Committee) be required to be executed or acknowledged by a
Participant as a condition precedent to receiving a Bonus Award or the benefits
under a Bonus Award.
2.3 "BOARD OF DIRECTORS" means the Board of Directors of the Company.
2.4 "BONUS AWARD" means a bonus award to a Participant pursuant to the
Plan, which may be paid in cash, Restricted Stock, Vested Stock or any
combination thereof.
2.5 "CEO" means the chief executive officer of the Company or if there
shall be no chief executive officer, the officer designated by the Board of
Directors to act in this capacity under the Plan, or if no such officer has been
designated, the Committee.
2.6 "CEO BONUS FUND" means that portion of the Company Bonus Pool which
may be used for Bonus Awards determined by the CEO pursuant to Section 6 of the
Plan.
2.7 "CEO BONUS PROGRAM" means the bonus program administered by the CEO
and the Committee pursuant to which Bonus Awards are made from the CEO Bonus
Fund pursuant to Section 6.
2.8 "CHANGE IN CONTROL" of the Company means, and shall be deemed to have
occurred upon, any of the following events:
(a) The acquisition by any person (as defined in Section 3(a)(9) of
the Exchange Act and used in Sections 13(d) and 14(d) thereof including a
group as defined in Section 13(d) thereof) of beneficial ownership (as
defined in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act) of twenty-five percent (25%) or more of the Outstanding
Voting Securities; provided, however, that the following acquisitions shall
not constitute a Change in Control for purposes of this subparagraph (a);
(A) any acquisition directly from the Company; (B) any acquisition by the
Company or any of its Subsidiaries; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or
any of its Subsidiaries; or (D) any acquisition by any corporation pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of
subparagraph (c) below; or
(b) Individuals who, as of July 9, 1999, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual who becomes a Director
subsequent to July 9, 1999 and whose election, or whose nomination for
election by
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the Company's stockholders, to the Board was either (i) approved by a vote
of at least a majority of the Directors then comprising the Incumbent Board
or (ii) recommended by a Nominating Committee comprised entirely of
Directors who are then Incumbent Board members shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act), other actual or threatened solicitation of proxies or
consents or an actual or threatened tender offer; or
(c) Consummation of a reorganization, merger, or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case unless following such
Business Combination, (i) all or substantially all of the persons who were
the Beneficial Owners, respectively, of the Outstanding Shares and
Outstanding Voting Securities immediately prior to such Business
Combination own, directly or indirectly, more than fifty percent (50%) of
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of Directors, as the case may
be, of the entity resulting from the Business Combination (including,
without limitation, an entity which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Voting Securities (provided, however, that
for purposes of this clause (i), any shares of common stock or voting
securities of such resulting entity received by such Beneficial Owners in
such Business Combination other than as the result of such Beneficial
Owners' ownership of Outstanding Voting Securities immediately prior to
such Business Combination shall not be considered to be owned by such
Beneficial Owners for the purposes of calculating their percentage of
ownership of the outstanding common stock and voting power of the resulting
entity); (ii) no person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such entity resulting from the Business Combination)
beneficially owns, directly or indirectly, twenty-five percent (25%) or
more of the combined voting power of the then outstanding voting securities
of such entity resulting from the Business Combination unless such person
owned twenty-five percent (25%) or more of the Outstanding Voting
Securities immediately prior to the Business Combination; and (iii) at
least a majority of the members of the Board of the entity resulting from
such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or the action of the Board,
providing for such Business Combination; or
(d) Approval by the Company's stockholders of a complete liquidation
or dissolution of the Company.
(e) For purposes of clause (c), any person who acquires Outstanding
Voting Securities of the entity resulting from the Business Combination by
virtue of ownership, prior to such Business Combination, of Outstanding
Voting Securities of both the Company and the entity or entities with which
the Company is combined shall be treated as two persons after the business
Combination, who shall be treated as owning Outstanding Voting Securities
of the entity resulting from the Business Combination by virtue of
ownership, prior to such Business Combination, of, respectively,
Outstanding Voting Securities of the Company, and the entity or entities
with which the Company is combined.
2.9 "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
2.10 "COMMITTEE" means any of (i) the Board, (ii) the Compensation
Committee of the Board or any other committee of the Board that is appointed by
the Board to administer the Plan with respect to grants of Bonus Awards, (iii)
the CEO with respect to Bonus Awards under the CEO Bonus Fund pursuant to
Section 5, (iv) a Group Manager with respect to Bonus Awards from the Group
Bonus Pool of the Group Manager pursuant to Section 7, (v) with respect to Bonus
Awards to Named Executive Officers intended to comply with the Performance Based
Exception, a committee comprised of two or more Directors who are "outside
directors" within the meaning of Code section 162(m), (vi) with respect to
Restricted Stock Bonus Awards of Vested Stock Bonus Awards to Insiders, the
Committee (or any subcommittee thereof) comprised
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of two or more Directors who are "non-employee directors" within the meaning of
rule 16b-3 adopted under the Exchange Act, and (vii) with respect to grants of
Bonus Awards to Eligible Individuals who are not Insiders or Named Executive
Officers, any individual or committee or individuals (who need not be Directors)
that the Committee described in clause (ii) or the Board may appoint from time
to time to administer the Plan.
2.11 "COMPANY" means Science Applications International Corporation.
2.12 "COMPANY BONUS POOL" means for any Performance Year the amount of
Stock, cash, or combination thereof established by the Committee as available
for all Bonus Awards under the Plan as provided in Section 5.1 hereof.
2.13 "DIRECTOR" means any individual who is a member of the Board.
2.14 "ELIGIBLE INDIVIDUAL" means an employee, Director, or consultant of
the Company or an Affiliate.
2.15 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor thereto.
2.16 "FAIR MARKET VALUE" means, (i) with respect to a Bonus Award paid in
cash, the amount of the Bonus Award, and (ii) with respect to a Restricted Stock
Bonus Award or a Vested Stock Bonus Award, so long as the Stock is not listed on
any national securities exchange or traded on a regular basis (as determined by
the Board or a committee to which the Board has delegated the authority to make
such determination) on the over-the-counter market, the Formula Price in effect
on the relevant date; otherwise, the closing price on the national exchange on
such date or mean between the highest bid and lowest asked prices on such date
as reported on the NASDAQ OTC Bulletin Board Service or by the National
Quotation Bureau, Incorporated or comparable service selected by the Board or
such committee. The Fair Market Value of any Restricted Stock Bonus or Vested
Stock Bonus shall be determined as of the effective date of the Bonus Award
which shall be deemed to be the date on which the Committee approves the grant
of the Bonus Award. With respect to a Restricted Stock Bonus, the Fair Market
Value shall be determined without considering the vesting schedule or any other
restrictions or conditions imposed on the Restricted Stock Bonus.
2.17 "FISCAL YEAR" means the fiscal year of the Company.
2.18 "FORMULA PRICE" means the price per share of Stock as established by
the Board, or pursuant to procedures established by the Board from time to time.
2.19 "GROUP" means each of the major operating groups of the Company as
such shall be designated by the Company's management from time to time.
2.20 "GROUP BONUS FUND" means the aggregate amount of Stock, cash or any
combination thereof, which may be allocated by the Committee to any particular
Group for Bonus Awards under the Plan with regard to any Performance Year. The
amount of the Group Bonus Fund for each Group shall be established by the
Committee in such manner as the Committee determines to be appropriate in its
discretion, which may include a formula or algorithm.
2.21 "GROUP BONUS PROGRAM" means the bonus program administered by the
Group Managers and the Committee pursuant to which Bonus Awards are made from
the Group Bonus Funds pursuant to Section 7.
2.22 "GROUP MANAGER" means the manager of the applicable Group.
2.23 "INSIDER" means an individual who is, on the relevant date, an
executive officer, Director or ten percent (10%) beneficial owner of any class
of Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, and as defined under Section 16 of the Exchange Act and the rules
thereunder.
2.24 "NAMED EXECUTIVE OFFICER" means, for a given fiscal year, a
Participant who is one of the group of "covered employees" for such fiscal year
within the meaning of Code section 162(m).
2.25 "OPERATING COMMITTEE" means the Operating Committee of the Board of
Directors.
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2.26 "OUTSTANDING VOTING SECURITIES" means the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of Directors.
2.27 "PARTICIPANT" means an Eligible Individual or any permitted
transferee under the Plan of an Eligible Individual.
2.28 "PERFORMANCE AWARD" means a Bonus Award pursuant to Section 8 of the
Plan which relates to shares of Stock or the value of shares of Stock and is
subject to one or more performance goals or restrictions.
2.29 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
set forth in Code section 162(m)(4)(C) from the deductibility limitations of
Code section 162(m).
2.30 "PERFORMANCE YEAR" means the Fiscal Year for which the performance of
the Company or a Group is used to determine the amounts of Bonus Awards which
may be available under the Plan.
2.31 "RESTRICTED STOCK" means Stock subject to restrictions set forth in
an Award Agreement under Section 8 of the Plan.
2.32 "RESTRICTED STOCK BONUS" means a Bonus Award consisting of a share of
Restricted Stock.
2.33 "REVENUE" means the consolidated revenue of the Company for a
Performance Year, determined in accordance with generally accepted accounting
principles and as reported in the Company's audited financial statements.
2.34 "SPOT BONUS" means a Bonus Award payable to an Eligible Individual
pursuant to Section 7.5 of the Plan and which is intended to reward such
Eligible Individual for extraordinary efforts or special achievements on a
timely basis.
2.35 SPOT BONUS LIMIT" means the maximum amount that a Group Manager can
award as a Spot Bonus without Committee approval. The amount of the Spot Bonus
Limit shall initially be $10,000 but may be modified by the Committee from time
to time.
2.36 "STOCK" means Class A Common Stock of the Company.
2.37 "SUBSIDIARY" means any company during any period in which it is a
"subsidiary corporation" as that term is defined in Code section 424(f) with
respect to the Company.
2.38 "VESTED STOCK" means Stock other than Restricted Stock.
2.39 "VESTED STOCK BONUS" means a bonus payable in shares of Vested Stock.
3. ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by the Committee.
3.2 AUTHORITY 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:
(a) to select from among the Eligible Individuals those persons who
shall receive Bonus Awards, to determine the time or times of receipt, to
determine the form in which a Bonus Award shall be paid (cash bonus,
Restricted Stock Bonus or Vested Stock Bonus or any combination thereof) to
establish the terms, conditions, performance criteria, restrictions, and
other aspects of Bonus Awards and the provisions of the applicable Award
Agreement and (subject to the restrictions of Section 14.7) to modify,
amend, accelerate the vesting of, cancel or suspend Bonus Awards;
(b) to interpret the Plan;
(c) to prescribe, amend and rescind any rules and regulations relating
to the Plan;
(d) to determine whether, to what extent and under what circumstances
Bonus Awards may be settled in cash, Stock, or other property, or canceled,
forfeited, or suspended and the method or methods by which Bonus Awards may
be settled, exercised, canceled, forfeited or suspended;
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(e) to determine whether, to what extent and under what circumstances
cash, Stock, other property and any other amounts payable with respect to a
Bonus Award shall or may be deferred either automatically or at the
election of the Participant or of the Committee;
(f) to establish sub-plans under this Plan pursuant to which specified
Bonus Awards shall be made and governed; and
(g) to make all other determinations and findings, including factual
findings, deemed necessary or advisable for the administration of the Plan.
3.3 COMMITTEE DISCRETION. In exercising its authority, the Committee shall
have the broadest possible discretion. Unless otherwise expressly provided in
the Plan, all designations, determinations, interpretations and other decisions
made in good faith by the Committee under or with respect to the Plan shall be
binding and conclusive on Eligible Individuals, Participants and other persons
claiming entitlements under the Plan. In no event shall a Committee
determination with respect to a particular Participant or Eligible Individual or
with respect to a particular plan provision be binding with respect to any other
person (even if similarly situated) nor with respect to any future determination
regarding the same or other provision of the Plan.
3.4 COMMITTEE DELEGATION. Except with respect to making grants of Bonus
Awards to Insiders or Named Executive Officers, the Committee may delegate all
or part of its authority to one or more designated individuals or other
committees.
4. ELIGIBILITY AND PARTICIPATION
4.1 GENERAL. Subject to the terms and conditions of the Plan, except as
the authority is more specifically allocated in Sections 7 and 8 of the Plan,
and except as otherwise provided by Committee rules and procedures, the
Committee shall determine and designate, from time to time, from among the
Eligible Individuals those persons who will be granted one or more Bonus Awards
under the Plan, and thereby become Participants in the Plan. Bonus Awards may be
granted on conditions specified by the Committee, including, without limitation,
the condition that the Eligible Individual acquire, agree to acquire or maintain
ownership of a specified number of shares of Stock. Bonus Awards may be granted
as alternatives to or replacement of Bonus Awards outstanding under the Plan, or
any other plan or arrangement of the Company or an Affiliate (including a plan
or arrangement of a business or entity, all or a portion of which is acquired by
the Company or an Affiliate).
4.2 NON-U.S. ELIGIBLE INDIVIDUALS AND AFFILIATES. 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 in
other countries in which the Company or its Affiliates operate or have employees
or consultants, the Committee, in its discretion, shall have the power and
authority to (i) determine which (if any) Eligible Individuals rendering
services or employed outside the United States are eligible to participate in
the Plan or any type of Bonus Award hereunder; (ii) determine which non-United
States-based Affiliates or operations (e.g., branches, representative offices)
participate in the Plan or any type of Bonus Award hereunder; (iii) modify the
terms and conditions of any Bonus Awards made to such Eligible Individuals; and
(iv) with respect to such non-United States-based Affiliates or operations,
establish subplans, modified exercise, payment and other terms and procedures to
the extent deemed necessary or desirable by the Committee.
5. LIMITATIONS ON AWARDS
5.1 COMPANY BONUS POOL. The amount of the company Bonus Pool for each
Performance Year shall be established by the Committee; provided, however, that
the Company Bonus Pool may not exceed 7.5% of the Revenue of the Company for
such Performance Year. The Board of Directors shall have the authority to change
the percentage of Revenue used to calculate the amount of the Company Bonus
Pool, from time to time, prior to the commencement of a Performance Year.
5.2 LIMIT ON BONUS AWARDS UNDER THE PLAN. The aggregate Fair Market Value
(determined as of the date of grant) of all Bonus Awards granted with respect to
a given Performance Year under the CEO Bonus Program, the Group Bonus Program
and any other program or arrangement established by the Committee
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pursuant to Section 9 or as a Performance Award pursuant to Section 8 shall not
exceed the amount of the Company Bonus Pool for such Performance Year. The
aggregate Fair Market Value of Bonus Awards granted to any individual with
respect to a given Performance Year under the Plan shall not exceed $25,000,000.
5.3 OTHER LIMITATIONS. The Committee and the Board of Directors may
establish other limitations as may be desirable to carry out the intent of the
Plan or to comply with applicable law.
6. CEO BONUS PROGRAM
6.1 PURPOSE OF CEO BONUS PROGRAM. The CEO Bonus Program is primarily
intended to provide Bonus Awards to deserving Eligible Individuals who (i) serve
in the Company's top level of management, (ii) engage in Corporate Development
activities, (iii) serve in the Office of the President, or (iv) serve in
Corporate Administration. The CEO Bonus Program may also be utilized for any
other purpose the CEO determines to be in the best interests of the Company,
including but not limited to providing Bonus Awards to especially deserving
Eligible Individuals, encouraging stock redistribution, correcting any
inequities in the amount of the Group Bonus Funds of the various Groups, or for
other special awards.
6.2 AMOUNT OF CEO BONUS FUND. The amount of the CEO Bonus Fund in any
Performance Year shall be determined by the CEO.
6.3 CEO BONUS FUND RECOMMENDATIONS. From time to time during the
Performance Year and within 45 days following the end of the Performance Year,
the CEO shall submit to the Committee written recommendations for the payment of
Bonus Awards to Eligible Individuals who are to receive Bonus Awards paid out of
the CEO Bonus Fund.
6.4 APPROVALS. All bonus Awards to be paid from the CEO Bonus Fund must be
recommended in writing by the CEO to the Committee. The Committee must approve
all Bonus Awards under the CEO Bonus Program. No individual shall be advised of
a bonus recommendation until such Bonus Award shall have been approved by the
CEO and the Committee.
7. GROUP BONUS PROGRAM
7.1 GROUP BONUS FUND RECOMMENDATIONS. From time to time during the
Performance Year and within 45 days following the end of the Performance Year,
each Group Manager shall submit to the Committee written recommendations for
Bonus Awards to deserving Eligible Individuals who contributed to the business
success of that Group Manager's Group. The aggregate amount of Bonus Award
recommendations made by each Group Manager during a Performance Year shall not
exceed the Group Bonus Fund of the Group.
7.2 INTERNAL GROUP ADMINISTRATION. Subject to the requirements of the
Plan, each Group Manager is responsible for administering the Group Bonus Fund
of his or her Group, including identifying deserving Eligible Individuals and
making recommendations for the distribution of payments under the Plan based
upon the business objectives of that Group.
7.3 APPROVALS. All Bonus Awards to be paid from the Group Bonus Fund of a
particular Group must be recommended in writing by the Group Manager to the
Committee. The Committee must approve all Bonus Awards under the Group Bonus
Program. No individual shall be advised of a bonus recommendation until such
Bonus Award shall have been approved by the Group Manager and the Committee.
7.4 SPOT BONUS AWARDS. Spot Bonuses may be awarded under the Plan at any
time by a Group Manager to reward extraordinary effort or special achievement
when the timeliness of the Bonus Award is particularly important. Unless the
prior approval of the Corporate Secretary is obtained, Spot Bonuses may only be
paid in cash. Committee approval is required before Spot Bonuses in amounts in
excess of the Spot Bonus Limit established from time to time by the Committee
can be paid. Within thirty days of the end of each quarter, each Group Manager
shall provide the Committee with information concerning the recipients of Spot
Bonuses, the amount and justification for all Spot Bonuses paid from the Group
Bonus Fund.
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8. PERFORMANCE AWARDS.
8.1 GRANT. Subject to the terms and provisions of the Plan, the Committee
shall have the authority to grant Performance Awards, which consist of rights
which are:
(a) denominated in cash or shares of Stock;
(b) valued in relation to the achievement of performance goals during
such reference periods as the Committee shall establish; and
(c) payable at such time or times and in such form as the Committee
shall determine.
8.2 TERMS AND CONDITIONS. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall establish the performance
measure(s) to be achieved during any performance period, the length of the
performance period, the amount of any Performance Award and the amount and kind
of any payment or transfer to be made pursuant to any Performance Award.
8.3 PERFORMANCE MEASURES. The performance measure(s) to be used for
purposes of Bonus Awards to Named Executive Officers which are designed to
qualify for the Performance-Based Exception shall be chosen from among the
following alternatives:
(a) earnings per share;
(b) net income;
(c) income from operations;
(d) earnings before interest and taxes;
(e) earnings before interest, taxes, depreciation and amortization;
(f) return on assets;
(g) return on equity;
(h) return on capital;
(i) total stockholder return;
(j) revenue growth;
(k) new business generation;
(l) cash flow;
(m) employee turnover;
(n) human resources;
(o) mergers, acquisitions, investments, joint ventures, or sales or
divestitures of assets, businesses or subsidiaries;
(p) litigation;
(q) information services; or
(r) cost reductions or savings.
The Committee shall have the discretion to determine the degree of
attainment of the preestablished performance goals; provided, however, that
Bonus Awards which are designed to qualify for the Performance-Based Exception,
and which are held by Named Executive Officers, may not be adjusted upward (the
Committee shall retain the discretion to adjust each Bonus Award downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the applicable performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval.
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<PAGE> 65
9. OTHER BONUS PROGRAMS
9.1 COMMITTEE DISCRETION. The Committee may establish, from time to time,
other bonus programs and arrangements which may be awarded under the Plan.
9.2 LIMITATION. All Bonus Awards the other bonus programs and arrangements
established by the Committee pursuant to Section 9.1 shall be included in
determining the limit on Bonus Awards contained in Section 5.2.
10. PAYMENT OF BONUS AWARDS
10.1 TIME OF PAYMENT. Payment of Bonus Awards shall be made as soon as
practicable after the decision by the Committee to make payment of any bonus or
otherwise in accordance with the Award Agreement. Bonus Awards made during or
with respect to a Performance Year shall be charged to the CEO Bonus Fund or the
Group Bonus Fund as appropriate.
10.2 FORM OF PAYMENT. Bonuses awarded under the Plan (except for Spot
Bonuses) shall be payable in cash, Restricted Stock, Vested Stock or a
combination thereof as determined by the Committee in its sole discretion.
10.3 STOCK RESTRICTION AGREEMENT. To the extent that a Restricted Stock
Bonus awarded under the Plan is paid in Stock, as a condition to the receipt of
such bonus, the Participant shall be required to execute and deliver a stock
restriction agreement in such form and upon such terms and conditions,
including, but not limited to, the Forfeiture of such Stock unless certain
specified conditions or performance goals are achieved, as the Committee, in its
sole discretion, shall deem appropriate.
10.4 FORFEITURE OF SHARES To the extent that any Bonus Award awarded is
paid in shares of Stock, such shares may be issued subject to forfeiture, in
whole or in part, in accordance with a vesting schedule or other terms,
conditions and restrictions which the Committee may, in its sole discretion,
establish in the Award Agreement or otherwise.
11. CHANGE IN CONTROL
11.1 ACCELERATION OF VESTING. Subject to the provisions of Section 11.2
(relating to the adjustment of shares of Stock) and except as provided in the
Award Agreement reflecting the applicable Bonus Award, upon the occurrence of a
Change in Control, all Restricted Stock and Performance Awards shall become
fully vested.
11.2 ADJUSTMENTS. In the event that the Committee determines that any
corporate transaction or distribution (including, without limitation, any stock
split, stock dividend, extraordinary cash dividend, issuance of warrants or
other rights to purchase Stock or other securities of the Company,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
repurchase, combination or exchange of shares) affects the Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number of shares of Stock or
other securities of the Company (or number and kind of other securities and
property) subject to outstanding Bonus Awards; and (ii) the terms and conditions
of any Bonus Award or, if deemed appropriate, the Committee may make provision
for a cash payment to the holder of an outstanding Bonus Award in full
satisfaction of such Bonus Award.
12. BENEFICIARY DESIGNATION
In the event of the death of a Participant holding a Bonus Award which
provides for some payment or benefit following the death of the Participant, the
benefit or payment payable under the Bonus Award upon the death of the
Participant shall be payable to the estate of the Participant, provided that, in
its discretion, the Committee may, in the Award Agreement or pursuant to the
Award Agreement, permit the Participant to name a beneficiary or beneficiaries
to whom any benefit under the Bonus Award is to be paid in case of the
III-8
<PAGE> 66
Participant's death. Any such designation, if permitted by the Committee, shall
be effective only in accordance with such procedures as may be established by
the Committee and on forms prescribed by the Committee.
13. DEFERRALS
The Committee, in an Award Agreement or otherwise, may permit a Participant
to defer such Participant's receipt of the payment of cash or delivery of shares
of Stock that would otherwise be due to such Participant by virtue of the lapse
or waiver of restrictions with respect to Restricted Stock Bonuses or the
satisfaction of any requirements or goals with respect to Performance Awards.
14. MISCELLANEOUS
14.1 OTHER COMPENSATION OR INCENTIVE ARRANGEMENTS. The Plan is not
intended as, and shall not be deemed a substitute for, nor preclude continuance
or establishment of, incentive compensation, profit participation or bonus plans
of subsidiaries, divisions, or other operating entities of the Company or any
other plan, practice, or arrangement for the payment of compensation or fringe
benefits, including, without limitation, commissions, prizes, production or
similar bonuses, retirement, profit sharing, group insurance, stock purchase or
stock bonus plans or any other bonus plans or arrangements, that may now or
hereafter be in effect for employees generally or any group or class of
employees or employee, and any such plan, practice or arrangement may be
continued or authorized and payments thereunder made independently of the Plan.
14.2 NO VESTED INTEREST IN THE PLAN. No Participant nor any Eligible
Individual or other employee or consultant of the Company or any Affiliate, nor
any person claiming under or through any of them, nor any other person, shall
have any right or interest, whether vested or otherwise, in the Plan or its
continuance, or in or to the payment of any Bonus Award or benefit under the
Plan, whether such Bonus Award or benefit be vested, contingent or otherwise,
unless and until all the terms and conditions of the Plan or any rules and
regulations of the Committee thereunder and of any instrument executed pursuant
thereto affecting such Bonus Award or benefit and its payment, shall be fully
complied with as specifically provided in the Plan and the rules and regulations
of the Committee thereunder.
14.3 NON-TRANSFERABILITY. Except as otherwise provided by the Committee in
an Award Agreement or otherwise, Bonus Awards and rights under the Plan, whether
contingent or otherwise, may not be anticipated, assigned, attached, garnished,
pledged, optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. This Section 14.3
shall not preclude a Participant from designating a beneficiary if permitted by
the Committee pursuant to Section 12 of the Plan.
14.4 TAX WITHHOLDING. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of shares of Stock or other benefits on satisfaction of all applicable
minimum withholding requirements. The Committee, in its discretion, and subject
to such requirements as the Committee may prescribe, may permit such minimum
withholding obligations to be satisfied through cash payment by the Participant,
through payroll withholding of the Participant's salary, wages or other
compensation, through the surrender of shares of Stock which the Participant
already owns (either by actual surrender or attestation), or through the
surrender of shares of Stock or other benefits to which the Participant is
otherwise entitled.
14.5 LIMITATION ON RIGHTS.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets,
funds or property of the Company or any Affiliate whatsoever including
without limitation, any specific funds, assets or other property which the
Company or any Affiliate, in its or their sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the Stock or amounts, if any, payable under the Plan,
unsecured by any assets of the Company or any Affiliate, and nothing
contained in the Plan shall constitute a representation or guarantee that
the assets of the Company or any Affiliate shall be sufficient to pay any
benefits to any person.
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<PAGE> 67
(b) Neither the Plan nor any Bonus Award shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship
between the Company or any Affiliate and a Participant or any other person.
To the extent that any person acquires a right to receive payments from the
Company or any Affiliate pursuant to a Bonus Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or
any Affiliate.
(c) A Participant's employment with the Company or an Affiliate, if
applicable, is not for any specified term and may be terminated by such
Participant or by the Company or the Affiliate at any time, for any reason,
with or without cause, notwithstanding the vesting or other terms and
conditions of any outstanding Bonus Awards. Nothing in this Plan nor in any
Award Agreement shall confer upon any Participant any promise or commitment
by the Company or an Affiliate regarding future positions, future work
assignments, future compensation or any other term or condition of
employment or affiliation.
14.6 GOVERNMENT AND STOCK EXCHANGE REGULATIONS. The Committee may refuse
to issue or transfer any Shares or other consideration under a Bonus Award if,
acting in its sole discretion, it determines that the issuance or transfer of
such Shares or such other consideration might violate any applicable law or
regulation or entitle the Company to recover the same under Section 16(b) of the
Exchange Act, and any payment tendered to the Company by a Participant, other
holder or beneficiary in connection with the exercise of such Bonus Award shall
be promptly refunded to the relevant Participant, holder or beneficiary. Without
limiting the generality of the foregoing, no Bonus Award granted hereunder shall
be construed as an offer to sell securities of the Company, and no such offer
shall be outstanding, unless and until the Committee in its sole discretion has
determined that any such offer, if made, would be in compliance with all
applicable requirements of the U.S. federal and state securities laws and any
other laws to which such offer, if made, would be subject.
The Company is under no duty to ensure that shares of Stock may legally be
delivered under the Plan, and shall have no liability to Bonus Award recipients
in the event such delivery of shares of Stock may not be made.
14.7 AMENDMENTS, SUSPENSIONS OR TERMINATION OF PLAN. The Plan shall
continue in effect until terminated by the Board or Operating Committee. 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 Bonus Awards
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.
14.8 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 Eligible Individuals, Participants or
others claiming entitlement under the Plan or any obligations on the part of the
Company, any Affiliate or the Committee, except as expressly provided herein. In
particular, no third party beneficiary rights shall be created under the Plan.
Without limiting the generality of the foregoing, the Company disavows any
undertaking to assure the tax treatment of any particular Bonus Award, including
the deferral or transfer of any Bonus Award benefits, as may be permitted by the
Committee.
14.9 AWARDS UNDER OTHER PLANS OR SUB-PLANS. The Company or an Affiliate
may grant bonus awards under other plans or programs. The committee in its
discretion may determine that such bonus awards shall be settled in the form of
Bonus Awards issued under the Plan, whether paid in cash, Restricted Stock,
Vested Stock or a combination thereof. Such bonus awards shall be treated for
all purposes under the Plan as Bonus Awards and shall reduce the amount of the
Company Bonus Pool available for future Bonus Awards under the Plan.
14.10 GOVERNING LAW. The validity, construction and effect of the Plan,
the Award Agreements and any rules, regulations or procedures relating thereto
shall be determined in accordance with the laws of the State of Delaware.
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<PAGE> 68
[LOGO]
VOTING INSTRUCTION CARD FOR ANNUAL MEETING OF STOCKHOLDERS - JULY 9, 1999
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 and Profit Sharing Retirement Plan of Science Applications
International Corporation (the "Company"), the Telcordia Technologies Savings
and Security Plan and the Telcordia Technologies Savings Plan for Salaried
Employees of Telcordia Technologies, Inc., a wholly-owned subsidiary of the
Company, and the TransCore Retirement Savings Plan of Syntonic Technology, Inc.,
a wholly-owned subsidiary of the Company doing business as TransCore, and the
AMSEC Corporation Employees 401(k) Profit Sharing Plan (the "AMSEC Plan")
(collectively, the "Plans"), to vote all of the shares of Class A Common Stock
and/or Class B Common Stock held for the undersigned's account in each of the
Plans at the Annual Meeting of Stockholders of the Company to be held in the
Grand Ballroom of the Ritz-Carlton Hotel, 1700 Tysons Boulevard, McLean,
Virginia, on Friday, July 9, 1999, 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 eight Class III 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).
J.R. Beyster, W.A. Downing, A.K. Jones, J.W. McRary,
S.D. Rockwood, L.A. Simpson, R.C. Smith and J.P. Walkush
[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed above.
2. Proposal to amend the Company's Restated Certificate of Incorporation to
(i) increase the number of authorized shares of Class A Common Stock from
100,000,000 shares with a par value of $.01 per share to 1,000,000,000
shares with a par value of $.01 per share, (ii) split each outstanding
share of Class A Common Stock into four shares of Class A Common Stock,
(iii) increase the relative voting and other rights of each share of Class
B Common Stock and (iv) clarify the treatment of employees of the
Company's subsidiaries under the Company's right of repurchase upon
termination of affiliation pursuant to Article Fourth.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the 1999 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve an amendment and restatement of the 1984 Bonus
Compensation Plan.
[ ] 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 2, 1999.
Dated __________________, 1999
----------------------------------
Signature
XXXXXX Please sign EXACTLY as name or names
appear hereon. When signing as
attorney, executor, trustee,
administrator or guardian, please
give your full title.
PROXY NUMBER: XXXX XXXX "A" SHARES XXXX "B" SHARES
<PAGE> 69
[LOGO]
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - JULY 9, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.R. BEYSTER, J.D. HEIPT and D.E. SCOTT, and
each of them, with full power of substitution, as proxies to represent the
undersigned and to vote all of the shares of Class A Common Stock and/or Class B
Common Stock the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Science Applications International Corporation (the "Company")
to be held in the Grand Ballroom of the Ritz-Carlton Hotel, 1700 Tysons
Boulevard, McLean, Virginia, on Friday, July 9, 1999, 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 eight Class III 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).
J.R. Beyster, W.A. Downing, A.K. Jones, J.W. McRary,
S.D. Rockwood, L.A. Simpson, R.C. Smith and J.P. Walkush
[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed above.
2. Proposal to amend the Company's Restated Certificate of Incorporation to
(i) increase the number of authorized shares of Class A Common Stock from
100,000,000 shares with a par value of $.01 per share to 1,000,000,000
shares with a par value of $.01 per share, (ii) split each outstanding
share of Class A Common Stock into four shares of Class A Common Stock,
(iii) increase the relative voting and other rights of each share of Class
B Common Stock and (iv) clarify the treatment of employees of the
Company's subsidiaries under the Company's right of repurchase upon
termination of affiliation pursuant to Article Fourth.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve the 1999 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve an amendment and restatement of the 1984 Bonus
Compensation Plan.
[ ] 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 ___________________________, 1999
---------------------------------------
Signature
---------------------------------------
XXXXXX Signature
Please sign EXACTLY as name or names
appear hereon. When signing as attorney,
executor, trustee, administrator or
guardian, please give your full title.
PROXY NUMBER: XXXXX XXX "A" SHARES XXX "B" SHARES
