SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NEWPORT NEWS SHIPBUILDING
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than 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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<PAGE>
[NEWPORT NEWS SHIPBUILDING LOGO]
ANNUAL MEETING OF STOCKHOLDERS
1998
<PAGE>
[NEWPORT NEWS SHIPBUILDING LOGO]
NEWPORT NEWS SHIPBUILDING
4101 WASHINGTON AVENUE
NEWPORT NEWS, VIRGINIA 23607-2770
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------------
April 17, 1998
To the Stockholders of
Newport News Shipbuilding Inc.:
We are pleased to invite you to attend the Annual Meeting of Stockholders
of Newport News Shipbuilding. The meeting will be held at The Jefferson Hotel,
Franklin and Adams Streets, Richmond, Virginia, on Friday, May 15, 1998,
beginning at 10:00 A.M. Eastern Daylight Time, for the following purposes:
(1) To elect two Class II directors to serve until the Annual Meeting of
stockholders in the year 2001;
(2) To increase by 200,000 the number of shares authorized for issuance
under the Newport News Shipbuilding Employee Stock Purchase and
Accumulation Plan;
(3) To ratify the appointment by the Board of Directors of Arthur
Andersen LLP as the Company's independent accountants for 1998; and
(4) To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 1, 1998 are
entitled to notice of, to vote at, and to participate in the meeting.
Please note that, for this year's meeting, you will be able to vote your
shares by telephone or via the Internet. We believe you will find these
"vote-by-phone" and "vote-by-Internet" options to be convenient and easy to use.
The toll-free telephone number and Internet address, as well as instructions on
how to use these convenient voting options, are included on the proxy card. Of
course, if you prefer to vote your shares by written proxy, rather than by
telephone or Internet, you may do so by marking, dating and signing the enclosed
proxy card, and returning it in the enclosed envelope.
Participants in the Newport News Shipbuilding 401(k) Investment Plan may
not use the vote-by-telephone or vote-by-Internet options to direct the voting
of shares attributable to their accounts and must execute and return the
enclosed proxy card.
Because your vote is important, you are requested to vote your shares by
telephone or Internet, or mark, date, sign and return the enclosed proxy card in
the enclosed envelope, whether or not you expect to attend the meeting in
person. Voting your shares by telephone or
<PAGE>
Internet, or signing and returning the enclosed proxy card, will not affect your
right to attend, or vote your shares in person at, the meeting, should you
choose to do so.
In order to facilitate check-in at the meeting, admission tickets will be
required from shareholders who wish to attend. Two admission tickets, as well as
a map showing the location of the meeting, are included with these proxy
materials.
By order of the Board of Directors:
/s/ Stephen B. Clarkson
------------------------------------
STEPHEN B. CLARKSON
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
[NEWPORT NEWS SHIPBUILDING LOGO]
NEWPORT NEWS SHIPBUILDING
4101 WASHINGTON AVENUE
NEWPORT NEWS, VIRGINIA 23607-2770
GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of Newport News
Shipbuilding Inc. (the "Company") for use at the Annual Meeting of Stockholders
to be held at The Jefferson Hotel, Franklin and Adams Streets, Richmond,
Virginia, on Friday, May 15, 1998, beginning at 10:00 A.M. Eastern Daylight
Time, and at any adjournments of such meeting. The Company's Annual Report,
including financial statements for the year ended December 31, 1997, is enclosed
with this proxy statement.
For purposes of certain of the information presented in this proxy
statement, you should be aware that, prior to December 11, 1996, the Company was
a wholly-owned subsidiary of Tenneco Inc. ("Tenneco"). As part of a series of
transactions that were closed on December 11, 1996, Tenneco and its existing
subsidiaries, including the Company, restructured their various businesses and
assets so that, among other things, substantially all of Tenneco's former
shipbuilding business is now owned by the Company and its subsidiaries. After
such restructuring, Tenneco fully divested its ownership interest in the Company
by means of a tax-free distribution to its shareholders of all of the
outstanding shares of common stock of the Company (the "Spin-off"). The
Company's principal operating subsidiary is Newport News Shipbuilding and Dry
Dock Company ("Newport News").
The expense of this solicitation will be paid by the Company. Officers,
directors and employees of the Company may solicit proxies by telephone, mail or
personal visits. The firm of Georgeson & Company has been retained to assist in
the solicitation of proxies for a fee estimated at $25,000, plus out-of-pocket
expenses. Brokerage houses, nominees and fiduciaries have been requested to
forward proxy soliciting material to the beneficial owners of the stock held of
record by them, and the Company will reimburse them for their charges and
expenses.
Only holders of record of the outstanding common stock, par value $.01 per
share (the "Company Common Stock"), of the Company at the close of business on
the record date for the meeting, April 1, 1998, are entitled to notice of, to
vote at, and to participate in the meeting. On the record date, 35,030,780
shares of Company Common Stock were outstanding. Holders of Company Common Stock
will vote as a single class at the Annual Meeting. Each outstanding share will
entitle the holder to one vote. All shares represented by properly executed and
delivered proxies will be voted at the meeting and any adjournments.
A majority of shares entitled to vote, present in person or by proxy, will
constitute a quorum for the conduct of business at the Annual Meeting.
Abstentions, and shares held of record by a broker or its nominee ("Broker
Shares") that are voted on any matter, are included in the number of shares
considered present or represented at the meeting for purposes of determining
whether a quorum is present with respect to that matter. Broker Shares that are
not voted on any matter at the meeting will not be included in determining
whether a quorum is present with respect to that matter. Directors are elected
by a plurality vote of the shares present in person or represented by proxy at
the meeting and entitled to vote in the election of directors. Votes that are
withheld and Broker Shares that are not voted in the election of directors will
not be included in determining the number of shares present and
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entitled to vote in the election of directors. Approval of the increase to the
number of shares authorized for issuance under the Newport News Shipbuilding
Employee Stock Purchase and Accumulation Plan (the "Stock Purchase Plan")
requires the affirmative vote of the holders of a majority of the shares of
Company Common Stock cast on the proposal, provided that the total votes cast on
the proposal represent over 50% of the shares entitled to vote on this proposal.
Abstentions will have the same effect as a negative vote for purposes of
approving the proposal. Broker Shares that are not voted with respect to the
proposal will not be included in determining the number of votes cast.
This proxy statement and the enclosed form of proxy were first mailed to
stockholders on April 17, 1998.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Company's Board of Directors is divided into three classes. At the
Annual Meeting, two directors are expected to be elected to Class II to hold
office for a term of three years and until their respective successors are duly
elected and qualified. Both nominees are current members of the Company's Board
of Directors.
INFORMATION CONCERNING NOMINEES
CLASS II (TO SERVE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS)
LEON A. EDNEY, ADMIRAL (RET.) served in the United States Navy for 39
years, last serving as Supreme Allied Commander Atlantic (NATO) and
Commander-in-Chief, U.S. Atlantic Command, from May 1990 to August 1992. From
August 1988 to May 1990 he served as the Vice Chief of Naval Operations. Admiral
Edney retired from the Navy in August 1992. From September 1992 to April 1994
Admiral Edney served as a defense consultant to the U.S. Navy and from May 1994
to July 1995 he served as Vice President of Loral Company. He currently serves
as a director of Armed Forces Benefit Services Inc. and the Retired Officers
Association, as Vice Chairman of the Board of the Naval Aviation Museum
Foundation, as Senior Fellow at the Center for Naval Analysis, as a trustee of
the Naval Academy Foundation and as Distinguished Leadership Chair-United States
Naval Academy. Admiral Edney is 62 years old and has been a director of the
Company since January 1997.
DR. JOSEPH J. SISCO has been a partner of Sisco Associates, a management
consulting firm, since January 1980. Previously, he served as President and
Chancellor of The American University and was employed by the United States
Department of State for 25 years, last serving as Under Secretary of State for
Political Affairs. He is also a director of Braun AG. Dr. Sisco served as a
Director of Tenneco from 1977 until his retirement from the Tenneco Board in May
1996. He was also a director of The Interpublic Group of Companies, Inc. and
Raytheon Company until 1997. Previously he was a director of The Gillette
Company and Geico Corporation. Dr. Sisco is 78 years old and has been a director
of the Company since October 1996.
Unless authority to do so is withheld, shares represented by properly
executed proxies in the enclosed form will be voted for the election of the two
persons named above. If any nominee should become unable or unavailable to
serve, the Board of Directors may designate a substitute nominee, for whom the
proxies will be voted. Alternatively, the Board may reduce the size of the Class
to the one remaining nominee, for whom the proxies will be voted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1 TO
RE-ELECT MESSRS. EDNEY AND SISCO TO THE BOARD OF DIRECTORS TO SERVE UNTIL THE
ANNUAL MEETING OF STOCKHOLDERS IN THE YEAR 2001.
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DIRECTORS CONTINUING IN OFFICE
There are five directors whose present term of office will continue until
1999 or 2000, as indicated below, and until their respective successors are duly
elected and qualified.
CLASS I (TO SERVE UNTIL THE 2000 ANNUAL MEETING OF STOCKHOLDERS)
WILLIAM P. FRICKS has served as the President of the Company since
September 1994, as its Chief Executive Officer since November 1995 and as its
Chairman of the Board since January 1997. Mr. Fricks first joined Newport News
in 1966. Most recently, he was appointed Senior Vice President in 1988,
Executive Vice President in 1992 and President and Chief Operating Officer in
1994. Mr. Fricks is currently the Chairman of the Board of Directors of the
American Shipbuilding Association. He served on the Board of Directors of the
Virginia Manufacturers Association until 1997. In July 1996, Mr. Fricks was
appointed to the Board of Visitors of the College of William and Mary. Mr.
Fricks is 53 years old and has been a director of the Company since October
1996.
DR. WILLIAM R. HARVEY has been the President of Hampton University in
Hampton, Virginia, since July 1978. He is also the owner of the Pepsi-Cola
Bottling Company of Houghton, Michigan. Previously, Dr. Harvey served as
Administrative Vice President at Tuskegee University, as Administrative
Assistant to the President of Fisk University, and as Assistant for Governmental
Affairs to the Dean at Harvard University's Graduate School of Education. He is
a director of the First Union National Bank-Virginia and Trigon Blue Cross Blue
Shield of Virginia. Dr. Harvey is 56 years old and has been a director of the
Company since January 1997.
STEPHEN R. WILSON has served as the Group Finance Director of Reckitt &
Colman plc since February 1998. Before that, he served as the Executive Vice
President and Chief Financial Officer of Readers' Digest Association, Inc. from
April 1995 to September 1997. From March 1993 to April 1995 he served as the
Executive Vice President and Chief Financial Officer of RJR Nabisco, Inc. From
October 1990 until March 1993, Mr. Wilson served as Senior Vice President,
Corporate Development of RJR Nabisco. Mr. Wilson is 51 years old and has been a
director of the Company since January 1997.
CLASS III (TO SERVE UNTIL THE 1999 ANNUAL MEETING OF STOCKHOLDERS)
HON. GERALD L. BALILES has been a partner with the law firm of Hunton &
Williams since February 1990. From January 1986 until January 1990, he served as
Governor of the Commonwealth of Virginia. While Governor, he served as Chairman
of the National Governors' Association from 1988 to 1989. He currently serves as
Chairman of the Richmond Regional Transportation Advocacy Board, a member of the
Council on Foreign Relations, and as a director of Norfolk Southern Company, The
Atlantic Council of the United States and the United States Council for
International Business. He has served as Chairman of the Board of the Public
Broadcasting Service and as a member of the Washington Airport Task Force.
Governor Baliles is 57 years old and has been a director of the Company since
January 1997.
DANA G. MEAD has served as an executive officer of Tenneco since March
1992, when he joined Tenneco as Chief Operating Officer and a member of the
Board. He was elected President one month later and was named Chief Executive
Officer in February 1994 and Chairman in May 1994. Prior to joining Tenneco, Mr.
Mead served as an Executive Vice President of International Paper Company, a
manufacturer of paper, pulp and wood products. Mr. Mead is also a director of
Unisource Worldwide Inc., Pfizer Inc., the Zurich Insurance Group and Textron
Inc. Until 1997, he was also a director of Alco Standard Company, Baker Hughes
Incorporated and Case Company. Mr. Mead is 61 years old and has been a director
of the Company since June 1992. For purposes of this paragraph, "Tenneco"
refers: (i) for periods prior to the Spin-off, to Tenneco Inc., now known as El
Paso Tennessee Pipeline Co.; and (ii) for periods after the Spin-off, to Tenneco
Inc., formerly known as New Tenneco Inc.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has four standing committees, which have the
following responsibilities and authority:
AUDIT COMMITTEE. The Audit Committee has the responsibility, among other
things, to (i) recommend the selection of the Company's independent public
accountants, (ii) review and approve the scope of the independent public
accountants' audit activity and extent of non-audit services, (iii) review with
management and such independent public accountants the adequacy of the Company's
basic accounting systems and the effectiveness of the Company's internal audit
plan and activities, (iv) review with management and the independent public
accountants the Company's certified financial statements and exercise general
oversight of the Company's financial reporting process, (v) review with
management litigation and other legal matters that may affect the Company's
financial condition and (vi) monitor compliance with the Company's business
ethics and other policies. The Members of the Audit Committee are Messrs.
Wilson, Edney and Harvey. Mr. Wilson is the Chairman of the Audit Committee.
COMPENSATION AND BENEFITS COMMITTEE. The Compensation and Benefits
Committee has the responsibility, among other things, to (i) establish the
salary rates of officers and certain other employees of the Company, (ii)
examine periodically the compensation structure of the Company and (iii)
supervise the welfare, pension and compensation plans of the Company. The
Members of the Compensation and Benefits Committee are Messrs. Sisco, Wilson and
Mead. Dr. Sisco is the Chairman of the Compensation and Benefits Committee.
NOMINATING AND MANAGEMENT DEVELOPMENT COMMITTEE. The Nominating and
Management Development Committee has the responsibility, among other things, to
(i) review possible candidates for election to the Board of Directors and
recommend a slate of nominees for election as directors at the Company's annual
stockholders' meetings, (ii) review the function and composition of the other
committees of the Board of Directors and recommend membership on such committees
and (iii) review the qualifications and recommend candidates for election as
officers of the Company. The Members of the Nominating and Management
Development Committee are Messrs. Baliles, Harvey, Edney and Sisco. Governor
Baliles is the Chairman of the Nominating and Management Development Committee.
Stockholders entitled to vote for the election of directors may nominate
candidates for consideration by the Nominating and Management Development
Committee in accordance with the procedures set forth below under the heading
"Shareholder Proposals and Director Nominations for the 1999 Annual Meeting of
Stockholders."
EXECUTIVE COMMITTEE. Other than matters assigned to the Compensation and
Benefits Committee, the Executive Committee has, during the interval between the
meetings of the Board of Directors, the authority to exercise all the powers of
the Board that may be delegated legally to it by the Board in the management and
direction of the business and affairs of the Company. The Members of the
Executive Committee are Messrs. Fricks, Baliles, Mead and Wilson. Mr. Fricks is
the Chairman of the Executive Committee.
During 1997, there were six meetings of the Board of Directors, four
meetings of the Audit Committee, six meetings of the Compensation and Benefits
Committee, two meetings of the Nominating and Management Development Committee
and no meetings of the Executive Committee. During 1997, or the portion of 1997
during which each director served, each director attended at least 75% of the
aggregate number of meetings of the Board of Directors and meetings of
committees of the Board on which he served.
COMPENSATION OF DIRECTORS
All directors who are not also employees of the Company are paid a
director's fee of $25,000 per annum, one-half in cash and one-half in restricted
shares of Company Common Stock, and an attendance fee of $1,000, plus expenses,
for each meeting of the Board of Directors and each committee meeting attended.
Each director
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who serves as chairman of a committee of the Board is paid an additional fee of
$3,000 per annum per chairmanship.
Directors who are not also employees of the Company each receive an initial
grant of 2,000 stock options and an additional 1,000 stock options annually.
Directors who are not also employees of the Company each receive a one-time
grant of 1,000 shares of restricted stock upon joining the Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is the ownership, as of January 1, 1998 (except as
otherwise stated), of the number of shares and percentage of Company Common
Stock beneficially owned by (i) each director of the Company, (ii) each of the
executive officers of the Company whose names are set forth on the Summary
Compensation Table, (iii) all executive officers and directors of the Company as
a group and (iv) all persons beneficially owning more than 5% of the outstanding
Company Common Stock.
<TABLE>
<CAPTION>
SHARES OF THE AGGREGATE
COMPANY COMMON STOCK PERCENTAGE
OWNED(a) OWNED(b)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
William P. Fricks............................................................ 152,939(c)(d) *
Hon. Gerald L. Baliles....................................................... 2,225 *
Leon A. Edney, Admiral (Ret.)................................................ 2,125 *
Dr. William R. Harvey........................................................ 2,125 *
Dana G. Mead................................................................. 18,642(e) *
Dr. Joseph J. Sisco.......................................................... 3,180 *
Stephen R. Wilson............................................................ 2,125 *
Thomas C. Schievelbein....................................................... 58,899(c)(d) *
David J. Anderson............................................................ 6,310(d) *
Stephen B. Clarkson.......................................................... 40,028(c)(d) *
Alfred Little, Jr............................................................ 1,290(c)(d) *
All directors and executive officers as a group (23 persons)................. 508,209(c)(d)(e) 1.44%
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258............................................. 2,328,642(f) 6.65%
First Manhattan Co.
437 Madison Avenue
New York, New York 10022................................................... 3,881,876(g) 11.08%
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116................................................ 4,502,711(h) 12.85%
Perry Corp.
599 Lexington Avenue
New York, New York 10022................................................... 1,767,800(i) 5.05%
</TABLE>
- ---------------
(a)Except as described in the notes below, each director, executive officer
and 5% holder has sole voting and investment power over the shares beneficially
owned, as set forth in this column.
(b)Except as indicated, each person or group beneficially owns less than 1%
of the outstanding Company Common Stock. Percentages are based on 35,030,780
shares of Company Common Stock outstanding as of April 1, 1998.
(c)Includes options to acquire shares of Company Common Stock held by
Messrs. Fricks, Schievelbein, Anderson, Clarkson and Little, which may be
exercised on or before March 1, 1998, for 129,165, 51,777, 0, 29,366, and 0
shares of Company Common Stock, respectively. All directors and executive
officers as a group
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have options, which may be exercised on or before March 1, 1998, for 388,436
shares of Company Common Stock.
(d)Includes shares held under the Company's 401(k) plan. Shares in the
Company's 401(k) plan held by Messrs. Fricks, Schievelbein, Anderson, Clarkson
and Little were 10,292, 1,002, 585, 2,531, and 565, respectively. All directors
and executive officers as a group held 29,433 shares in the 401(k) plan.
(e)Includes 81 shares held under the Tenneco Inc. 401(k) plan.
(f)The number of shares owned is as reported in Schedule 13G filed by
Mellon Bank Corporation with the Securities and Exchange Commission on January
22, 1998. Mellon Bank Corporation reported sole voting power for 2,043,191 and
sole investment power for 2,162,744 of the shares beneficially owned.
(g)The number of shares owned is as reported in Schedule 13G filed by First
Manhattan Co. with the Securities and Exchange Commission on June 26, 1997.
First Manhattan Co. reported sole voting and investment power for 103,300 of the
shares beneficially owned.
(h)The number of shares owned is as reported in Schedule 13G filed by
Massachusetts Financial Services Company with the Securities and Exchange
Commission on February 14, 1998. Massachusetts Financial Services Company
reported sole voting power for 4,434,211 and sole investment power for 4,502,711
of the shares beneficially owned.
(i)The number of shares owned is as reported in Schedule 13G filed by Perry
Corp. with the Securities and Exchange Commission on March 17, 1998. Perry Corp.
reported sole voting and investment power for all 1,767,800 shares beneficially
owned.
EXECUTIVE COMPENSATION
COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee (the "Compensation Committee") of
the Board of Directors, which consists entirely of non-employee directors,
provides the following report on executive compensation. Under the Compensation
Committee's supervision, the Company has developed and implemented the executive
compensation philosophy, policies, plans, and programs described below.
COMPENSATION PHILOSOPHY
The Company has established a basic philosophy for executive compensation
to reward executives primarily based upon their ability to improve the financial
performance of the Company and increase shareholder value. The Compensation
Committee believes this pay-for-performance philosophy will appropriately link
the interest of executives with those of stockholders.
Accordingly, the Company's executive compensation program has been
structured to:
(Bullet) Align the total compensation paid to the Company's executives with
the Company's business goals, including (but not limited to)
operating income, cash flow, earnings per share, stock price
growth, new business development, and leadership.
(Bullet) Reinforce a pay-for-performance culture through significant short-
and long-term incentives. Performance-based pay constitutes the
significant majority of compensation opportunities available to
all of the Company's senior executives. For performance above
target, executives have significantly higher award opportunities.
For performance below target, award opportunities are
significantly reduced and below certain levels, no award may be
earned. Greater emphasis is placed on incentives which reward
executives for sustained long-term performance.
(Bullet) Strengthen the linkage between stockholders' and executives'
interests through stock-based incentives and stock ownership
requirements. A significant portion of each executive's on-going
compensation will be derived from stock-based compensation,
including stock options and performance shares, which require
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stock price growth and/or achievement of earnings per share growth
before any value is received by executives. Additionally, each
executive is required to achieve and maintain certain stock
ownership levels which vary with executive level. Many of these
stock-based incentives also contain vesting requirements which aid
in the retention of key executive talent.
(Bullet) Attract and retain high quality executive talent by providing
competitive total compensation. The on-going compensation program
provides total compensation levels at market medians (50th
percentile) when the Company achieves targeted performance
objectives. However, Company performance above established
performance objectives can result in a total compensation package
that is above market medians. Conversely, Company performance
below established performance objectives can result in a total
compensation package significantly below market medians.
Under this structure, the Company's executive compensation program has been
designed to provide compensation from three primary sources -- base salary,
annual cash incentive awards, and long-term, stock-based incentive awards, such
as stock options and performance shares. The following is a description of each
of the components of the program.
BASE SALARY
The Compensation Committee reviews annually base salaries for executives.
The Company's annual salary plan is based on (i) the executive's performance
against objectives, both quantitative and qualitative, (ii) judgments as to the
executive's past and expected future contributions to the Company and (iii)
market survey data for comparable positions. Salary recommendations for senior
executives are developed under the direction of the Chief Executive Officer and
approved by the Compensation Committee. However, the base salary of the Chief
Executive Officer is set by the Compensation Committee alone.
The information on competitive market salaries is provided to the
Compensation Committee with the assistance of an independent executive
compensation consultant. Survey data is derived from a sample of similarly-sized
organizations within the same or highly related industries (the "Comparator
Group"). The Comparator Group consists of organizations within the shipbuilding,
defense, and heavy manufacturing industries. The companies comprising the
Comparator Group are not necessarily the same companies in the peer group
indices in the performance graph included in this proxy statement. Such indices
are intended to provide a relative comparison of the Company's total return to
shareholders and are not necessarily indicative of the Company's market for
executive talent.
Salaries for two of the Company's senior executive officers named in the
Summary Compensation Table, including the CEO, were increased significantly in
1997. The increases were necessary to reflect the Company's status as a newly
independent, publicly traded company, which resulted in the expansion of duties
and responsibilities for these two executives.
In keeping with the Company's performance-based compensation philosophy,
including more emphasis on variable than fixed pay, salaries for the Company's
senior executive officers, including the named executives, are at or below
market medians (50th percentile) for similar positions at companies of similar
size in the Comparator Group.
ANNUAL INCENTIVES
Annual incentive plan opportunities (targets) are also established using
market survey data. The Company's Annual Incentive Plan provides that Company
executives will receive cash payments from the Plan if they meet specified
performance goals. These goals will typically consist of (but not be limited to)
one or more of the following financial measures: operating income, operating
cash flow, earnings per share, return on equity, return on investment, and net
income. Larger payouts may be earned if Plan goals are exceeded. Conversely,
smaller payouts (or no payout) may be earned if Plan goals are not met.
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In addition, the level of awards indicated by achievement of financial
goals can be adjusted, upward or downward, based on the Company's performance
related to non-financial goals including health and safety, equal employment
opportunity, environmental, leadership development, business development and
quality of earnings.
The Compensation Committee is responsible for establishing performance
measures and performance targets at the beginning of each year, for evaluating
performance against these targets, and for determining awards earned under the
Plan, as well as specific award levels for senior executives. Individual
incentive awards are based on Company performance against targets, both
financial and non-financial, and evaluations of individual performance.
For 1997, the principal financial measures were operating income (weighted
70%) and operating cash flow (weighted 30%). In February 1998, the Company paid
awards based on the levels of operating income and cash flow achieved for 1997,
as reported in the Company's earnings release on January 28, 1998. Subsequently,
the Company announced a charge against its commercial shipbuilding business
which resulted in revised earnings for 1997. Consequently, operating income fell
below the threshold for award consideration. However, operating cash flow
exceeded target and was unchanged by the charge.
Accordingly, awards for the named executive officers, other than Mr.
Fricks, were first reduced to the level appropriate for the actual financial
performance achieved and then were further reduced based on the Board's
assessment of the significance of the earnings charge against 1997. At his
request, Mr. Fricks' award for 1997 was reduced to zero. Each of the named
executives has taken appropriate action to repay the Company for the difference
between the original and restated award.
LONG-TERM INCENTIVES
The Company's long-term, stock-based incentive plan is designed to align a
significant portion of the executive's total compensation with stockholder
interests. The Stock Ownership Plan provides the flexibility to grant long-term
incentives in a variety of forms, including stock options, performance shares,
restricted stock, stock appreciation rights, and other stock-based incentive
vehicles. Periodically, the Compensation Committee establishes the types and
levels of long-term incentives it believes are most likely to achieve the
Company's performance and total compensation objectives. To date, the
Compensation Committee has employed performance shares and stock options as the
principal forms of long-term incentives. At increasing levels of executive
responsibility, it is the Compensation Committee's intent that executives derive
a larger percentage of total compensation from long-term, stock-based incentive
vehicles.
For 1997, long-term incentives were provided through a combination of stock
options and performance shares. Incentive opportunities were graduated by
executive level. Earnings per share ("EPS") was the performance measure for
determining actual performance share awards earned under the Plan. Payout levels
will be based upon performance against EPS goals over a three year period.
Larger payouts are earned if EPS goals are exceeded. Conversely, smaller payouts
(or no payout) may be earned if EPS goals are not met. Based on the Company's
restated EPS for 1997, no performance shares were earned for that year.
The number of options and performance shares granted to each executive was
based on a review of the grant levels and practices for a Comparator Group of
publicly traded organizations of comparable size operating in similar
industries. The opportunities for the Company's executive officers are targeted
at the median of the market.
In consideration of its need to retain and provide incentive to key
executives in the challenging environment surrounding its transition to a
publicly traded company and to create an immediate link between executive and
stockholder interests, in 1997 the Company granted additional performance shares
to key executives, including the CEO. The grant has a minimum vesting period of
three years. Beyond that minimum, vesting is linked to stock price performance,
and no vesting occurs unless stock price targets are achieved.
8
<PAGE>
EXECUTIVE STOCK OWNERSHIP
The Compensation Committee believes that stockholder interests are enhanced
through stock ownership of key Company executives. Accordingly, the Compensation
Committee has established stock ownership requirements for its executives. The
share requirements are defined as a multiple of each executive's base salary.
The multiple varies with level of executive responsibility from four times base
salary at the highest executive level ("CEO") to one times base salary at the
lowest executive level.
CEO COMPENSATION
The Compensation Committee established the compensation level for Mr.
Fricks using data for CEOs in the Comparator Group as a benchmark. The
Compensation Committee set Mr. Fricks' cash compensation opportunities (salary
plus annual incentive) somewhat below the market median while correspondingly
setting long-term, stock-based compensation opportunities at a level somewhat
above the market median. This approach corresponds to the Company's stated
philosophy of emphasizing performance-based pay over fixed pay. Total
compensation opportunities approximate the market median. Annually, Mr. Fricks
will be entitled to receive compensation under the Annual Incentive Plan and
stock-based incentive grants consistent with the provisions of the Stock
Ownership Plan.
In recognition of his performance in 1996 and his increased
responsibilities as CEO of the Company, a newly independent publicly traded
corporation, Mr. Fricks' base salary was increased from $375,000 to $525,000
effective January 1, 1997. Mr. Fricks' base salary was increased from $525,000
to $540,000 effective January 1, 1998. This increase is significantly below the
average for his peers in the "Comparator Group" and, in percentage terms, is
below the average merit increase received by other salaried employees for 1998.
After adjustments for the commercial shipbuilding charge discussed
previously, Mr. Fricks elected to forego his entire annual incentive award for
1997, even though an award would have been earned under the provisions of the
Plan. Additionally, Mr. Fricks did not earn any performance shares for 1997
under the Company's long-term incentive plan because of the Company's failure to
attain its threshold EPS target.
$1 MILLION TAX LIMITATION
The Internal Revenue Code of 1986, as amended, provides that a
publicly-owned corporation may not deduct compensation in excess of $1 million
per year paid to a corporation's Chief Executive Officer or other named
executives, subject to certain exceptions. One exception is for
performance-based compensation that satisfies certain conditions of Section
162(m).
The Company desiring, both to compensate its executives competitively and
to protect its tax deduction for compensation, has elected to use certain
stock-based incentives (i.e., stock options and performance shares) that qualify
as "performance-based compensation." These incentives qualify as
"performance-based compensation" because their value to the executive is
determined by either increases in the Company's stock price alone or in
combination with the achievement of objective performance goals. The Company
does not expect any compensation to be non-deductible for Federal income tax
purposes.
The Compensation Committee believes the overall design of the compensation
program appropriately links executive and stockholder interests. The
Compensation Committee will regularly evaluate the program to ensure continued
future alignment.
COMPENSATION AND BENEFITS
COMMITTEE
Joseph J. Sisco -- Chairman
Dana G. Mead
Stephen R. Wilson
9
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons owning more than 10% of
the Company Common Stock to file reports of ownership and changes in ownership
of Company Common Stock and derivative securities of the Company with the
Securities and Exchange Commission and the New York Stock Exchange. All
directors and executive officers filed on a timely basis all reports required to
be filed in 1997, except that Mr. Fricks filed one report of a single
transaction late.
COMPENSATION OF EXECUTIVE OFFICERS
Prior to the Spin-off, the business of the Company and its subsidiaries was
owned and operated by Tenneco through its direct and indirect subsidiaries and,
as such, the management of the Company was employed by Tenneco and/or its direct
and indirect subsidiaries. The following Summary Compensation Table sets forth
the remuneration paid by Tenneco and/or its direct and indirect subsidiaries
prior to the Spin-off on December 11, 1996 and by the Company after that date
(i) to the Chairman of the Board, President and Chief Executive Officer of the
Company and (ii) to each of the four other most highly compensated executive
officers of the Company during the three fiscal years ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES LONG-TERM
NAME AND PRINCIPAL ---------------------------- STOCK UNDERLYING INCENTIVE
POSITION YEAR SALARY($)(a) BONUS($)(a) AWARDS ($)(b) OPTIONS/SARS (#) PAYOUTS ($)
- ------------------------- ---- ------------ ----------- --------------------- --------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks 1997 $525,000 $ 0(f) -- 272,187(d) --
Chairman of the Board, 1996 $395,500 $ 230,000 -- 30,000 --
President and 1995 $323,759 $ 195,000 -- 12,000 --
Chief Executive Officer
Thomas C. Schievelbein 1997 $345,000 $ 83,000(f) -- 125,934(d) --
Executive Vice President 1996 $238,900 $ 109,000 $ 168,875 14,000 --
1995 $188,202 $ 90,000 $ 90,038 3,300 --
David J. Anderson 1997 $270,000 $ 74,000(f) -- 37,300 --
Senior Vice President 1996(e) $116,272 $ 68,000 -- -- --
and Chief Financial
Officer
Stephen B. Clarkson 1997 $222,000 $ 56,000(f) -- 60,514(d) --
Vice President, General 1996 $206,565 $ 68,000 $ 86,850 4,300 --
Counsel and Secretary 1995 $200,400 $ 75,000 $ 85,750 3,000 --
Alfred Little, Jr. 1997 $218,000 $ 55,000(f) -- 26,400 --
Vice President, Human 1996(e) $ 93,912 $ 149,000(g) -- -- --
Resources and EH&S
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION YEAR ($)(c)
- ------------------------- ---- ------------
<S> <C>
William P. Fricks 1997 $ 68,836
Chairman of the Board, 1996 $ 45,378
President and 1995 $ 34,680
Chief Executive Officer
Thomas C. Schievelbein 1997 $ 43,169
Executive Vice President 1996 $ 26,513
1995 $ 9,810
David J. Anderson 1997 $ 34,652
Senior Vice President 1996(e) $ 297
and Chief Financial
Officer
Stephen B. Clarkson 1997 $ 30,491
Vice President, General 1996 $ 13,595
Counsel and Secretary 1995 $ 13,287
Alfred Little, Jr. 1997 $ 22,693
Vice President, Human 1996(e) $ 384
Resources and EH&S
</TABLE>
- ---------------
(a)Includes amounts contributed to the Company's 401(k) and deferred
compensation plans in the case of salary, and deferred compensation plans in the
case of bonus.
(b)Includes the dollar value of grants of restricted stock made pursuant to
Tenneco restricted stock plans based on the price of the common stock of Tenneco
on the date of grant. All grants of Tenneco restricted stock vested as of
November 1, 1996.
(c)Includes amounts attributable during 1997 to Company contributions to
benefit plans and dividend equivalents accrued on performance shares as follows:
(1) Amounts contributed to 401(k) and deferred compensation plans on
behalf of Messrs. Fricks, Schievelbein, Anderson, Clarkson, and Little
were $45,488, $31,538, $24,600, $16,380, and $17,120, respectively.
10
<PAGE>
(2) Amounts imputed as income for federal income tax purposes under the
Company's group life insurance plan for Messrs. Fricks, Schievelbein,
Anderson, Clarkson, and Little were $8,290, $2,294, $4,407, $10,133
and $1,595, respectively.
(3) Dividend equivalent payments accrued on performance shares held by
Messrs. Fricks, Schievelbein, Anderson, Clarkson, and Little were
$15,058, $9,337, $5,645, $3,978, and $3,978, respectively.
(d)Includes options exchanged for previously held Tenneco options granted
in 1994, 1995, and 1996.
(e)Messrs. Anderson and Little became employees of the Company in July
1996. The amount reported for 1996 reflects less than a full year's
compensation.
(f)Approved bonuses for Messrs. Fricks, Schievelbein, Anderson, Clarkson,
and Little for 1997 of $450,000, $236,000, $177,000, $123,000, and $125,000,
respectively, were reduced to the levels indicated based on final 1997 results.
Refer to p. 8 of the Compensation and Benefits Committee Report on Executive
Compensation for further details.
(g)Includes a one-time payment of $65,000 in connection with Mr. Little's
acceptance of employment with the Company.
11
<PAGE>
OPTION GRANTS IN 1997
The following table sets forth the number of options to acquire Company
Common Stock that were granted in 1997 to the following persons named in the
Summary Compensation Table. As discussed in note (c), options granted prior to
1997 by Tenneco were exchanged for options to acquire Company Common Stock in
1997. Options to acquire Tenneco common stock held by the named executives were
cancelled by Tenneco on December 11, 1996 in connection with the Spin-Off.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(a) VALUE
---------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES BASE PRICE -------------------------
NAME GRANTED (#) IN FISCAL YEAR(b) PER SHARE EXPIRATION DATE 5% 10%
- ----------------------- ----------- ------------------ ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks 109,900 2.74% $15.00 3/12/07 $1,036,733 $2,627,284
99,359(c) 2.48% $14.57 1/16/06 $ 798,026 $1,965,578
39,744(c) 0.99% $12.95 1/10/05 $ 245,644 $ 588,361
23,184(c) 0.58% $16.29 1/11/04 $ 153,711 $ 358,211
Thomas C. Schievelbein 58,700 1.47% $15.00 3/12/07 $ 553,742 $1,403,290
46,368(c) 1.16% $14.57 1/16/06 $ 372,416 $ 917,279
10,930(c) 0.27% $12.95 1/10/05 $ 67,555 $ 161,805
9,936(c) 0.25% $16.29 1/11/04 $ 65,876 $ 153,519
David J. Anderson(d) 37,300 0.93% $15.00 3/12/07 $ 351,867 $ 891,699
Stephen B. Clarkson 26,400 0.68% $15.00 3/12/07 $ 249,042 $ 631,122
14,242(c) 0.36% $14.57 1/16/06 $ 144,388 $ 281,744
9,936(c) 0.25% $12.95 1/10/05 $ 61,411 $ 147,090
9,936(c) 0.25% $16.29 1/11/04 $ 65,876 $ 153,519
Alfred Little, Jr.(d) 26,400 0.68% $15.00 3/12/07 $ 249,042 $ 631,122
</TABLE>
- ---------------
(a)All options vest ratably over three years beginning with the first
anniversary of the original grant date.
(b)Based on 4,004,329 options (including options to acquire Company Common
Stock exchanged for Tenneco options in connection with the Spin-Off) granted to
all employees in 1997.
(c)Represents options exchanged for previously held Tenneco options granted
in 1994, 1995 and 1996. All outstanding Tenneco options held by the named
executive officers were terminated as of the Spin-Off, and options to purchase
Company Common Stock were granted in 1997 to replace them in connection with an
agreement reached with Tenneco at the time of the Spin-Off. The number and
exercise price of the options to acquire Company Common Stock exchanged for
Tenneco options in connection with the Spin-Off were determined based on a
formula intended to preserve the economic value of the Tenneco options being
replaced.
(d)Messrs. Anderson and Little held no Tenneco stock options on December
11, 1996 and, therefore, received no replacement options.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND 1997 YEAR-END OPTION/SAR VALUES
The following table provides information as to options exercised by each of
the named executive officers of the Company during 1997, and the number of
securities underlying unexercised options and the value of unexercised,
in-the-money options at fiscal year-end. No options or SARs were exercised
during 1997 by the individuals named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT FISCAL YEAR THE-MONEY OPTIONS/SARS AT
END (#)(a) FISCAL YEAR-END ($)
SHARES ACQUIRED GAIN AT ----------------------------- -----------------------------
NAME ON EXERCISE (#) EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks -- -- 82,800 189,387 $ 900,580 $ 2,026,649
Thomas C. Schievelbein -- -- 32,679 93,255 $ 348,940 $ 991,275
David J. Anderson -- -- 0 37,300 $ 0 $ 388,153
Stephen B. Clarkson -- -- 21,307 39,207 $ 224,611 $ 418,906
Alfred Little, Jr. -- -- 0 26,400 $ 0 $ 274,725
</TABLE>
- ---------------
(a)The values shown equal the difference between the exercise price of
unexercised in-the-money options and the average of the high and low trading
prices of Company Common Stock on December 31, 1997. Options are in-the-money if
the fair market value of the Common Stock exceeds the exercise price of the
option.
LONG-TERM INCENTIVE PLAN
PERFORMANCE SHARE AWARDS IN 1997
The following table shows the value of performance shares granted during
1997 under the Newport News Shipbuilding Stock Ownership Plan that are earned
prorata, based on the achievement of specified share price targets over the
seven year performance period. The values shown reflect that the maximum share
price target of $23 per share was achieved.
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
NUMBER OF OTHER PERIOD UNTIL -------------------------------------------
SHARES, UNITS OR MATURATION OR THRESHOLD TARGET ($) MAXIMUM TARGET ($)
NAME OTHER RIGHTS (#) PAYOUT $17 PER SHARE $23 PER SHARE(a)
- ----------------------- ---------------- ------------------ -------------------- ------------------
<S> <C> <C> <C> <C>
William P. Fricks 61,800 3-7 years $1,050,600 $1,421,400
Thomas C. Schievelbein 41,100 3-7 years $ 698,700 $ 945,300
David J. Anderson 24,300 3-7 years $ 413,100 $ 558,900
Stephen B. Clarkson 17,100 3-7 years $ 290,700 $ 393,300
Alfred Little, Jr. 17,100 3-7 years $ 290,700 $ 393,300
</TABLE>
- ---------------
(a)A portion of the awards was earned as the average closing price of
Company Common Stock reached $17, $19, $21, and $23 for 10 consecutive trading
days. Additional value could be realized should the price for a share of Company
Common Stock exceed $23. All awards shown were fully earned by each named
executive officer in 1997. Earned shares will be paid in stock, cash or a
combination, at the Compensation Committee's discretion. No shares earned will
vest before the expiration of three years from the grant date (March 13, 1997).
During this three-year period, the awards are subject to forfeiture, should the
named executive officer cease to be employed by the Company, or one of its
subsidiaries, other than as a result of death, disability or retirement. The
seven year performance period during which the awards could have been earned
would have ended on March 12, 2004 whether or not stock price objectives were
achieved. Dividend equivalent payments made on unvested awards during 1997 are
included in the named executive officers' other compensation for 1997. Awards do
not entail voting rights.
13
<PAGE>
The following table shows the target and maximum value of performance
shares granted during 1997 under the Newport News Shipbuilding Stock Ownership
Plan that are earned prorata, based on the achievement of specified earnings per
share objectives over the three year performance period. The values shown
presume earnings per share objectives are achieved.
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF OTHER PERIOD UNTIL ESTIMATED FUTURE PAYOUTS
SHARES, UNITS OR MATURATION OR --------------------------------------------------------
NAME OTHER RIGHTS (#) PAYOUT(a) THRESHOLD ($)(b) TARGET ($)(b) MAXIMUM ($)(b)
- ----------------------- ---------------- ------------------ ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
William P. Fricks 32,315 3 Years $ 145,418 $484,725 $ 969,450
Thomas C. Schievelbein 17,255 3 Years $ 77,648 $258,825 $ 517,650
David J. Anderson 10,980 3 Years $ 49,410 $164,700 $ 329,400
Stephen B. Clarkson 7,765 3 Years $ 34,943 $116,475 $ 232,950
Alfred Little, Jr. 7,765 3 Years $ 34,943 $116,475 $ 232,950
</TABLE>
- ---------------
(a)1/1/97 through 12/31/99
(b)Assumes a $15 per share price for Company Common Stock (the price on the
grant date). Additional value could be realized should the price per share of
Company Common Stock exceed $15.
14
<PAGE>
PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total
stockholder return for the calendar year ended December 31, 1997 as compared to
the Standard & Poors 400 Midcap Stock Index and the Standard & Poors
Aerospace/Defense 500. The Company is a component of both indices. 1997 is the
first full year that the Company has been publicly traded since the Spin-Off.
These figures assume that all dividends paid over the performance period were
reinvested, and that the starting value of each index and the investment in the
Company Common Stock was $100 on December 31, 1996. The graph is not, and is not
intended to be, indicative of future performance of Company Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG NEWPORT NEWS
SHIPBUILDING INC., S&P 400 MIDCAP AND S&P AEROSPACE/DEFENSE 500(1)
[GRAPH]
12/31/96 12/31/97
--------- --------
Newport News Shipbuilding $100 $171
S&P Midcap 400 $100 $132
A&P Aerospace/Defense 500 $100 $103
- ---------------
(1) Total return equals stock price appreciation plus reinvested dividends.
Period reflects the one year that the Company has been publicly traded since the
Spin-Off.
15
<PAGE>
PENSION PLAN TABLE
The following table sets forth the aggregate estimated annual benefits
payable upon normal retirement pursuant to the Company's Retirement Plan (the
"Retirement Plan"), and certain non-qualified structures. The Company has
adopted non-qualified structures to provide employees with the benefits that
would be provided under the Retirement Plan but for applicable legal limits. The
numbers set forth in the following table assume payments under those structures.
<TABLE>
<CAPTION>
YEARS OF CREDITED PARTICIPATION
------------------------------------------------------------
REMUNERATION 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
$ 200,000 $ 47,100 $ 62,900 $ 78,600 $ 94,300 $110,000
250,000 58,900 78,600 98,200 117,900 137,500
300,000 70,700 94,300 117,900 141,400 165,000
350,000 82,500 110,000 137,500 165,000 192,500
400,000 94,300 125,700 157,100 188,600 220,000
450,000 106,100 141,400 176,800 212,100 247,500
500,000 117,900 157,100 196,400 235,700 275,000
550,000 129,600 172,900 216,100 259,300 302,500
600,000 141,400 188,600 235,700 282,900 330,000
650,000 153,200 204,300 255,400 306,400 357,500
700,000 165,000 220,000 275,000 330,000 385,000
750,000 176,800 235,700 294,600 353,600 412,500
800,000 188,600 251,400 314,300 377,100 440,000
850,000 200,400 267,100 333,900 400,700 467,500
900,000 212,100 282,900 353,600 424,300 495,000
950,000 223,900 298,600 373,200 447,900 522,500
1,000,000 235,700 314,300 392,900 471,400 550,000
</TABLE>
The benefits set forth above are computed as a straight life annuity and
are based on years of credited participation in the Retirement Plan and the
employee's average base salary during the final five years of credited
participation in the Plan; such benefits are subject to an offset for benefits
accrued under the Company's former parent's retirement plan but are not subject
to any deduction for Social Security. The estimated credited years of
participation for Messrs. Fricks, Schievelbein, Anderson, Clarkson and Little
are 35, 9, 9, 6 and 11, respectively. Pursuant to the employment agreement with
Mr. Fricks, benefits for Mr. Fricks are based on his average base salary and
bonus during the term of the agreement. See " -- Executive Compensation."
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has an employment agreement with Mr. Fricks for a term ending
December 12, 1999. Mr. Fricks will receive annual compensation of not less than
$525,000, subject to such adjustments as may, from time to time, be approved by
the Compensation Committee of the Board of Directors, and annual financial
planning services and retirement and other benefits. The agreement provides
that, upon Mr. Fricks' separation from the Company, he will receive career
transition assistance of up to $75,000. Upon involuntary termination, or if the
term of the agreement is not extended, the Company will pay Mr. Fricks a
severance benefit in an amount equal to the greater of (i) the total salary for
the remainder of the agreement assuming his base salary then in effect or (ii)
three times his then-current base salary. Subject to approval of the Board of
Directors, Mr. Fricks' outstanding restricted stock, stock option and
performance share awards will vest and/or become exercisable on the date of his
termination. The agreement includes a supplemental executive retirement plan
(SERP) which provides for certain retirement benefits.
The Company has established a severance plan for the benefit of certain
employees and officers whose position is terminated under certain circumstances
following a change in control of the Company. Under the severance plan, key
executives of the rank of Senior Vice President and above, as well as certain
other officers,
16
<PAGE>
would receive three times their annual salary and the average of their targeted
or actual bonus awards, whichever is higher, together with any special awards,
over the last three years, if they are terminated within two years of a change
in control. Certain other key employees would receive two times their annual
salary, and the average of their targeted or actual bonus awards, whichever is
higher, together with any special awards, over the last three years, if they are
terminated within two years of a change in control. The Spin-Off was not deemed
to constitute a "change in control" for purposes of the plan.
CERTAIN TRANSACTIONS
Governor Baliles, a director of the Company, is a partner in the law firm
of Hunton & Williams. Hunton & Williams has provided legal services to the
Company during the last two years.
17
<PAGE>
PROPOSAL TO APPROVE INCREASE IN SHARE AUTHORIZATION FOR THE EMPLOYEE
STOCK PURCHASE AND ACCUMULATION PLAN BY 200,000 SHARES
(PROPOSAL 2)
The Company proposes that the stockholders approve an increase in the share
authorization for the Employee Stock Purchase and Accumulation Plan ("Stock
Purchase Plan"). On January 30, 1998, subject to stockholder approval, the Board
of Directors approved a resolution to increase the number of shares available
for issuance under the Stock Purchase Plan by an additional 200,000 shares of
Company Common Stock, subject to future adjustment as provided in the Stock
Purchase Plan. The Board believes this increase is necessary in order to make
shares available for future purchases by the Company's employees under the Stock
Purchase Plan. It is anticipated that, at the current rate of useage, all of the
shares presently available for issuance under the Stock Purchase Plan will be
exhausted by July 1998.
The increase in shares for the Stock Purchase Plan is being presented to
the stockholders of the Company for approval to enable such plan to qualify
under Section 423 of the Tax Code. A discussion of the tax consequences under
the Stock Purchase Plan is set forth below.
SUMMARY OF THE STOCK PURCHASE PLAN
The following paragraphs summarize the principal features of the Stock
Purchase Plan. This summary is subject to the terms of the Stock Purchase Plan.
The Company will provide, upon request and without charge, a copy of the full
text of the Stock Purchase Plan to each person to whom a copy of this proxy
statement is delivered. Requests should be directed to: Stephen B. Clarkson,
Secretary, Newport News Shipbuilding Inc., 4101 Washington Avenue, Newport News,
Virginia 23607.
PURPOSE. The purpose of the Stock Purchase Plan is to permit employees of
the Company to purchase and accumulate stock in the Company over a period of
time at a discount in order to continue to attract and retain for the long term
a group of dedicated and reliable employees. In the opinion of the Board of
Directors, the Stock Purchase Plan will provide an attractive incentive to
employees and promote a greater interest of such employees in the future growth
and success of the Company.
TERM. The Stock Purchase Plan was adopted effective April 1, 1997 and was
amended and restated effective January 1, 1998. The Initial Offering Period
under the Stock Purchase Plan commenced on April 1, 1997 and ended December 31,
1997. Subsequent to the Initial Offering Period, the plan provides for four
consecutive, one-year Offering Periods, commencing on January 1 of each calendar
year and ending on December 31 of the same calendar year.
ADMINISTRATION. The Stock Purchase Plan is administered by the Compensation
Committee. The Compensation Committee has authority to establish rules and
regulations for the administration of the Stock Purchase Plan and its
interpretations and decisions with regard to the plan will be final.
PARTICIPATION. Participation in the Stock Purchase Plan is open to all
active employees of the Company and of its Subsidiaries (as defined by the
plan). At March 1, 1998, approximately 18,000 persons were eligible to
participate in the Stock Purchase Plan; however, no employee is eligible who
would own, after purchasing Company Common Stock under the plan, shares of
capital stock of the Company equalling 5% or more of the total combined voting
stock of the Company.
SHARES AVAILABLE FOR ISSUANCE. The proposed amendment would increase the
total number of shares of Company Common Stock authorized for issuance under the
Stock Purchase Plan by 200,000, to 1,300,000 shares. Such shares will consist of
treasury shares or authorized and unissued shares of Company Common Stock.
Currently, approximately 160,000 shares of Company Common Stock remain available
for issuance under the Stock Purchase Plan. Upon approval of the proposed
increase approximately 360,000 shares will be available for issuance under the
Stock Purchase Plan.
18
<PAGE>
PURCHASE OF COMPANY COMMON STOCK. As of each Grant Date (as defined by the
plan), eligible employees are entitled to allocate payroll deductions ranging
from a minimum of $10 per month up to an overall annual maximum amount of
$21,250. Participants' payroll deductions are invested in shares of the Company
Common Stock on the last business day of each calendar quarter (the "Exercise
Date"). Shares are purchased from the Company at 85% of the lower of the Fair
Market Value (as defined by the plan) of the Company Common Stock on (i) the
Grant Date for the particular quarter or (ii) the Exercise Date for the quarter.
Shares purchased under the Stock Purchase Plan on an Exercise Date must be held
in the employee's account until two years from the Exercise Date.
TERMINATION OF PARTICIPATION. Participation in the Stock Purchase Plan is
canceled (i) at any time upon the election of the employee, or (ii) on the date
that such person ceases to be an employee of the Company or its Subsidiaries.
Any funds deposited by the employee prior to such cancellation are used to
purchase stock on the next Exercise Date. An employee who elects to cancel
participation may not rejoin the Stock Purchase Plan until the next Offering
Period.
TRANSFERABILITY. The rights of employees participating in the Stock
Purchase Plan are not transferable other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee or by the employee's guardian or legal representative. No rights or
payroll deductions of a participating employee are subject to execution,
attachment, levy, garnishment, or similar process.
AMENDMENT. The Board of Directors of the Company may amend, suspend or
terminate the Stock Purchase Plan at any time; provided, however, that no
amendment may increase or decrease the number of shares authorized for the plan,
except as provided by its terms. In addition, except to conform the plan to the
requirements of the Tax Code, no amendment may (i) change the formula for
determining the Exercise Price per share, (ii) withdraw the administration of
the plan from the Committee, (iii) affect the rights of participating employees
to purchase stock on an Exercise Date with funds previously credited to Plan
Accounts (as defined by the plan), or (iv) cause the Stock Purchase Plan not to
meet the requirements of Section 423(b) of the Tax Code.
TAX ASPECTS OF THE STOCK PURCHASE PLAN
The following discussion of certain federal income tax consequences of the
Stock Purchase Plan is based on the Tax Code provisions in effect on the date of
this proxy statement, current regulations thereunder and existing administrative
rulings of the Internal Revenue Service. The discussion is limited to the United
States tax consequences and the tax consequences may vary depending on the
personal circumstances of individual employees.
If the amendment to the Stock Purchase Plan is approved by the stockholders
of the Company at the annual meeting, the additional shares available under the
Stock Purchase Plan will qualify under Section 423 of the Tax Code. As such, the
amount of the discount will not be taxed until the employee disposes of the
stock, and the determination of the ordinary and capital portion of the
resulting gain or loss will depend on the length of time the employee has held
the stock. The Company will be entitled to a deduction equal to the amount of
the employee's ordinary income if the disposition occurs within two years of the
applicable Grant Date; otherwise the Company will have no tax consequences.
CURRENT PARTICIPATION
The 1998 enrollment period for the Stock Purchase Plan ended on November
21, 1997, and 3,100 employees elected to participate in the plan. The Company is
unable to determine prospective benefits that may be received by participants in
the Stock Purchase Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2 TO
INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE STOCK PURCHASE
PLAN BY 200,000 SHARES.
19
<PAGE>
SELECTION OF AUDITORS
(PROPOSAL 3)
The Board of Directors has appointed Arthur Andersen LLP to serve as
independent certified public accountants of the Company and its subsidiaries for
1998. Although the appointment of Arthur Andersen LLP is not required to be
submitted to the stockholders for approval, the Board of Directors has elected
to solicit the stockholders' views on the matter. Stockholders are requested to
ratify this appointment. In the event of a negative vote by the stockholders,
the Board of Directors intends to reconsider its decision. Representatives of
Arthur Andersen LLP are expected to be present at the meeting and will be given
an opportunity to make a statement and to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 3 TO
RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS FOR 1998.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR THE
1999 ANNUAL MEETING OF STOCKHOLDERS
Any proposal submitted by a stockholder for inclusion in the proxy
materials for the Annual Meeting of stockholders in 1999 must be delivered to
the Secretary of the Company at its principal office in Newport News, Virginia
not later than December 18, 1998.
The Company's bylaws establish advance notice procedures for stockholders
to make nominations for candidates for election as directors or to bring other
business before an annual meeting of stockholders (the "Advance Notice
Procedure"). The Advance Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board of Directors or by a person who
has given timely written notice to the Secretary of the Company prior to the
meeting at which directors are to be elected will be eligible for election as
directors of the Company. The Advance Notice Procedure also provides that at an
annual meeting only such business may be conducted as has been brought before
the meeting by, or at the direction of, the Board of Directors or by a
stockholder who has given timely written notice to the Secretary of the Company
of such stockholder's intention to bring such business before such meeting. For
a stockholder notice to be timely it must be received by the Secretary of the
Company at the Company's principal executive offices not less than 50 days nor
more than 75 days prior to the meeting; provided, however, that in the event
that less than 65 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs.
A stockholder's notice proposing to nominate a person for election as a
director must set forth as to each nominee (i) name, age, business address and
residence, (ii) principal occupation or employment, (iii) class and number of
shares of capital stock of the Company which are beneficially owned by the
nominee and (iv) any other information relating to each nominee that would be
required to be disclosed in a proxy statement prepared in accordance with the
rules and regulations of the Securities and Exchange Commission then in effect.
The notice of nomination must also set forth the name and record address of the
stockholder proposing the nominee and the class and number of shares of capital
stock of the Company which are beneficially owned by the stockholder. A
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing stockholder, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such stockholder, the class and number of shares of stock of the
Company beneficially owned by such stockholder, and any material interest of
such stockholder in the business so proposed. If the chairman of the meeting
determines that a person was not nominated, or other business was not brought
before the meeting, in accordance with the Advance Notice Procedure, such person
will not be eligible for election as a director, or such business will not be
conducted at any such meeting, as the case may be.
20
<PAGE>
OTHER MATTERS
As of the date of this proxy statement, management knows of no business
that will be presented for consideration at the Annual Meeting of stockholders
other than that stated herein. As to other business, if any, and matters
incident to the conduct of the meeting that may properly come before the
meeting, it is intended that proxies in the accompanying form will be voted in
respect thereof in accordance with the best judgment of the person or persons
voting the proxies.
Whether or not you expect to attend the Annual Meeting in person, you are
requested to mark, date and sign the enclosed proxy card and return it to the
Company in the enclosed envelope, or vote your shares by telephone or Internet,
as explained on the proxy card.
If you choose to mail in your proxy card, please sign it exactly as your
name appears on the card.
You may revoke your proxy by delivering a written notice of revocation or a
later dated proxy to the Company at its principal office to the attention of
Stephen B. Clarkson, Secretary, at any time before the proxy is exercised, or by
attending the Annual Meeting and voting in person.
/s/ Stephen B. Clarkson
-----------------------------------
Stephen B. Clarkson
SECRETARY
April 17, 1998
21
<PAGE>
NOTES
[NEWPORT NEWS SHIPBUILDING LOGO]
<PAGE>
[X] Please mark your
votes as in this
example.
This Proxy, when properly executed, will be voted in the manner you have
directed. If no direction is given, this Proxy will be voted FOR the election of
directors and FOR proposals 2 and 3 set forth below.
The Board of Directors unanimously recommends a vote FOR each item listed below.
<TABLE>
<S> <C>
FOR AGAINST ABSTAIN
FOR WITHHELD
Nominees for Class II: 2. Amendment of Employee Stock [ ] [ ] [ ]
1. Election of [ ] [ ] 1. Leon A. Edney Purchase and Accumulation Plan to
Directors 2. Joseph J. Sisco increase shares available under the
Plan by 200,000.
For, except vote withheld from the following nominees(s): 3. Ratification of selection of Arthur [ ] [ ] [ ]
Andersen LLP as independent
- -------------------------------------- accountants for 1998.
In their discretion the proxies are authorized to vote upon such
other matters that may properly come before the meeting or any
adjournment(s) thereof.
I plan to attend [ ]
the Annual Meeting
Change of Address [ ]
on Reverse Side
</TABLE>
SIGNATURES(S)_____________________________________DATE ________________________
NOTE: Please sign exactly as name appears hereon. If more than one owner, each
must sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
FOLD AND DETACH HERE
Dear Share Owner:
Newport News Shipbuilding Inc. encourages you to take advantage of new and
convenient ways by which you can vote your shares. You can vote your shares
electronically through the internet or the telephone. This eliminates the need
to return the proxy card.
To vote your shares electronically you must use the voter control number. The
voter control number is the series of numbers printed in the box above, just
below the perforation. This voter control number must be used to access the
system.
1. To vote over the internet:
o Log on to the internet and go to the web site
http://www.vote-by-net.com
2. To vote over the telephone:
o On a touch-tone telephone call 1-800-OK2-VOTE (1-800-652-8683)
24 hours a day, 7 days a week.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you chose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
<TABLE>
<CAPTION>
<S><C>
ADMISSION TICKET ADMISSION TICKET
Present to the Newport News Shipbuilding Present to the Newport News Shipbuilding
representative at the entrance to the auditorium. representative at the entrance to the auditorium.
Annual Meeting of Shareholders Annual Meeting of Shareholders
[Logo] May 15, 1998 o 10:00 a.m. [Logo] May 15, 1998 o 10:00 a.m.
The Jefferson Hotel The Jefferson Hotel
Franklin and Adams Streets Franklin and Adams Streets
Richmond, Virginia Richmond, Virginia
</TABLE>
[Logo appears behind text]
NEWPORT NEWS SHIPBUILDING
A G E N D A
(1) To elect two Class II directors to serve until the Annual Meeting of
stockholders in the year 2001;
(2) To increase by 200,000 the number of shares authorized for issuance under
the Newport News Shipbuilding Employee Stock Purchase and Accumulation
Plan;
(3) To ratify the appointment by the Board of Directors of Arthur Andersen LLP
as the Company's independent accountants for 1998; and
(4) To transact such other business as may properly come before the meeting.
[Map] It is important that your shares be
represented at this meeting, whether or
not you attend the meeting in person. To
make sure your shares are represented,
we urge you to complete and mail the
proxy card, or register your vote via
telephone or the Internet.
The Jefferson Hotel
Franklin and Adams Streets,
Richmond, Virginia 23220
804.788.8000
www.jefferson-hotel.com
NEWPORT NEWS SHIPBUILDING INC.
EMPLOYEE STOCK PURCHASE & STOCK ACCUMULATION PLAN
Amended and Restated
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
EMPLOYEE STOCK PURCHASE & STOCK ACCUMULATION PLAN
Table of Contents
<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE I. DEFINITIONS
1.01. Administrator....................................................... 1
1.02. Base Pay............................................................ 1
1.03. Board............................................................... 1
1.04. Business Day........................................................ 1
1.05. Code................................................................ 1
1.06. Committee........................................................... 1
1.07. Common Stock........................................................ 1
1.08. Company............................................................. 1
1.09. Election Form....................................................... 1
1.10 Eligible Employee................................................... 2
1.11. Exercise Date....................................................... 2
1.12. Exchange Act........................................................ 2
1.13. Fair Market Value................................................... 2
1.14. Five Percent Shareholder............................................ 2
1.15. Grant Date.......................................................... 3
1.16. Offering Period..................................................... 3
1.17. Option.............................................................. 3
1.18. Participant......................................................... 3
1.19. Plan................................................................ 3
1.20. Plan Account........................................................ 3
1.21. Subsidiary.......................................................... 3
1.22. United States Corporation........................................... 3
1.23. Voice Response System............................................... 4
ARTICLE II. PURPOSES....................................................................... 4
ARTICLE III. ADMINISTRATION................................................................. 4
ARTICLE IV. ELIGIBILITY.................................................................... 5
ARTICLE V. BASE PAY DEDUCTIONS
5.01. Amount of Deduction................................................. 6
5.02. Plan Account........................................................ 7
i
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
EMPLOYEE STOCK PURCHASE & STOCK ACCUMULATION PLAN
Table of Contents
Section Page
5.03. Changes in Payroll Deductions....................................... 7
5.04. Application of Funds................................................ 7
ARTICLE VI. OPTION GRANTS
6.01. Number of Shares.................................................... 8
6.02. Option Price........................................................ 8
ARTICLE VII. EXERCISE OF OPTION
7.01. Automatic Exercise.................................................. 9
7.02. Fractional Shares................................................... 9
7.03. Pro Rata Exercise................................................... 9
7.04. Nontransferability.................................................. 10
7.05. Employee Status..................................................... 10
7.06. Employee Statements................................................. 10
7.07. Delivery of Stock................................................... 10
7.08. Vesting and Rights as a Shareholder................................. 11
ARTICLE VIII. SALE OF COMMON STOCK........................................................... 11
ARTICLE IX. TERMINATION OF PLAN PARTICIPATION
9.01. Voluntary Termination of
Participation....................................................... 12
9.02. Termination of Employment........................................... 13
9.03. Automatic Exercise.................................................. 13
9.04. Subsequent Participation............................................ 13
ARTICLE X. STOCK SUBJECT TO PLAN
10.01. Shares Issued....................................................... 14
10.02. Aggregate Limit..................................................... 14
10.03. Annual Limit........................................................ 14
10.04. Reallocation of Shares.............................................. 14
ii
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
EMPLOYEE STOCK PURCHASE & STOCK ACCUMULATION PLAN
Table of Contents
Section Page
ARTICLE XI. ADJUSTMENT UPON CHANGE IN COMMON
STOCK.......................................................................... 14
ARTICLE XII. COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES.................................................. 15
ARTICLE XIII. GENERAL PROVISIONS
13.01. Effect on Employment. ............................................. 16
13.02. Unfunded Plan....................................................... 16
13.03. Rules of Construction............................................... 17
ARTICLE XIV. AMENDMENT...................................................................... 17
ARTICLE XV. DURATION OF PLAN............................................................... 17
ARTICLE XVI. EFFECTIVE DATE OF PLAN......................................................... 18
</TABLE>
iii
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
EMPLOYEE STOCK PURCHASE & STOCK ACCUMULATION PLAN
ARTICLE I.
DEFINITIONS
1.01. Administrator means the Committee and any delegate of the Committee that
is appointed in accordance with Article III.
1.02. Base Pay, for a Participant, means the regular compensation and
commissions earned during each payroll period, before any deductions or
withholding, but excluding overtime pay, bonuses, amounts paid as reimbursements
of expenses and other additional compensation, under rules uniformly applied by
the Company and all Subsidiaries to all Eligible Employees similarly situated.
1.03. Board means the Board of Directors of the Company.
1.04. Business Day means any day on which the New York
Stock Exchange is open for business.
1.05. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.06. Committee means the Compensation and Benefits Committee of the Board.
1.07. Common Stock means the common stock of the Company, $.01 par value.
1.08. Company means Newport News Shipbuilding Inc.
1.09. Election Form means the form prescribed by the Administrator on which a
Participant may authorize a reduction in his Base Pay in accordance with Article
V.
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<PAGE>
1.10 Eligible Employee means any employee of the Company or a Subsidiary who is
eligible to participate in the Plan pursuant to Article IV.
1.11. Exercise Date means the last Business Day of each calendar quarter, or any
other date specified by the Administrator as an Exercise Date.
1.12. Exchange Act means the Securities Exchange Act of 1934, as amended and as
in effect from time to time.
1.13. Fair Market Value means, on any given date, the average of the high and
low sales price per share of Common Stock as quoted on the New York Stock
Exchange as reported by such source as may be selected by the Administrator. If
the Common Stock was not traded on the date of reference, Fair Market Value
shall be determined as of the next preceding day that the Common Stock was
traded.
1.14. Five Percent Shareholder means any individual who, immediately after the
grant of an option (whether or not granted under this Plan), owns more than five
percent of the total combined voting power or value of all classes of stock of
the Company, a Subsidiary, or any "parent" (within the meaning of Section 424 of
the Code), of the Company. An individual shall be considered to own any voting
stock owned (directly or indirectly), by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionately
any voting stock owned (directly or indirectly), by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner
or beneficiary. Stock which the individual may purchase under outstanding
options (whether or not granted under this Plan), shall be treated as stock
owned by the individual.
-2-
<PAGE>
1.15. Grant Date means the first Business Day of each calendar quarter, or any
other date specified by the Administrator as a Grant Date.
1.16. Offering Period means the period from April 1, 1997 through December 31,
1997 and any twelve-month period thereafter beginning on January 1 of a
particular calendar year and ending on December 31 of such calendar year or any
other period specified by the Administrator as an Offering Period.
1.17. Option means a stock option that entitles the holder to purchase from the
Company a stated number of shares of Common Stock on the terms and conditions
prescribed by the Plan.
1.18. Participant means an Eligible Employee who elects to receive an Option.
1.19. Plan means the Newport News Shipbuilding Inc. Employee Stock Purchase &
Stock Accumulation Plan.
1.20. Plan Account means an account maintained by the Company or its designated
recordkeeper for each Participant to which payroll deductions are credited,
against which funds used to purchase shares of Common Stock are charged, and to
which shares of Common Stock purchased are credited.
1.21. Subsidiary means any United States Corporation that is a "subsidiary"
(within the meaning of Section 424 of the Code) of the Company on the applicable
Grant Date.
1.22. United States Corporation means a corporation incorporated under the laws
of any state in the United States, which conducts business operations primarily
in the United States.
-3-
<PAGE>
1.23. Voice Response System means the voice response system established by the
Company or a Subsidiary under which a Participant may elect to participate in
the Plan or establish, change or terminate a payroll deduction authorization.
ARTICLE II.
PURPOSES
The Plan is intended to assist the Company and its Subsidiaries in
recruiting and retaining individuals with ability and initiative by enabling
such persons to participate in the future success of the Company and its
Subsidiaries and to associate their interests with those of the Company and its
shareholders. The Plan is intended to permit the grant of Options qualifying
under Section 423 of the Code. No Option shall be invalid for failure to qualify
under Section 423 of the Code. The proceeds received by the Company from the
sale of Common Stock pursuant to this Plan shall be used for general corporate
purposes.
ARTICLE III.
ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have complete authority to interpret all provisions of this
Plan; to adopt, amend, and rescind rules and regulations pertaining to the
administration of the Plan; and to make all other determinations necessary or
advisable for the administration of this Plan. The express grant in the Plan of
any specific power to the
-4-
<PAGE>
Administrator shall not be construed as limiting any power or authority of the
Administrator. Any decision made, or action taken, by the Administrator or in
connection with the administration of this Plan shall be final and conclusive.
Neither the Administrator nor any member of the Committee shall be liable for
any act done in good faith with respect to this Plan or any Option. All expenses
of administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more
officers of the Company all or part of the Committee's authority and duties with
respect to grants and awards to individuals who are not subject to the reporting
and other provisions of Section 16 of the Exchange Act. The Committee may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Committee's delegate or delegates that were
consistent with the terms of the Plan.
ARTICLE IV.
ELIGIBILITY
Each active employee of the Company or a Subsidiary (including a
corporation that becomes a Subsidiary after the adoption of this Plan), as
determined under policies uniformly applied by the Company and all Subsidiaries,
is eligible to participate in the Plan. Directors of the Company or a Subsidiary
who are active employees of the Company or a Subsidiary may participate in this
Plan. An employee who has satisfied the requirements set forth in the preceding
sentences of
-5-
<PAGE>
this Article IV becomes a Participant by completing an Election Form and
returning it to the Administrator or the recordkeeper designated by the
Administrator or by responding to the enrollment procedures of the Voice
Response System.
ARTICLE V.
BASE PAY DEDUCTIONS
5.01. Amount of Deduction. A payroll deduction shall be made from the Base Pay
of each Participant for each payroll period. The amount of such deduction shall
be the percentage or dollar amount specified by the Participant on his Election
Form or through the payroll deduction procedures of the Voice Response System.
The minimum payroll deduction per month shall be $10.00 U.S. (or the equivalent
thereof in other currencies) and the maximum payroll deduction per calendar year
shall be $21,250 U.S. (or the equivalent thereof in other currencies). A
Participant may contribute to the Plan only by payroll deduction. If a
Participant's Base Pay is insufficient in any pay period for the entire payroll
deduction specified by the Participant to be made, no deduction shall be made
for such pay period. Payroll deductions will resume with the next pay period in
which the Participant has Base Pay sufficient to allow for the deduction.
Payroll deductions under the Plan shall be made in any pay period only after all
other withholdings, deductions, garnishments and the like have been made, and
only if the remaining pay is sufficient to allow the entire payroll deduction
elected. A Participant's Election Form or Voice Response System payroll
deduction election will continue to be
-6-
<PAGE>
effective, and amounts will be deducted from the Participant's Base Pay, until
the Election Form or Voice Response System election is changed in accordance
with Section 5.03 or the Participant withdraws from the Plan or his
participation otherwise ends in accordance with Article IX.
5.02. Plan Account. A Plan Account shall be established for each Participant.
All amounts deducted from a Participant's Base Pay shall be credited to his Plan
Account. No interest will be paid or credited to the Plan Account of any
Participant; provided, however, that, as determined by the Administrator,
interest may be paid on any and all money which is distributed under
circumstances described in Section 7.03.
5.03. Changes in Payroll Deductions. A Participant may discontinue his
participation in the Plan as provided in Section 9.01. Except as provided in
Section 9.01, a Participant's direction to change the percentage or amount of
the deduction specified on his Election Form or through the Voice Response
System shall be effective as of the first day of the Offering Period following
the Offering Period in which Participant's direction is delivered in writing to
the Administrator or entered in the Voice Response System.
5.04. Application of Funds. All amounts of Base Pay received or held by the
Company under the Plan before the purchase of shares of Common Stock or the
termination of the Plan shall be held by the Company.
-7-
<PAGE>
ARTICLE VI.
OPTION GRANTS
6.01. Number of Shares. Each Eligible Employee who is a Participant on a Grant
Date shall be granted an Option as of that Grant Date. The number of shares of
Common Stock subject to such Option shall be determined by dividing the option
price into the balance credited to the Participant's Plan Account as of the
applicable Exercise Date. Notwithstanding the preceding sentence, no Participant
will be permitted to purchase in any calendar year a number of shares of Common
Stock with a Fair Market Value (determined, with respect to each such share, as
of the Grant Date for the Option under which the applicable share was purchased)
in excess of $25,000 U.S. (or the equivalent thereof in other currencies). Any
portion of the balance credited to the Participant's Plan Account that cannot be
applied to the purchase of shares of Common Stock due to the limit in the
preceding sentence shall remain in the Plan Account and be applied to the option
price of one or more Options granted in the following calendar year. The
provisions of this Section 6.01 shall be interpreted in accordance with Code
Section 423(b)(8).
6.02. Option Price. The price per share for Common Stock purchased on the
exercise of an Option shall be the lesser of (i) eighty-five percent of the Fair
Market Value on the applicable Grant Date or (ii) eighty-five percent of the
Fair Market Value on the applicable Exercise Date.
-8-
<PAGE>
ARTICLE VII.
EXERCISE OF OPTION
7.01. Automatic Exercise. Subject to the provisions of Articles IX, X and XII,
each Option shall be exercised automatically as of the applicable Exercise Date
for the number of shares of Common Stock that may be purchased at the option
price for that Option with the balance credited to the Participant's Plan
Account.
7.02. Fractional Shares. Fractional shares may be credited to a Participant's
Plan Account but will not be delivered to a Participant under the Plan. Any
fractional share remaining to the credit of the Participant's Plan Account after
the exercise of an Option shall remain in the account and be added to any other
fractional share credited to the Participant's Plan Account until the Plan
Account is credited with a whole share of Common Stock. If necessary to close a
Participant's Plan Account following a request under Section 7.07 or upon
termination of a Participant's participation in the Plan, a cash payment in lieu
of any fractional share credited to Participant's Plan Account shall be made.
7.03. Pro Rata Exercise. If, on an Exercise Date, Participants in the aggregate
have Options to purchase more shares of Common Stock than are available for
purchase under Section 10.02 or Section 10.03, each Participant shall be
eligible to purchase a reduced number of shares of Common Stock on a pro rata
basis. If the limit of Section 10.02 would be exceeded absent the reduction
described in the preceding sentence, any excess payroll deductions shall be
returned to the applicable
-9-
<PAGE>
Participant. If the limit of Section 10.03 would be exceeded absent the
reduction described in the preceding sentence, any excess payroll deductions
shall remain in the Plan Account and be applied to the option price of one or
more Options granted in the following calendar year.
7.04. Nontransferability. Each Option granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of the Participant to whom the Option is granted, the Option
may be exercised only by the Participant. No right or interest of a Participant
in any Option shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
7.05. Employee Status. For purposes of determining the applicability of Section
423 of the Code, and whether an individual is employed by the Company or a
Subsidiary, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability, family leave,
layoff or other reasons shall not be deemed interruptions of continuous
employment.
7.06. Employee Statements. As soon as practicable after each Exercise Date, a
statement shall be delivered to each Participant which shall include the number
of shares of Common Stock purchased on the Exercise Date on behalf of such
Participant.
7.07. Delivery of Stock. Subject to Articles X and XII, the Company will deliver
certificates evidencing the Common Stock credited to a Participant's Plan
Account as soon as practicable after the Participant requests such certificates
from the Administrator. Notwithstanding the foregoing, certificates for shares
of
-10-
<PAGE>
Common Stock will be delivered only after such shares are transferable in
accordance with Section 7.08. Certificates will be issued in the name of the
Participant or, if so requested by the Participant, jointly with another person
or persons. Any request under this Section 7.07 may be made by a Participant's
personal representative in the event the Participant dies or becomes
incapacitated before making such a request.
7.08. Vesting and Rights as a Shareholder. Participant's interest in the Common
Stock purchased upon the exercise of his Option shall be immediately
nonforfeitable. Participant shall be treated as the record owner of shares of
Common Stock purchased under the Plan as of the Exercise Date for such shares
and shall be entitled to vote and receive dividends paid with respect to such
shares on and after such Exercise Date. Subject to the provisions of Article
XII, shares of Common Stock purchased upon the exercise of an Option granted (a)
prior to January 1, 1998 shall be immediately transferable and (b) on or after
January 1, 1998 shall be transferable as of the second anniversary of the
Exercise Date on which such shares were purchased.
ARTICLE VIII.
SALE OF COMMON STOCK
For any Participant, the Company shall pay the brokerage costs
incurred in one sale each calendar year of shares of Common Stock purchased
under the Plan provided that (i) the shares are sold by Smith Barney Inc. or
such other brokerage firm as may be designated by the Administrator from time to
time, and (ii) in the
-11-
<PAGE>
case of Options granted prior to January 1, 1998, such shares have been held for
at least two years from the Grant Date for such shares, and in the case of
Options granted on or after January 1, 1998, such shares have been held for at
least two years from the Exercise Date for such shares in accordance with
Section 7.07. A Participant is responsible for the brokerage costs incurred for
any sale of Common Stock other than one described in the preceding sentence.
Sales requested by a Participant in accordance with the first sentence of this
Article VIII shall occur as soon as administratively feasible after the receipt
of such request, but neither the Administrator, the Company nor any Subsidiary
shall be liable for any delay or any losses, damages, expenses or any other
claims of any kind resulting from such a delay.
ARTICLE IX.
TERMINATION OF PLAN PARTICIPATION
9.01. Voluntary Termination of Participation. A Participant may terminate his
participation in the Plan by delivering written notice to that effect to the
Administrator or the appropriate payroll office (if and as designated by the
Administrator), or by using the payroll deduction termination procedures of the
Voice Response System, in either case at least ten days before the next pay
period. In that event, payroll deductions will cease as of the first day of such
following pay period.
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9.02. Termination of Employment. If a Participant's employment with the Company
and the Subsidiaries terminates for any reason, his participation in the Plan
and payroll deductions shall cease as of the date of termination.
9.03. Automatic Exercise. The balance credited to the Participant's Plan Account
through the date payroll deductions cease under Section 9.01 or 9.02 shall be
used to purchase shares of Common Stock on the applicable Exercise Date.
9.04. Subsequent Participation. A Participant who has terminated his
participation under Section 9.01 may submit a new Election Form to the
Administrator or enroll through the Voice Response System and resume
participation in the Plan as of the first day of the next Offering Period,
provided that the Administrator receives his Election Form or a Voice Response
System enrollment is effected before the first day of such Offering Period or by
any earlier date specified by the Administrator. Notwithstanding the foregoing,
for any Participant who (a) is laid off or is on leave pursuant to the Family
and Medical Leave Act and (b) is deemed by the Administrator under Section 7.05
to have undergone an interruption of continuous employment, payroll deductions
will resume upon the Participant's again becoming an Eligible Employee in the
same percentage or dollar amount in effect immediately prior to such leave of
absence.
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ARTICLE X.
STOCK SUBJECT TO PLAN
10.01. Shares Issued. Upon the exercise of any Option, the Company shall issue
shares of Common Stock from its authorized but unissued Common Stock or Treasury
Stock.
10.02. Aggregate Limit. The maximum aggregate number of shares of Common Stock
that may be issued under this Plan pursuant to the exercise of Options is
2,800,000 shares. The maximum aggregate number of shares that may be issued
under this Plan shall be subject to adjustment as provided in Article XI.
10.03. Annual Limit. Notwithstanding Section 10.02, the Fair Market Value of
Common Stock issued under the Plan in any calendar year, determined as of the
date of issuance, may not exceed $20,000,000.
10.04. Reallocation of Shares. If an Option is terminated, in whole or in part,
for any reason other than its exercise, the number of shares of Common Stock
allocated to the Option or portion thereof may be reallocated to other Options
to be granted under this Plan.
ARTICLE XI.
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options may be granted
under this Plan and the terms of outstanding Options shall be adjusted as the
Board shall determine to be equitably required in the event that (a) the Company
(i) effects
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one or more stock dividends, stock split-ups, subdivisions or consolidations of
shares or (ii) engages in a transaction to which Section 424 of the Code applies
or (b) there occurs any other event which, in the judgment of the Board
necessitates such action. Any determination made under this Article XI by the
Board shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
maximum number of shares as to which Options may be granted or the terms of
outstanding Options.
ARTICLE XII.
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
No Option shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable federal and
state laws and regulations (including, without limitation, withholding tax
requirements), any listing agreement to which the Company is a party, and the
rules of all domestic stock exchanges on which the Company's shares may be
listed. The Company shall have the right to rely on an opinion of its counsel as
to such compliance. Any share
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certificate issued to evidence Common Stock for which an Option is exercised may
bear such legends and statements as the Administrator may deem advisable to
assure compliance with federal and state laws and regulations. No Option shall
be exercisable, no Common Stock shall be issued, no certificate for shares shall
be delivered, and no payment shall be made under this Plan until the Company has
obtained such consent or approval as the Administrator may deem advisable from
regulatory bodies having jurisdiction over such matters.
ARTICLE XIII.
GENERAL PROVISIONS
13.01. Effect on Employment. Neither the adoption of this Plan, its operation,
nor any documents describing or referring to this Plan (or any part thereof)
shall confer upon any individual any right to continue in the employ of the
Company or a Subsidiary or in any way affect any right and power of the Company
or a Subsidiary to terminate the employment of any individual at any time with
or without assigning a reason therefor.
13.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obli-
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gation of the Company shall be deemed to be secured by any pledge of, or other
encumbrance on, any property of the Company.
13.03. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
ARTICLE XIV.
AMENDMENT
The Board may amend or terminate this Plan from time to time;
provided, however, that no amendment may become effective until shareholder
approval is obtained if (i) the amendment increases the aggregate number of
shares of Common Stock that may be issued under the Plan or (ii) the amendment
changes the class of individuals eligible to become Participants. No amendment
shall, without a Participant's consent, adversely affect any rights of such
Participant under any Option outstanding at the time such amendment is made.
ARTICLE XV.
DURATION OF PLAN
No Option may be granted under this Plan after the earliest of (i)
the date the Plan is terminated by the Board, (ii) December 31, 2001, or (iii)
the first date on which no more shares are available for purchase under the
Plan. Options granted
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before the earliest date specified in the first sentence of this Article XV
shall remain valid in accordance with their terms.
ARTICLE XVI.
EFFECTIVE DATE OF PLAN
Options may be granted under this Plan upon its adoption by the
Board, provided that no Option shall be effective or exercisable unless this
Plan is approved by a majority of the votes entitled to be cast by the Company's
shareholders, voting either in person or by proxy, at a duly held shareholders'
meeting.
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