SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 INC.
(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:
<PAGE>
[DRAFT -- 5/18/99]
[NEWPORT NEWS SHIPBUILDING LOGO]
ANNUAL MEETING OF STOCKHOLDERS
1999
<PAGE>
[NEWPORT NEWS SHIPBUILDING LOGO]
4101 WASHINGTON AVENUE
NEWPORT NEWS, VIRGINIA 23607-2770
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------
June 1, 1999
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, June 25, 1999,
beginning at 10:00 A.M. Eastern Daylight Time, for the following purposes:
(1) To elect two Class III directors to serve until the Annual Meeting of
stockholders in the year 2002;
(2) To increase by 150,000 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 1999; and
(4) To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on May 11, 1999, are
entitled to notice of, to vote at, and to participate in the meeting.
Please note that 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 enclosed 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.
<PAGE>
Because your vote is important, you are requested to grant your proxy 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. Granting your proxy by telephone or 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, an admission ticket will
be required from each stockholder who wishes to attend. An admission ticket is
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
<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
[NEWPORT NEWS SHIPBUILDING LOGO]
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, June 25, 1999, beginning at 10:00 A.M. Eastern Daylight
Time, and at any adjournments of such meeting. For those stockholders who did
not receive a copy by separate mailing in April, a copy of the Company's Annual
Report, including financial statements for the year ended December 31, 1998, 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 stockholders 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, May 11, 1999, are entitled to notice of, to
vote at, and to participate in the meeting. On the record date, 35,286,672
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, that are present at the meeting in
person or are represented at the meeting by proxy, will constitute a quorum for
the conduct of business at the Annual Meeting. Abstentions, and
1
<PAGE>
shares held of record by a broker or its nominee ("Broker Shares") that are
present or represented at the meeting, are included in the number of shares
considered present or represented at the meeting for purposes of determining
whether a quorum is present. Directors are elected by the affirmative vote of a
majority of the quorum. Abstentions and Broker Shares that are not voted have
the same effect as negative votes for purposes of electing 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 a majority of
the quorum. Abstentions and Broker Shares that are not voted have the same
effect as negative votes for purposes of approving this proposal.
This proxy statement and the enclosed form of proxy were first mailed to
stockholders on June 1, 1999.
RECENT EVENTS
On January 19, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Avondale Industries, Inc. ("Avondale") and
Ares Acquisition Corporation, a wholly owned subsidiary of the Company ("Sub").
The Merger Agreement provides that upon the consummation of the merger of Sub
with and into Avondale (the "Merger"), the common stock of Avondale will be
converted into the right to receive Company Common Stock, as further described
in the Merger Agreement. Completion of the Merger is subject to several
conditions, including approval of the stockholders of the Company and Avondale
at special meetings to be held later this year and certain regulatory approvals
and clearance.
On February 10, 1999, the Company received an unsolicited offer from
General Dynamics Corporation ("General Dynamics") proposing to pay $38.50 per
share in cash for all of the outstanding shares of Company Common Stock,
subject to various conditions including due diligence and antitrust clearance
from the appropriate regulatory authorities in the U.S. Departments of Justice
and Defense. On April 14, 1999, Secretary of Defense William S. Cohen announced
that the Department of Defense did not support the General Dynamics offer.
General Dynamics then withdrew its offer.
On May 6, 1999, the Company received an unsolicited proposal to merge with
Litton Industries, Inc. ("Litton Industries") in a tax-free, stock-for-stock
merger accounted for as a pooling of interests in which each share of Company
Common Stock would be converted into .55 shares of common stock of Litton
Industries. The proposal was subject to the negotiation of a definitive
agreement and due diligence. The Company also was simultaneously provided by
Litton Industries with a copy of an independent proposal made by Litton
Industries to acquire Avondale in an all cash transaction of $38.00 per common
share. Neither Litton Industries' offer to the Company nor its offer to
Avondale is conditioned upon acceptance or rejection of the other.
The Board of Directors has authorized preliminary discussions with Litton
Industries in order to fully evaluate the terms of Litton Industries' offer.
The Board of Directors has not made any determination as to the adequacy of
Litton Industries' present proposal and there can be no assurance that any
transaction proposed by Litton Industries will be acceptable to the Board of
Directors.
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 re-elected to Class III 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.
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INFORMATION CONCERNING NOMINEES
CLASS III (TO SERVE UNTIL THE 2002 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 58 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 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 Executive Vice President of International Paper Company, a
manufacturer of paper, pulp and wood products. Mr. Mead is also a director of
Pfizer Inc., the Zurich Insurance Group and Textron Inc. He previously served
as a director of Alco Standard Company, Baker Hughes Incorporated, Case Company
and Unisource Worldwide Inc. Mr. Mead is 63 years old and has been a director
of the Company since June of 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.
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.
On March 5, 1999, the Company received notice that a group of stockholders
intends to solicit proxies to elect Mr. Albert J. Herberger as a Class III
director. In the event such proxies are solicited, the Board of Directors
unanimously recommends that stockholders vote AGAINST the election of Mr.
Herberger or, alternatively, not return the proxy solicited in relation to Mr.
Herberger's nomination.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE RE-ELECTION OF MESSRS. BALILES AND MEAD TO THE BOARD OF DIRECTORS TO SERVE
UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN THE YEAR 2002.
DIRECTORS CONTINUING IN OFFICE
There are five directors whose present term of office will continue until
2000 or 2001, 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 and Chief Executive Officer since January 1997. Mr. Fricks first
joined Newport News in 1966. He was appointed Senior Vice President in 1988,
Executive Vice President in 1992 and President and Chief Operating Officer in
1994. 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 54 years old and has
been a director of the Company since October 1996.
3
<PAGE>
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-VA/MD/DC and
Trigon Blue Cross Blue Shield of Virginia. Dr. Harvey is 58 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 52 years old and has been a
director of the Company since January 1997.
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 64 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 79 years old and has been a
director of the Company since October 1996.
APPOINTMENT OF CERTAIN AVONDALE DIRECTORS TO BOARD OF DIRECTORS
If the Merger with Avondale is completed, pursuant to the Merger Agreement
the Board of Directors will be expanded from seven to ten members, with three
new members being appointed by the Board. The new directors will be Mr. Albert
L. Bossier, Jr., Mr. Francis R. Donovan and Mr. Hugh Thompson, all of whom are
currently directors of Avondale. Mr. Bossier will serve in Class III, Mr.
Thompson will serve in Class I and Mr. Donovan will serve in Class II. The
Company has committed to renominate each of Messrs. Donovan and Thompson to
serve one additional three-year term. The Company has also agreed to appoint
Mr. Bossier to the Executive Committee, Mr. Donovan to the Compensation and
Benefits Committee and Mr. Thompson to the Audit Committee. In addition, Mr.
Fricks will move from Class I to Class III.
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<PAGE>
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, Harvey and Sisco. 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, Mead and
Wilson. 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 2000 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.
If the Merger with Avondale is completed, pursuant to the Merger Agreement
Mr. Thompson will be added to the Audit Committee, Mr. Donovan will be added to
the Compensation and Benefits Committee and Mr. Bossier will be added to the
Executive Committee. An executive "Management Committee" will be created to
review monthly the operations of the combined company and will consist of
Messrs. Fricks, Bossier, Anderson, Kitchen and Schievelbein.
During 1998, there were nine meetings of the Board of Directors, six
meetings of the Audit Committee, five meetings of the Compensation and Benefits
Committee, three meetings of the Nominating and Management Development
Committee and no meetings of the Executive Committee. During 1998, or the
portion of 1998 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.
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COMPENSATION OF DIRECTORS
All directors who are not also employees of the Company are paid a
director's fee of $28,000 per annum, $12,500 in cash and the remainder in
restricted shares of Company Common Stock, and an attendance fee of $1,250,
plus expenses, for each meeting of the Board of Directors and an attendance fee
of $1,000, plus expenses, for each committee meeting attended. Each director
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 2,000 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 April 1, 1999 (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 OPTIONS FOR
COMPANY COMMON STOCK PERCENTAGE COMPANY
OWNED(a) OWNED(b) COMMON STOCK
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
William P. Fricks ................................................. 406,152(c)(d) 1.15% 258,391
Hon. Gerald L. Baliles ............................................ 4,363(c)(d) * 1,665
Leon A. Edney, Admiral (Ret.) ..................................... 4,263(c)(d) * 1,665
Dr. William R. Harvey ............................................. 4,263(c)(d) * 1,665
Dana G. Mead ...................................................... 20,780(e) * 1,665
Dr. Joseph J. Sisco ............................................... 5,362(c)(d) * 1,665
Stephen R. Wilson ................................................. 4,263(c)(d) * 1,665
Thomas C. Schievelbein ............................................ 185,954(c)(d) * 118,323
David J. Anderson ................................................. 83,911(c)(d) * 33,329
Stephen B. Clarkson ............................................... 96,067(c)(d) * 57,275
Alfred Little, Jr. ................................................ 50,953(c)(d) * 23,161
All directors and executive officers as a group
(23 persons) ..................................................... 1,432,575(c)(d)(e) 4.06% 849,428
First Manhattan Co.
437 Madison Avenue
New York, New York 10022 ......................................... 2,895,814(f) 8.21%
Massachusetts Financial Services Company
500 Boylston Street, 15th Floor
Boston, Massachusetts 02116 ...................................... 4,431,029(g) 12.56%
Perry Corp.
599 Lexington Avenue, 36th Floor
New York, New York 10022 ......................................... 2,049,300(h) 5.81%
Neuberger Berman, LLC
605 Third Avenue
New York, New York 10158-3698 .................................... 2,249,220(i) 6.37%
</TABLE>
- ----------
(a) Except as described in the notes below, each director, executive
officer and 5% holder has sole voting and dispositive power over the shares
beneficially owned, as set forth in this column.
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(b) Except as indicated, each person or group beneficially owns less than
1% of the outstanding Company Common Stock. Percentages are based on 35,286,672
shares of Company Common Stock outstanding as of May 11, 1999.
(c) Includes options to acquire shares of Company Common Stock held by
Messrs. Fricks, Baliles, Edney, Harvey, Sisco, Wilson, Schievelbein, Anderson,
Clarkson and Little, which may be exercised on or before May 31, 1999, for
258,391, 1,665, 1,665, 1,665, 1,665, 1,665, 118,323, 33,329, 57,275, and 23,161
shares of Company Common Stock, respectively. All directors and executive
officers as a group have options, which may be exercised on or before May 31,
1999, for 849,428 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 10,654, 1,732, 1,122, 3,116, and 1,055, respectively. All
directors and executive officers as a group held 40,845 shares in the 401(k)
plan.
(e) Includes shares held under the Tenneco Inc. 401(k) plan and stock
units held in the Tenneco Inc. Deferred Compensation Plan.
(f) The number of shares owned is as reported in Schedule 13G filed by
First Manhattan Co. with the Securities and Exchange Commission on February 11,
1999. First Manhattan Co. reported sole voting and dispositive power for 88,300
and shared voting power for 2,712,364 and shared dispositive power for
2,807,514 of the shares beneficially owned.
(g) 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 11, 1999. Massachusetts Financial Services Company
reported sole voting power for 363,829 and sole dispositive power for 431,029
of the shares beneficially owned.
(h) The number of shares owned is as reported in Schedule 13G filed by
Perry Corp. with the Securities and Exchange Commission on February 16, 1999.
Perry Corp. and Richard C. Perry reported sole voting and investment power for
all shares beneficially owned.
(i) The number of shares owned is as reported in Schedule 13G filed by
Neuberger Berman, LLC with the Securities and Exchange Commission on February
9, 1999. Neuberger Berman, LLC reported sole voting power for 905,220 and
shared voting power for 1,326,600 such shares and shared dispositive power for
all of such shares.
EXECUTIVE COMPENSATION
NEWPORT NEWS SHIPBUILDING INC. 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:
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o 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, business development,
quality of earnings, EEO, leadership development, and health, safety, and
environmental.
o 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.
o 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 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. These stock-based
incentives also contain vesting requirements, which aid in the retention
of key executive talent.
o 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 senior
executives. The Company's annual salary plan is based on (i) the executive's
performance against objectives, (ii) demonstration of leadership competencies,
(iii) judgments as to the executive's past and expected future contributions to
the Company and (iv) 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.
8
<PAGE>
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.
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 other important business objectives 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 1998, the principal financial measures were operating income (weighted
70%) and operating cash flow (weighted 30%). Actual performance exceeded
budgeted performance for 1998 resulting in awards to executives, including all
named executives, at levels ranging from 25% to 55% above targeted levels.
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, and its successor Stock Incentive 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 support the achievement of the
Company's performance and total compensation objectives. 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 1998, 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 are 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 actual EPS for 1998, performance exceeded target for the 1997 grant
and approximated target for the 1998 grant.
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. Based on the Company's pay philosophy, the opportunities for the
Company's executive officers are targeted somewhat above the median of the
market.
9
<PAGE>
In consideration of its need to retain and provide incentive to key
executives and to strengthen the link between executive and stockholder
interests, in 1998 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.
EXECUTIVE STOCK OWNERSHIP
The Compensation Committee believes that stockholder interests are
enhanced through executive stock ownership. Accordingly, the Compensation
Committee has established stock ownership requirements for its key 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. As of December 31, 1998, all of the named
executive officers included in the Summary Compensation Table have met and
exceeded established requirements.
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) below the market median while correspondingly setting
long-term, stock-based compensation opportunities at a level 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.
For 1998, the Committee increased Mr. Fricks' salary to $540,000, which
was a 2.9% increase from his $525,000 salary in 1997. Mr. Fricks' base salary
was increased by the Committee from $540,000 to $560,000 (3.7%), effective
January 1, 1999. These increases are significantly below the average for his
peers in the "Comparator Group" and, in percentage terms, are below the average
merit increases received by other salaried employees in 1998 and 1999.
In recognition of exceptional company performance in 1998, Mr. Fricks
received an annual incentive award of $685,000. In 1997, because of the
Company's restated financial performance and in connection with the Company's
decision to exit the commercial shipbuilding business, Mr. Fricks elected to
forego his entire annual incentive award, even though an award would have been
earned under the provisions of the Plan.
Mr. Fricks was also granted 20,600 shares of performance-accelerated
restricted stock. The award was made to complete the Stock Incentive Grant
approved in 1997 in connection with the Company's spin-off from Tenneco. The
vesting period of the 1998 award was extended by one year beyond the vesting
period of the original 1997 award to strengthen the retention potential of the
grant. The award also provides for earlier vesting if an additional stock price
target is achieved, thereby strengthening the performance-based nature of the
award.
10
<PAGE>
$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) of the Code.
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
Stephen R. Wilson
Dana G. Mead
11
<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 1998.
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 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, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
RESTRICTED SECURITIES LONG-TERM ALL OTHER
NAME AND PRINCIPAL STOCK UNDERLYING INCENTIVE COMPENSATION
POSITION YEAR SALARY($)(a) BONUS($)(a) AWARDS($) OPTIONS/SARS(#) PAYOUTS($) ($)(b)
- -------------------------- ------ --------------------------------------------------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
William P. Fricks 1998 $ 540,000 $ 685,000 -- 68,515 -- $109,850
Chairman and 1997 $ 525,000 $ 0 -- 272,187 (d) -- $ 68,836
Chief Executive Officer 1996 $ 395,500 $ 230,000 -- 30,000 -- $ 45,378
Thomas C. Schievelbein 1998 $ 365,000 $ 358,000 -- 35,870 -- $ 84,860
Executive Vice President
and Chief Operating 1997 $ 345,000 $ 83,000 -- 125,934 (d) -- $ 43,169
Officer 1996 $ 238,900 $ 109,000 $168,875 (e) 14,000 -- $ 26,513
David J. Anderson Senior 1998 $ 300,000 $ 300,000 $ 53,250 (c) 25,390 -- $ 39,586
Vice President and Chief 1997 $ 270,000 $ 74,000 -- 37,300 -- $ 34,652
Financial Officer 1996 $ 116,272 (f) $ 68,000 -- -- -- $ 297
Stephen B. Clarkson Vice 1998 $ 231,500 $ 156,000 -- 16,685 -- $ 37,063
President, General 1997 $ 222,000 $ 56,000 -- 60,514 (d) -- $ 30,491
Counsel and Secretary 1996 $ 206,565 $ 68,000 $ 86,850 (e) 4,300 -- $ 13,595
Alfred Little, Jr. Vice 1998 $ 231,500 $ 165,000 -- 16,685 -- $ 42,452
President, Human 1997 $ 218,000 $ 55,000 -- 26,400 -- $ 22,693
Resources and EH&S 1996 $ 93,912 (f) $ 149,000 (g) -- -- -- $ 382
</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 amounts attributable during 1998 to Company contributions to
benefit plans and dividend equivalents paid or 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 $74,967, $65,701, $24,856, $19,907, and $34,247, respectively.
12
<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 $8,379, $4,117, $5,046, $10,657, and
$1,706, respectively.
(3) Dividend equivalents paid or accrued on performance shares held by
Messrs. Fricks, Schievelbein, Anderson, Clarkson and Little were
$26,504, $15,042, $9,684, $6,499, and $6,499, respectively.
(c) Mr. Anderson was granted 2,000 restricted shares during 1998.
Restrictions lapse after three years of continued employment from date of
grant. As of December 31, 1998, Mr. Anderson held 2,000 restricted shares with
a value of $66,875.
(d) Includes options exchanged for previously held Tenneco options granted
prior to the Spin Off.
(e) 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 on
November 1, 1996.
(f) Messrs. Anderson and Little joined the company in 1996. The amount
reported reflects less than a full year's compensation.
(g) Includes a one-time payment of $65,000 in connection with Mr. Little's
acceptance of employment with the Company.
OPTION GRANTS IN 1998
The following table sets forth the number of stock options to acquire
Newport News Shipbuilding Common Stock that were granted in 1998 to the
following persons named in the Summary Compensation Table. The Company has not
granted any stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS(a) AT ASSUMED ANNUAL RATES
----------------------------------------------------------------- OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR OPTION
SECURITIES OPTIONS TERM
UNDERLYING GRANTED TO EXERCISE OR --------------------------------
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR(b) PER SHARE EXPIRATION DATE 5% 10%
- ------------------------- ------------ ---------------- ------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks 68,515 10.99% $ 24.812 1/1/08 $1,069,118 $2,709,352
Thomas C. Schievelbein 35,870 5.75% $ 24.812 1/1/08 $ 559,721 $1,418,441
David J. Anderson 25,390 4.07% $ 24.812 1/1/08 $ 396,189 $1,004,020
Stephen B. Clarkson 16,685 2.68% $ 24.812 1/1/08 $ 260,355 $ 659,790
Alfred Little, Jr. 16,685 2.68% $ 24.812 1/1/08 $ 260,355 $ 659,790
</TABLE>
- ----------
(a) All options vest ratably over three years beginning with the first
anniversary of the original grant date.
(b) Based on 623,663 options granted to all employees in 1998.
13
<PAGE>
AGGREGATE OPTION EXERCISES IN 1998 AND 1998 YEAR-END OPTION VALUES
The following table provides information as to options exercised by each
of the named executive officers of the Company during 1998, and the number of
securities underlying unexercised options and the value of unexercised,
in-the-money options at fiscal year-end. No options were exercised during 1998
by the individuals named in the Summary Compensation Table. The Company has not
granted any stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)(a)
ACQUIRED ON VALUE ------------------------------- ------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------- ------------ ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William P. Fricks -- -- 165,800 174,902 $3,137,412 $2,566,794
Thomas C. Schievelbein -- -- 71,345 90,459 $1,338,461 $1,322,559
David J. Anderson -- -- 12,433 50,257 $ 229,233 $ 677,486
Stephen B. Clarkson -- -- 38,167 39,032 $ 715,446 $ 557,990
Alfred Little, Jr. -- -- 8,800 34,285 $ 162,250 $ 468,416
</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 Newport News Shipbuilding Common Stock on December 31, 1998. 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 1998
The following table shows the value of performance shares granted during
1998 under the Newport News Shipbuilding Stock Ownership Plan that are earned
pro rata, based on the achievement of specified share price targets over a
three year performance period.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR
SHARES, UNITS OR OTHER PERIOD UNTIL
OTHER RIGHTS MATURATION OR THRESHOLD TARGET($) MAXIMUM TARGET($)
NAME (#) PAYOUT $30 PER SHARE $40 PER SHARE(a)
- --------------------------- ------------------ ------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
William P. Fricks 51,385 3 years $1,541,550 $2,055,400
Thomas C. Schievelbein 25,110 3 years $ 753,300 $1,004,400
David J. Anderson 17,775 3 years $ 533,250 $ 711,000
Stephen B. Clarkson 10,845 3 years $ 325,350 $ 433,800
Alfred Little, Jr. 10,845 3 years $ 325,350 $ 433,800
</TABLE>
- ----------
(a) 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 (1/2/98). 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 three-year performance
period during which the awards may be earned ends on 1/1/2000 whether or not
stock price objectives were achieved. Dividend equivalent payments made on
unvested awards during 1998 are included in the named executive officers' other
compensation for 1998. Awards do not entail voting rights.
The following table shows the threshold, target and maximum number of
shares of Newport News Shipbuilding Common Stock which can be earned based on
performance shares granted during 1998. The number of shares earned depends
upon the achievement of earnings per share objectives.
14
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR
SHARES, UNITS OR OTHER PERIOD UNTIL ESTIMATED FUTURE PAYOUTS
OTHER RIGHTS MATURATION OR ------------------------------------------
NAME (#) PAYOUT(a) THRESHOLD(#) TARGET(#) MAXIMUM(#)
- ---------------------------- ------------------ ------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
William P. Fricks 20,150 3 Years 6,045 20,150 40,300
Thomas C. Schievelbein 10,550 3 Years 3,165 10,550 21,100
David J. Anderson 7,470 3 Years 2,241 7,470 14,940
Stephen B. Clarkson 4,910 3 Years 1,473 4,910 9,820
Alfred Little, Jr. 4,910 3 Years 1,473 4,910 9,820
</TABLE>
- ----------
(a) January 2, 1998 throught December 21, 2000.
The following table shows the value of performance-accelerated restricted
shares granted during 1998 under the Newport News Stock Ownership Plan. The
performance-accelerated restricted shares vest if an established stock price
target is attained prior to the expiration of a specified performance period
and if the holder of these restricted shares has continued employment for at
least two years from the date of grant. If this threshold target is not
attained during the performance period, the holder will vest after three years
of continued employment from the date of grant.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR
SHARES, UNITS OR OTHER PERIOD UNTIL
OTHER RIGHTS MATURATION OR THRESHOLD TARGET($)
NAME (#) PAYOUT(a) $26 PER SHARE(b)
- ----------------------- ------------------ ------------------- --------------------
<S> <C> <C> <C>
William P. Fricks 20,600 3 Years $535,600
</TABLE>
- ----------
(a) January 28, 1998 through March 13, 2001
(b) The stock price objective is attained if the average closing price of
Newport News Shipbuilding Common Stock is equal to or exceeds $26.00 per share
for any ten consecutive trading days during the period January 28, 1998 through
March 13, 2001.
15
<PAGE>
PERFORMANCE GRAPH
The following graph presents a comparison of the cumulative total
stockholder return for calendar years ended December 31, 1997 and 1998 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. 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.
Performance for years prior to 1997 are not shown, because until December 11,
1996, the Company was a wholly-owned subsidiary of Tenneco.
[GRAPH]
12/31/96 12/31/97 12/31/98
Newport News Shipbuilding $100 $171 $226
S&P Aerospace/Defense 500 $100 $103 $ 79
S&P 400 (Midcap) $100 $132 $157
- ----------
(1) Total return equals stock price appreciation plus reinvested dividends.
16
<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
-----------------------------------------------------------------------------
Renumeration 5 10 15 20 25 30 35
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 15,700 $ 31,400 $ 47,100 $ 62,900 $ 78,600 $ 94,300 $110,000
$ 300,000 $ 23,600 $ 47,100 $ 70,700 $ 94,300 $117,900 $ 141,400 $165,000
$ 400,000 $ 31,400 $ 62,900 $ 94,300 $125,700 $157,100 $ 188,600 $220,000
$ 500,000 $ 39,300 $ 78,600 $117,900 $157,100 $196,400 $ 235,700 $275,000
$ 600,000 $ 47,100 $ 94,300 $141,400 $188,600 $235,700 $ 282,900 $330,000
$ 700,000 $ 55,000 $110,000 $165,000 $220,000 $275,000 $ 330,000 $385,000
$ 800,000 $ 62,900 $125,700 $188,600 $251,400 $314,300 $ 377,100 $440,000
$ 900,000 $ 70,700 $141,400 $212,100 $282,900 $353,600 $ 424,300 $495,000
$1,000,000 $ 78,600 $157,100 $235,700 $314,300 $392,900 $ 471,400 $550,000
$1,100,000 $ 86,400 $172,900 $259,300 $345,700 $432,100 $ 518,600 $605,000
$1,200,000 $ 94,300 $188,600 $282,900 $377,100 $471,400 $ 565,700 $660,000
$1,300,000 $102,100 $204,300 $306,400 $408,600 $510,700 $ 612,900 $715,000
$1,400,000 $110,000 $220,000 $330,000 $440,000 $550,000 $ 660,000 $770,000
$1,500,000 $117,900 $235,700 $353,600 $471,400 $589,300 $ 707,100 $825,000
</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 36, 10, 9, 7 and 11, respectively.
Messrs. Fricks, Schievelbein and Anderson have employment agreements that
provide retirement benefits based on the average of their base salary and
bonuses during the term of the agreement.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has an employment agreement with Mr. Fricks for a term ending
December 12, 1999. Effective January 1, 1999, Mr. Fricks will receive annual
compensation of not less than $560,000, 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 three
times the sum of his then-current base salary and the greater of (a) his target
bonus for the calendar year in which termination occurs or (b) his most recent
awarded bonus.
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 in the event of his involuntary termination or if the term
of the agreement is not extended. The agreement includes a supplemental
executive retirement plan (SERP) which provides for certain retirement
benefits.
17
<PAGE>
The Company also has employment agreements with Messrs. Schievelbein and
Anderson for three-year terms commencing June 1, 1998. Effective January 1,
1999, Messrs. Schievelbein and Anderson will receive annual compensation of not
less than $381,000 and $330,000, respectively, subject to 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 agreements provide that upon separation from the company, Messrs.
Schievelbein and Anderson will each receive career transition assistance of up
to $50,000. Upon involuntary termination, or if the terms of their agreements
are not extended, the Company will pay Messrs. Schievelbein and Anderson a
severance benefit in an amount equal to two times the total cash compensation
(base salary plus targeted bonus) in effect on the date of termination.
In addition, subject to the approval of the Compensation Committee of the
Board of Directors, outstanding restricted stock, stock option and performance
share awards held by Messrs. Schievelbein and Anderson will vest and/or become
exercisable in the event of their involuntary termination, or if the terms of
their agreements are not extended. The agreements also include 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 positions are 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, would receive three times the sum of their annual
salary and the greater of their average bonus awards, together with any special
awards, over the last three years or their targeted bonus in effect at the time
of the change in control, if they are terminated within three years of a change
in control. Certain other key employees would receive two times the sum of
their annual salary and the greater of their average bonus awards, together
with any special awards, over the last three years or their targeted bonus in
effect at the time of the change in control, if they are terminated within
three years of a change in control.
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.
18
<PAGE>
PROPOSAL TO APPROVE INCREASE IN SHARE AUTHORIZATION FOR THE EMPLOYEE
STOCK PURCHASE AND ACCUMULATION PLAN BY 150,000 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 27, 1999, 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 150,000
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 usage, all
of the shares presently available for issuance under the Stock Purchase Plan
will be exhausted by July 1999.
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 May 11, 1999, 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 equaling 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 150,000, to 1,450,000 shares. Such shares will
consist of treasury shares or authorized and unissued shares of Company Common
Stock. Currently, approximately 165,000 shares of Company Common Stock remain
available for issuance under the Stock
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Purchase Plan. Upon approval of the proposed increase approximately 315,000
shares will be available for issuance under the Stock Purchase Plan.
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 cancelation 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.
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CURRENT PARTICIPATION
The 1999 enrollment period for the Stock Purchase Plan ended on December
4, 1998, and 3,287 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 150,000 SHARES.
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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 1999. 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 1999.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS
Any proposal submitted by a stockholder for inclusion in the proxy
materials for the Annual Meeting of stockholders in 2000 must be delivered to
the Secretary of the Company at its principal office in Newport News, Virginia
not later than April 15, 2000.
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 later than the close
of business on the 70th day nor earlier than the close of business on the 90th
day prior to the anniversary of the preceding year's Annual Meeting. In the
event that the date of an annual meeting is more than 20 days before or more
than 70 days after the anniversary date of the prior year's annual meeting, to
be considered timely, notice by a stockholder must be delivered to the
Corporate Secretary not sooner than the close of business on the 90th day prior
to the upcoming annual meeting and not later than the close of business on the
later of either the 70th day prior to the upcoming annual meeting or the 10th
day following the day on which the Company first publicly announces the date of
the upcoming annual meeting in a press release that is reported by the Dow
Jones News Service, the Associated Press or any comparable national news
service or in a document such as a proxy statement, registration statement,
annual report of Form 10-K, quarterly report on Form 10-Q or current report of
Form 8-K publicly filed by the Company with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (the "Exchange Act").
A stockholder's notice proposing to nominate a person for election as a
director must set forth (a) all information relating to the nominee that is
required to be disclosed in a solicitation of proxies for election of directors
in an election contest, or is otherwise required under Regulation 14A and Rule
14a-11 under the Exchange Act (and the nominee's written consent to being named
in the proxy statement as a nominee and to serve as a director if elected), (b)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination is made (i) the name and record address of the
stockholder proposing the nomination, as they appear in the Company's books,
and such beneficial owner, if any, (ii) the class and number of shares of the
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<PAGE>
Company's stock that are beneficially owned by the stockholder, and such
beneficial owner, if any, (iii) a representation that the stockholder is a
holder of record of stock of the Company entitled to vote at the annual meeting
and intends to appear in person or by proxy at the meeting to propose the
nomination, and (iv) a representation whether or not the stockholder or such
beneficial owner, if any, intends or is part of a group that intends to (a)
deliver a proxy statement and form of proxy to holders of at least the
percentage of the Company's outstanding stock required to elect the nominee
and/or (b) otherwise solicit proxies from stockholders in support of the
nomination. In addition, the Company may require any proposed nominee to
furnish other information that is reasonably necessary in order for the Company
to determine the eligibility of the proposed nominee to serve as a director of
the Company.
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) a
reasonably complete and specific description of the business desired to be
brought before the annual meeting and the reasons for conducting that business
at the annual meeting, and in the event that such business includes a proposal
to amend the bylaws of the Company, the language of the proposed amendment, (b)
the name and record address of the stockholder proposing the business, as they
appear in the Company's books, and of the beneficial owner, if any, on whose
behalf the proposal is being make, (c) the class and number of shares of the
Company that are beneficially owned by the stockholder, and by such beneficial
owner, if any, (d) a description of any important interest of the stockholder
and such beneficial owner, if any, in the business being proposed, (e) a
representation that the stockholder is a holder of record of stock of the
Company entitled to vote at the meeting and intends to appear in person or by
proxy at the meeting to propose such business, and (f) a representation whether
or not the stockholder of such beneficial owner, if any, intends or is part of
a group that intends to deliver a proxy statement and form of proxy to holders
of at least the percentage of the Company's outstanding stock that is required
to approve or adopt the proposal and/or otherwise solicit proxies from
stockholders in support of the proposal. 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 these Advance Notice Procedures, the
chairman may declare the nomination or other business out of order and it will
not be considered further.
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
accordance with the best judgment of the person 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 grant your proxy 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
June 1, 1999
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[NEWPORT NEWS SHIPBUILDING LOGO]
<PAGE>
NEWPORT NEWS SHIPBUILDING INC.
Proxy Solicited by the Board of Directors
for Annual Meeting June 25, 1999
P The undersigned hereby appoints William P. Fricks, David J.
R Anderson, Stephen B. Clarkson and Peter A.V. Huegel, severally and not
O jointly, proxies, with full power of substitution in each, to vote, as
X designated below, all shares of Common Stock of NEWPORT NEWS
Y SHIPBUILDING INC. owned of record by the undersigned, and which the
undersigned is entitled to vote, on all matters which may come before
the Annual Meeting of Shareholders June 25, 1999 to be held at The
Jefferson Hotel, Franklin and Adams Streets, Richmond, Virginia at
10:00 a.m., local time, and any adjournments or postponements thereof,
unless otherwise specified herein.
Change of Address: -----------------------------
-----------------------------
-----------------------------
-----------------------------
(If you have written a change
of address in the above
space, please mark the
corresponding box on the
reverse side of this card.)
Your vote is very important. You are encouraged to specify your choices by
marking the appropriate box, SEE REVERSE SIDE, but you need not mark any box,
if you wish to vote in accordance with the Board of Directors' recommendation.
The proxies cannot vote your shares unless you sign and return this card or
submit your proxy via telephone or the internet, as instructed below.
[SEE REVERSE SIDE]
FOLD AND DETACH HERE
[LOGO]
NEWPORT NEWS SHIPBUILDING
ADMISSION TICKET
ANNUAL MEETING OF SHAREHOLDERS
If you plan to attend the 1999 Annual Meeting of Shareholders, please mark the
appropriate box on the reverse of the attached Proxy Card. The meeting will be
held on Friday, June 25, 1999, at The Jefferson Hotel, Franklin and Adams
Street, Richmond, Virginia. The meeting will begin promptly at 10:00 a.m. local
time.
TO AVOID DELAY AT THE ENTRANCE, PLEASE PRESENT THIS TICKET
AGENDA
1. Elect two Class III directors
2. Amend Employee Stock Purchase & Accumulation Plan to increase shares
available by 150,000
3. Ratify Arthur Andersen LLP as Independent Accountants for 1999
TRANSACTION OF OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING
It is important that your shares be represented at the meeting. Whether or not
you intend to attend the meeting in person, to make sure your shares are
represented, we urge you to complete, sign and mail the proxy card or vote your
shares via telephone or the Internet.
<PAGE>
[X] Please mark your votes as in this example.
The Board of Directors of Newport News Shipbuilding Inc. recommends that you
vote for the following proposals.
1. Election of Directors [ ] FOR [ ] WITHHELD
Nominees for Class III:
1. Hon. Gerald L. Baliles
2. Dana G. Mead
For, except vote withheld from the following nominee:
- -----------------------------------------------------
2. To increase by 150,000 the number of shares authorized for issuance under
the Newport News Employee Stock Purchase and Accumulation Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the appointment by the Board of Directors of Arthur Andersen LLP as
Newport News' independent accountants for 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
I plan to attend the Annual Meeting [ ]
Change of address on reverse side [ ]
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no directions are given, this proxy will be
voted FOR Proposals Nos. 1 through 3. The proxy holders named above will vote
in their discretion on any other matter that may properly come before the
meeting.
SIGNATURE(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 submit a proxy
electronically through the internet or by telephone. This eliminates the need
to return the proxy card.
To submit a proxy 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 submit a proxy over the internet:
o Log on to the internet and go to the web site http://www.vote-by-net.com
2. To submit a proxy 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 proxy authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to submit a proxy electronically, there is no need for you to mail
back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
