<PAGE>
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:
[_] CONFIDENTIAL, FOR USE OF THE
[_] Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED
[X] Definitive Proxy Statement BY RULE 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
GRC INTERNATIONAL, 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>
[LOGO OF GRC INTERNATIONAL INC APPEARS HERE]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on
Thursday, November 6, 1997
The Annual Meeting of Shareholders of GRC International, Inc. will be held at
the offices of the Company located at 1900 Gallows Road, Vienna, Virginia 22182,
on Thursday, November 6, 1997, at 1:30 p.m. local time for the following
purposes:
1. To elect 4 directors for a 3-year term ending in 1999, or until their
successors are elected and qualify.
2. To ratify the selection of Deloitte & Touche as independent public
accountants for the fiscal year ending June 30, 1998.
3. To consider and act upon any other matters which may properly come before
the meeting, or any adjournments thereof.
The Board of Directors has fixed the close of business on September 12, 1997, as
the record date for the determination of shareholders entitled to notice of, and
to vote at, the Annual Meeting, or any adjournments thereof.
By Order of the Board of Directors
THOMAS E. McCABE
Senior Vice President, General Counsel & Secretary
October 7, 1997
1900 Gallows Road
Vienna, Virginia 22182
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ELECTION OF DIRECTORS 2
RATIFICATION OF ACCOUNTANTS 6
OTHER MATTERS 6
OTHER INFORMATION 6
Operation of Board and Committees 6
Other Executive Officers 7
Summary Compensation Table 9
Option Grants In Last Fiscal Year 10
Aggregated Option Exercises In Last Fiscal Year and FY-End Option Values 11
Employment Contracts and Termination of Employment and
Change-In-Control Arrangements 11
Compensation Committee Report on Executive Compensation 12
Performance Graph 14
Compensation of Directors 15
Certain Relationships and Related Transactions 15
Compensation Committee Interlocks and Insider Participation 16
Compliance with Section 16(a) of the Exchange Act 16
Security Ownership of Principal Shareholders and Management 17
Date for Receipt of Shareholder Proposals 18
</TABLE>
<PAGE>
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors ("Board") of GRC International, Inc. ("GRC
International", "GRCI" or "Company") for use at the Annual Meeting of
Shareholders at the Company's offices, 1900 Gallows Road, Vienna, Virginia
22182, on Thursday, November 6, 1997, at 1:30 p.m., and any adjournments
thereof. This Proxy Statement and the accompanying proxy are first being sent
or given to shareholders on or about October 7, 1997.
Unless revoked prior to exercise, all proxies representing shares entitled to
vote which are delivered pursuant to this solicitation will be voted at the
meeting. Where the shareholder's choice has been specified on the proxy, the
proxy will be voted accordingly. If a choice is not indicated, the proxy will
be voted in the manner recommended by the Board. If the enclosed proxy is
executed and returned, it may nevertheless be revoked at any time prior to the
voting thereof (i) by filing with the Secretary of the Company a written notice
of revocation thereof or a duly executed proxy bearing a later date, (ii) by
giving written notice to the Company of death or incapacity of the shareholder,
or (iii) as to any matter presented at the meeting, by the shareholder's voting
in person upon such matter. The execution of the enclosed proxy will not affect
a shareholder's right to vote in person at the meeting should the shareholder
later find it convenient to attend the meeting and desire to vote in person.
Only the holders of record of the Company's $0.10 par value Common Stock
("Stock") at the close of business on September 12, 1997, will be entitled to
vote at the meeting. On that date the Company had 9,729,591 shares of Stock
outstanding. Holders of the Stock are entitled to one vote per share on all
business of the meeting. The presence, in person or by proxy, of a majority of
the outstanding shares of Stock will constitute a quorum for the meeting.
A nominee will be elected as a director if he receives a plurality of votes, and
other matters will be approved if a majority of the shares present at the
meeting in person or by proxy and entitled to vote on the subject matter are
voted in favor of approval of such item. In the election of directors, votes
may be cast in favor or withheld; votes that are withheld will be excluded
entirely from the vote and will have no effect. Abstentions may be specified on
any item other than the election of directors and will be counted as present for
purposes of the matter for which the abstention is noted. Accordingly, an
abstention will operate to prevent approval of any such matter to the same
extent as a vote against approval of such matter.
Under the rules of the New York Stock Exchange ("NYSE"), brokers who hold shares
in street name for customers have the authority to vote on certain items when
they have not received instructions from beneficial owners, but are not
permitted to vote on certain other matters in the absence of such instructions.
The withholding of a vote on a matter by a broker who has not received such
instructions and is not otherwise permitted to vote on such matter is known as a
"broker non-vote." A "broker non-vote" with respect to any matter to be
considered at the Annual Meeting of Shareholders will have no effect on the
outcome of the vote on such matter.
YOUR VOTE IS IMPORTANT! Please sign and date the enclosed proxy card and return
it promptly in the enclosed postage-paid envelope. The prompt return of your
proxy will ensure that your vote is counted and will enable us to reduce
expenses associated with follow-up mailings. In the event you attend the
meeting, the proxy will not be used if you revoke it or vote in person on a
given item.
<PAGE>
ELECTION OF DIRECTORS
The Board currently has 11 directors, and is divided into 3 classes. The first
class has 3 directors, the second class has 4 directors, and the third class has
4 directors. The class of directors whose term expires at the 1997 Annual
Meeting of Shareholders is the second class. The members of the second class
are Peter A. Cohen, Charles H.P. Duell, George R. Packard and Herbert Rabin. The
nominees and continuing directors are listed in the table on the following page.
The terms of office of the nominees will commence upon election and will
continue until the end of their 3-year terms or until their successors are
elected and qualify.
Members of the third and first classes will be elected for 3-year terms at the
1998 and 1999 annual meetings, respectively. Any vacancy or newly created
directorships in any class may be filled by the Board, and any director so
elected will serve for the remainder of the term of the class to which he has
been elected by the Board.
In the election of directors, each shareholder has the right to vote his shares
cumulatively; i.e., to cast as many votes as there are directors to be elected,
multiplied by the number of shares registered in his name on the record date,
and to cast all such votes for one nominee, or distribute such votes among the
nominees in accordance with his choice. A shareholder wishing to designate the
allocation of his vote among the nominees may do so by indication on the
enclosed proxy card or by personal vote at the Annual Meeting. Unless otherwise
directed on the proxy card, management proxy holders will be authorized, in
their discretion, to cumulate votes, so that, for example, they may vote proxies
for the largest number of the 3 nominees proposed by management which can be
elected by cumulative vote.
Management has no reason to believe that any nominee will not be available to
serve; but, if any nominee should become unable to serve, the shares represented
by management proxies may be voted instead for the election of another person
recommended by the Board.
The table below sets forth (i) the name and principal occupation of each nominee
and continuing director, (ii) the year in which each nominee's or continuing
director's term of office will expire, and (iii) the year in which each nominee
or director was first elected or appointed to the Board of the Company. Unless
otherwise noted, service on the Board has been without interruption. On the
page following the table, additional information is provided regarding all
nominees and continuing directors.
VOTE REQUIRED
- -------------
The vote required for election of a director is a plurality of the shares
present or represented by proxy at the Annual Meeting and entitled to vote.
THE BOARD RECOMMENDS A VOTE "FOR" THE NOMINEES.
2
<PAGE>
<TABLE>
<CAPTION>
NOMINEES, DIRECTORS TERM FIRST
AND PRINCIPAL OCCUPATIONS AGE EXPIRES ELECTED
------------------------- --- ------- -------
NOMINEES:
- --------
<S> <C> <C> <C>
PETER A. COHEN
Principal, Ramius Capital Group.............................. 50 2000 1997
CHARLES H.P. DUELL
President, Middleton Place Foundation
and Middleton Inn Company................................... 59 2000 1993
GEORGE R. PACKARD
Professor & Director, Reischauer Center for
East Asian Studies, Johns Hopkins University
School of Advanced International Studies................... 65 2000 1994
HERBERT RABIN
Director, Engineering Research Center, and
Associate Dean, College of Engineering,
University of Maryland..................................... 68 2000 1988
<CAPTION>
DIRECTORS WITH CONTINUING TERMS:
- -------------------------------
<S> <C> <C> <C>
FRANK J.A. CILLUFFO
Managing General Partner, Cilluffo Associates, L.P. 54 1998 1996
LESLIE B. DISHAROON
Corporate Director........................................... 65 1998 1992
EDWARD C. MEYER
Chairman, Mitretek Systems .................................. 68 1998 1992
JAMES ROTH
President & CEO, GRC International, Inc. .................... 61 1998 1992
H. FURLONG BALDWIN
Chairman & Chief Executive Officer,
Mercantile Bankshares Corporation........................... 65 1999 1981
E. KIRBY WARREN
Professor of Management,
Columbia University Graduate School of Business............. 63 1999 1996
JOSEPH R. WRIGHT, JR.
Chairman, GRC International, Inc.
Chairman & CEO, AmTec, Inc.................................. 59 1999 1994
</TABLE>
3
<PAGE>
H. FURLONG BALDWIN, 65, has been Chief Executive Officer of Mercantile
- ------------------
Bankshares Corporation since 1976, and Chairman since 1984. He has been
Chairman and Chief Executive Officer of Mercantile-Safe Deposit & Trust Company
since 1976. He is a director of Mercantile-Safe Deposit & Trust Company;
Mercantile Bankshares Corporation; Baltimore Gas & Electric; Consolidated Rail
Corporation; Constellation Holdings, Inc.; Offitbank; USF&G Corporation; and
Wills Group. He is a Trustee and Past Chairman of Johns Hopkins Hospital and
Johns Hopkins Health System, and a Trustee of Johns Hopkins University.
FRANK J.A. CILLUFFO, 54, has been managing general partner of Cilluffo
- -------------------
Associates, L.P., an investment firm, since he founded it in 1979. He is also a
director of Stone & Webster, Inc.
PETER A. COHEN, 50, is a principal of Ramius Capital Group ("Ramius"), a
- --------------
privately-held, specialized investment firm. He became Vice Chairman of GRC
International in 1997. From 1971 to 1990 he held various positions within
Shearson Lehman Brothers and its predecessors, culminating in his serving as
Chairman of the Board and Chief Executive Officer from 1987 to 1990. Subsequent
to his departure from Shearson Lehman, he became Chairman of Republic New York
Securities Corporation. He was also Vice Chairman of Republic New York
Corporation and a member of its Management Executive Committee. He is a
Director of Presidential Life Corporation, Olivetti SpA and Andover Togs Inc.
He is also a Trustee of Mt. Sinai Hospital, a board member of The Ohio State
University Foundation, Co-Chairman of the New York Holocaust Memorial Commission
and a Director of the Museum of Jewish Heritage. He has served as a Director of
the New York Stock Exchange, American Express Company, Republic New York
Corporation, Societe General de Belgique S.A., Cofide and Cerus S.A., The New
York Federal Reserve Bank International Capital Markets Advisory Committee, The
Depository Trust Company and The New York City Opera.
LESLIE B. DISHAROON, 65, was Chairman, President and Chief Executive Officer of
- -------------------
Monumental Corporation from 1979 until his retirement in 1988. He is a director
of Aegon USA and The Travelers Group Inc. He is Chairman of MSD&T Funds, Inc.
He is Chairman of the Board of the Johns Hopkins Health System Endowment.
CHARLES H.P. DUELL, 59, has been President of Middleton Place Foundation since
- ------------------
1974. Middleton Place Foundation is a non-profit educational trust that owns
and interprets the Middleton Place national historic landmark in Charleston,
South Carolina. He has also been President of the Middleton Inn Company since
1991. His responsibilities include historic preservation, tourism, timber and
land management, and real estate development. He is also a director of Alliance
Capital Reserves; Alliance Government Reserves; and Alliance Tax-Exempt Reserves
(and associated funds). He is a Trustee Emeritus of the National Trust for
Historic Preservation, and a member of the Board of Architectural Review for the
City of Charleston.
EDWARD C. MEYER, 68, is Chairman of Mitretek Systems. He was Chief of Staff of
- ---------------
the U.S. Army and a member of the Joint Chiefs of Staff from 1979 until his
retirement in 1983. He was Chairman of the Company from 1994 to 1996. Since
his retirement from the Army, he has served on the President's Strategic Defense
Initiative Panel, the Defense Science Board, and other government advisory
boards and panels. He is President of Army Emergency Relief and a Trustee of
the George Marshall Foundation. He serves on the Board of Overseers of the
Hoover Institution, and the Board of Advisors of the Center for Strategic and
International Studies. He is a director of Aegon USA, Brown Group; FMC
Corporation and its Turkish joint
4
<PAGE>
venture; ITT Corporation and ITT Industries. He is also a managing general
partner of Cilluffo Associates, L.P., a shareholder of the Company.
GEORGE R. PACKARD, 65, was Dean of the Johns Hopkins University School of
- -----------------
Advanced International Studies ("SAIS") from 1979 to 1993. He is the founding
Director of the Reischauer Center for East Asian Studies at SAIS. As a
Professor at SAIS since 1994, he continues to write, teach and consult. He also
serves as visiting president of the International University of Japan in Niigata
Prefecture. He is a director of Offitbank; MSD&T Funds, Inc.; and Commonwealth
Scientific Corporation. He also serves on the Boards of the Japan-American
Institute of Management Science and the Eisenhower World Affairs Institute. He
is the author of a number of books and articles on Japan and East Asia.
HERBERT RABIN, 68, has been Director of the Engineering Research Center and
- -------------
Associate Dean of the College of Engineering of the University of Maryland since
1983. He also serves as Professor of Electrical Engineering. From 1979 to
1983, he was Deputy Assistant Secretary of the Navy (Research, Applied, and
Space Technology) where he was responsible for the Navy's space programs and
overall technology base. He was Associate Director of Research at the Naval
Research Laboratory in Washington, D.C. from 1971 to 1979. He has served on
numerous advisory boards and panels for the military services and NASA. He is
currently a director of Yurie Systems, Inc. and a trustee of the National
Technological University.
JAMES ROTH, 61, has been President and Chief Executive Officer of the Company
- ----------
since 1992, and Chairman since 1996. From 1991 to 1995 he was President and
Chief Executive Officer of the Company's former subsidiary, General Research
Corporation ("GRC"). He was Corporate Vice President of GRC from 1989 to 1991.
From 1986 to 1989 he was Vice President of GRC and Director of its Western
Division, and from 1983 to 1986, he was Deputy Director of its Systems
Technology Division. He was Vice President of GRC from 1979 to 1983, and
Director of its Los Angeles operations from 1976 to 1983. He joined GRC in
1974.
E. KIRBY WARREN, 63, is Professor of Management at Columbia University's
- ---------------
Graduate School of Business. He also serves as Director of the School's
Institute on Management Leadership. He is the author or co-author of three
books, The Process of Management, The Progress of Management and Long-Range
------------------------- -------------------------- ----------
Planning: The Executive Viewpoint, and numerous articles in academic, trade, and
- ---------------------------------
popular journals. He has done research, consulting, and seminar-leading
throughout the world for such corporations as Bristol-Myers Squibb, British
Oxygen, Citibank, Chase, GE, IBM, Merck, Olivetti, PepsiCo, Sunstar and W.R.
Grace. He currently serves as a director of Aegon USA, AUSA and Landmark Funds.
JOSEPH R. WRIGHT, JR., 59, was named Chairman of the Company in 1997. He has
- ---------------------
also been Chairman and Chief Executive Officer of AmTec, Inc. since 1995. AmTec
is a public company engaged principally in establishing joint ventures to
develop, finance, build and maintain telecommunications networks in the People's
Republic of China. He also serves as co-Chairman of Baker & Taylor Holdings
Inc., an international book and video distribution Company, and Vice Chairman of
The Jefferson Group Inc., a consulting firm in Washington, DC. From 1989 to
1994, he served in various executive capacities for W.R. Grace & Co., an
international specialty chemicals and health care company, and its associated
companies, including Executive Vice President and Vice Chairman of W.R. Grace &
Co., President of Grace Energy Corporation and Chairman of Grace Environmental
Inc. From 1988 to 1989, he was a
5
<PAGE>
member of the President's Cabinet as Director of the White House Office of
Management and Budget ("OMB"). He was Deputy Director of OMB from 1982 to 1988.
Earlier in his career, he was Deputy Secretary of Commerce from 1981 to 1982,
President of Citicorp Retail Services and Retail Consumer Services from 1976 to
1981, and a partner at Booz, Allen and Hamilton Inc. from 1966 to 1971. He also
serves on the boards of directors of Travelers Group Inc., PanAmSat, and Deswell
Industries. He is a Member of the Board of Advisors of Barington Capital
Corporation and Great Lakes Pulp and Fiber Corporation, a trustee of Hampton
University and chairman of their Investment Committee, a director of Citizens
for a Sound Economy, and a member of Chief Executives Organization and Young
Presidents' Organization.
RATIFICATION OF ACCOUNTANTS
The Board has selected Deloitte & Touche to serve as the Company's independent
public accountants for the fiscal year ending June 30, 1998. Deloitte & Touche
has offices near or convenient to most of the Company's operations. The Board
is satisfied as to the professional competence and standing of Deloitte &
Touche. Representatives of Deloitte & Touche are expected to be present at the
Annual Meeting and will have an opportunity to make a statement if they desire
to do so, as well as being available to respond to appropriate questions.
VOTE REQUIRED
- -------------
The vote required for ratification of the selection of Deloitte & Touche is a
majority of the shares present or represented by proxy at the Annual Meeting and
entitled to vote on the subject matter.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE SELECTION OF
DELOITTE & TOUCHE AS INDEPENDENT PUBLIC ACCOUNTANTS.
OTHER MATTERS
Management does not intend to present to the meeting any matter not referred to
above, and does not presently know of any matters that may be presented to the
meeting by others. If other matters properly come before the meeting, the
management proxy holders intend to vote the proxy in accordance with their
judgment. Proxies will be solicited for use at the meeting primarily by mail.
Proxies may also be solicited personally and by telephone and telegraph by
regular employees of the Company, who will receive no additional compensation
therefor. The Company will reimburse the brokers and other persons holding the
Company's shares registered in their names, or in the names of their nominees,
for their expenses incurred in sending proxy materials to and obtaining proxies
from the beneficial owners of such shares. All expenses in connection with the
solicitation of proxies will be borne by the Company.
6
<PAGE>
OTHER INFORMATION
OPERATION OF BOARD AND COMMITTEES
The Board of the Company has standing Audit, Compensation, Ethics and
Executive & Nominating Committees.
The Audit Committee reviews the results of, and suggestions provided in
connection with, the Company's annual audit by its independent public
accountants; reviews accounting procedures established by management; and
considers matters relating to non-audit services by the Company's independent
public accountants. During fiscal 1997, the Committee held 4 meetings. The
members of the Committee are Mr. Baldwin (Chairman), Mr. Disharoon and Mr.
Duell.
The Compensation Committee represents the full Board in matters of executive
compensation, and from time to time recommends to the full Board appropriate
methods and amounts of executive and director compensation. It also administers
the Company's employee and executive stock option plans. During fiscal 1997,
the Committee held 6 meetings. The members of the Committee are Mr. Disharoon
(Chairman), General Meyer and Dr. Packard.
The Ethics Committee oversees and reviews ethical compliance within the Company.
During fiscal 1997, the Committee held 4 meetings. The members of the Committee
are Dr. Rabin (Chairman), Mr. Cilluffo, Dr. Packard and Dr. Warren.
The Executive & Nominating Committee has the authority to exercise all of the
powers of the Board in the management of the business and affairs of the Company
between the meetings of the Board, except to the extent prohibited by applicable
law or regulation. It also reviews and makes recommendations in regard to the
election of officers and directors for the Company. During fiscal 1997, the
Committee held 6 meetings. The members of the Committee are Mr. Wright
(Chairman), Mr. Baldwin, Mr. Cohen, Mr. Disharoon, General Meyer and Mr. Roth.
The Executive & Nominating Committee will consider recommendations submitted by
shareholders for nominees for director. Such recommendations should be in
writing and delivered or mailed to the Company c/o Thomas E. McCabe, Senior Vice
President, General Counsel & Secretary, 1900 Gallows Road, Vienna, Virginia
22182. In addition, nominations for the election of directors may be made by
shareholders in accordance with procedures set forth in the Company's
Certificate of Incorporation. Copies of such procedures may be obtained without
charge by contacting Mr. McCabe at the above address.
The Board held 16 meetings during fiscal 1997. [NO BOARD MEMBER ATTENDED FEWER
THAN 75% OF THE MEETINGS OF THE BOARD AND BOARD COMMITTEES ON WHICH THAT
DIRECTOR SERVED.]
7
<PAGE>
OTHER EXECUTIVE OFFICERS
In addition to Mr. Roth, the following persons are executive officers of the
Company:
RONALD B. ALEXANDER, 49, joined the Company in 1996 as Senior Vice President-
- -------------------
Finance, Chief Financial Officer and Treasurer of the Company. Since 1994 he
had been Vice President, CFO and Treasurer of Network Imaging, a publicly traded
company which develops and markets object-oriented, client/server enterprise
software systems for the management of large volumes of complex information and
documentation. His responsibilities there included strategic and operation
budgeting and planning for U.S. and European operations, treasury and controller
operations, financial, managerial and SEC reporting, and acquisitions and
divestitures. From 1993 to 1994 he was a managing director of the Blackstone
Group, a New York merchant banking firm specializing in merger and acquisition
advisory services, managing leveraged buy-out funds, corporate restructuring
advisory services and asset management funds. From 1988 to 1993 he was Vice
President, CFO and Secretary of Commodore International, a New York Stock
Exchange global computer manufacturer and marketer.
GARY L. DENMAN, 58, has been Executive Vice President and Chief Operating
- --------------
Officer since 1995. He joined the Company in 1995 as Senior Vice President for
Strategic Planning. From 1992 to 1995 he was Director of the Department of
Defense Advanced Research Projects Agency ("ARPA"), the premier Federal research
and development agency. He was Deputy Director of ARPA from 1990 to 1992.
Prior to joining ARPA he was Deputy Director of the U.S. Air Force's Wright
Laboratories at Wright Patterson Air Force Base from 1988 to 1990. From 1982 to
1988, he was Director of the Air Force Materials Laboratory and Director of the
Air Force Manufacturing Technology Program.
THOMAS E. MCCABE, 42, joined the Company as Vice President-Legal and Secretary
- ----------------
in 1992. He was promoted to the additional offices of General Counsel in 1993
and Senior Vice President in 1995. He was a founding partner of the Washington
law firm of McCarthy & Burke from 1988 through 1991, and an attorney with its
predecessor McCarthy & Durrette from 1985 to 1988. He was an attorney with
Venable Baetjer & Howard from 1984 to 1985, and Reavis & McGrath from 1982 to
1984. He was law clerk to Judge Richey in the U.S. District Court for D.C. from
1981 to 1982.
JAMES P. MCCOY, 53, was named Director of Marketing and New Business Development
- --------------
in 1997. He had previously been General Manager of the Company's consolidated
Professional Services Operation since 1995. He has been a Senior Vice President
since 1993. He became a Vice President in 1992, and was Director of the
Company's Information Systems Division from 1992 to 1995. He was Director of
Marketing from 1988 to 1992. From 1985 to 1988, he served as Operations
Director, and from 1984 to 1985 he was a Project Manager. Prior to joining the
Company in 1984, Mr. McCoy was a career officer in the U.S. Army.
8
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION
-------------------
Name and Other Annual
Principal Position Year Salary/1/ Bonus/1/ Compensation/2/
------------------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
James Roth 1997 $296,250/5/ - 0 - $ 919
-
President & CEO 1996 $240,000/5/ - 0 - $43,224
-
1995 $241,271/5/ $ 75,450/5/ $45,013
- -
Gary L. Denman 1997 $180,000/6/ - 0 - $ 5,569
-
Executive Vice President, 1996 $145,330/6/ - 0 - $27,296
-
Chief Operating Officer 1995 $ 49,231 - 0 -/6/ $ 6,584
-
James P. McCoy 1997 $157,500 $ 20,000 - 0 -
Senior VP, General Manager, 1996 $150,000 $ 45,330 - 0 -
Professional Services Oper'n 1995 $139,944 $ 58,000 - 0 -
Thomas E. McCabe 1997 $148,698/7/ - 0 - $ 406
-
Senior VP, General Counsel 1996 $112,500/7/ - 0 - $25,836
-
& Secretary 1995 $131,250/7/ - 0 -/7/ $23,868
- -
Ronald B. Alexander 1997 $158,000/8/ - 0 - $ 866
-
Senior VP-Finance, Chief 1996 $ 26,667/8/ $ 40,000 - 0 -
Financial Officer & Treasurer 1995 N/A - N/A N/A
</TABLE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM COMPENSATION
----------------------
AWARDS
Name and ------ All Other
Principal Position Securities Underlying Options/3/ Compensation/4/
------------------ -------------------------------- ---------------
<S> <C> <C>
James Roth 62,808/5/
-
President & CEO 53,535/5/ $10,317
-
58,610/5/ $17,291
-
Gary L. Denman 29,196/6/
-
Executive Vice President, 22,207/6/ $ 7,957
-
Chief Operating Officer 40,901/6/ N/A
-
James P. McCoy 12,500
Senior VP, General Manager, 10,000 $ 9,805
Professional Services Oper'n 10,000 $10,095
Thomas E. McCabe 27,133/7/
-
Senior VP, General Counsel 17,179/7/ $12,750
-
& Secretary 13,920/7/ $10,959
-
Ronald B. Alexander 50,611/8/
-
Senior VP-Finance, Chief 50,000 N/A
Financial Officer & Treasurer N/A N/A
- -------------------------------------------------------------
</TABLE>
/1/ Salary and bonus replaced with options under the Cash Compensation
- Replacement Plan ("CCRP") are not included in the "Salary" and "Bonus"
columns, but the options are included in the "Securities Underlying
Options" column, and the option discounts are included in the "Other Annual
Compensation" column.
/2/ Represents discounts on purchase of options under the CCRP, calculated
- using Black-Scholes valuation method (see note 4 on next page). These
options are also included along with conventional stock options in the
column captioned "Securities Underlying Options".
/3/ The options shown in this column were awarded pursuant to conventional
- employee stock option plans, except where footnotes indicate that the
executive has foregone salary or bonus in exchange for options (at a
discount) under the CCRP. See notes 2 and 4 to table on the next page.
/4/ Company contributions to defined contribution plans.
-
/5/ Under the CCRP, Mr. Roth elected to forego $3,750 of salary in exchange for
- 308 options in 1997, $60,000 of salary in exchange for 3,535 options in
1996, and $58,729 of salary and $25,150 of bonus in exchange for 8,610
options in 1995.
/6/ Under the CCRP, Dr. Denman elected to forego $20,000 of salary in exchange
- for 4,196 options in 1997, $38,443 of salary in exchange for 2,207 options
in 1996, and $12,274 of bonus in exchange for 901 options in 1995. Dr.
Denman joined the Company on March 8, 1995.
/7/ Under the CCRP, Mr. McCabe elected to forego $20,053 of salary in exchange
- for 2,133 options in 1997, $37,500 of salary in exchange for 2,099 options
in 1996, and $18,750 of salary and $25,000 of bonus in exchange for 3,920
options in 1995.
/8/ Under the CCRP, Mr. Alexander elected to forego $2,000 of salary in
- exchange for 611 options in 1997. He joined the Company on April 29, 1996.
9
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Number of % of Total
Securities Options Exercise Market
Underlying Granted to or Base Price at Grant
Options Employees Price Date of Expiration Date
Name Granted(#) in Fiscal Year ($/Sh) Grant Date Value/4/
---- ---------- -------------- ------ ----- ---- --------
<S> <C> <C> <C> <C> <C> <C>
James Roth 62,500/1/ 11.8% $18.31 $18.31 9/26/06 $755,000
-
308/2/ 0.1% $5.07/2/ $17.56 /2/ $ 4,669
- - -
Gary L. Denman 25,000/1/ 4.7% $18.31 $18.31 9/26/06 $302,000
-
411/2/ 0.1% $ 5.07/2/ $17.56 /2/ $ 6,231
- - -
638/2/ 0.1% $ 3.27/2/ $ 7.88 /2/ $ 4,109
- - -
1,535/2/ 0.3% $ 1.36/2/ $ 5.13 /2/ $ 7,199
- - -
1,612/2/ 0.3% $ 1.30/2/ $ 5.44 /2/ $ 8,076
- - -
James P. McCoy 12,500/1/ 2.4% $18.31 $18.31 9/26/06 $151,000
-
219/3/ 0.0% $19.31 $19.31 5/28/97 $ 714
-
48/3/ 0.0% $ 5.38 $ 5.38 5/28/97 $ 11
-
Thomas E. McCabe 25,000/1/ 4.7% $18.31 $18.31 9/26/06 $302,000
-
40/3/ 0.0% $16.69 $16.69 5/28/97 $ 116
-
771/2/ 0.1% $ 5.07/2/ $17.56 /2/ $ 11,688
- - -
1,362/2/ 0.3% $ 3.27/2/ $ 7.88 /2/ $ 8,771
- - -
Ronald B. Alexander 50,000/1/ 9.4% $18.13 $18.13 7/25/06 $598,000
-
611/2/ 0.1% $ 1.36/2/ $ 5.13 /2/ $ 2,866
- - -
</TABLE>
- --------------------------------------------
/1/ Options granted under 1994 Employee Option Plan ("1994 Plan") or the 1996
- Officers Stock Option Plan ("1996 Plan"). Mr. Roth's options are
exercisable 6 months after grant. The other options are 50% exercisable 2
years after grant, 25% exercisable 3 years after grant, and 25% exercisable
4 years after grant. The options expire 10 years after grant.
/2/ Options under the Cash Compensation Replacement Plan ("CCRP") are granted
- at the end of each calendar quarter to executives who have elected to
forego cash compensation in exchange for options under the plan. Executives
may forego up to 25% of salary and 100% of bonus in exchange for the
options. The exercise price of the options is equal to 25% of the average
fair market value of the Stock during the quarter in which the cash
compensation would have been received. The number of options granted is
determined by dividing the foregone compensation by 80% of the option
"spread" at grant, which is the difference between (i) the average fair
market value of the Stock during the quarter and (ii) the exercise price of
the option. This formula gives the executive a 20% discount from the
"spread". This "spread" is less than the "grant date value" shown in the
table above, which is based on a different valuation method (described in
note 4). The options are 80% exercisable upon grant, 90% exercisable in 2
years, 95% exercisable in 3 years, and 100% exercisable in 4 years. The
options expire 3 years after employment terminates.
/3/ Immediately exercisable options granted under the 1994 Plan in exchange
- for conversion of incentive stock options to non-qualified stock options.
/4/ Grant date values were calculated using the Black-Scholes option pricing
- model, assuming (i) 15-year term for options granted under the CCRP; (ii)
6% annual interest rate; (iii) 45% volatility; and (iv) no dividends. The
ultimate values of options, if any, will depend on the future market price
of the Stock, which cannot be predicted.
10
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES at FY-End(#) at FY-End/1/
ACQUIRED ------------ ------------
ON VALUE
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
----- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
James Roth 168,939 8,065 $13,609 $1,299
Gary L. Denman 25,843 66,461 $11,779 $2,945
James P. McCoy 6,423 $219,585 46,250 11,250 -0- -0-
Thomas E. McCabe 1,287 $ 32,808 7,500 47,500 $ 3,063 $1,040
Ronald B. Alexander 488 100,123 $ 2,022 $ 506
</TABLE>
- --------------------------
1/ Option values calculated by subtracting (i) the weighted exercise price of
- - the named executives' options from (ii) $5.50, which was the closing price
of the Stock on June 30, 1997, then multiplying such amount by the aggregate
number of shares underlying the named executive's options. All in-the-money
options were granted under the Cash Compensation Replacement Plan ("CCRP")
under which executives forego cash compensation in exchange for options.
11
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has an employment agreement with Mr. Roth which provides for an
annual salary of $300,000, and an annual bonus equal to 2% of the Company's
consolidated net income, without regard to any extraordinary items of income or
loss. Because of his relocation in 1992 from California to Virginia at the
Company's request, the Company will pay the cost of Mr. Roth's moving back to
California after the expiration of the agreement (subject to the limits of the
then-current Company policy covering such situations and subject to an aggregate
limit of $100,000). The agreement may be terminated immediately by the Company
for cause. Either the Company or Mr. Roth may terminate the agreement on 90
days notice during the 12 months following a change in control, but in such
event, Mr. Roth will receive a lump-sum payment equal to twice his annual
salary. The agreement provides Mr. Roth and his wife with the Company's
standard medical and dental insurance for life, notwithstanding any termination
of the employment agreement. The employment agreement expires on June 30, 1998.
The Company has employment agreements with Messrs. Denman, McCoy, McCabe and
Alexander which provide for annual salaries of $210,104, $160,000, $183,758 and
$169,608, respectively. Each of the agreements may be terminated immediately by
the Company for cause, or by either party without cause on 6 months notice.
During the 30 months following a change in control, if the Company terminates
the executive's employment without cause or takes certain other adverse actions
with respect to the executive, then the executive shall receive a lump-sum
severance payment equal to 2 times his annual salary (1 1/2 times salary in the
case of Mr. McCoy), and his employee benefits shall continue until the earlier
of (A) such time as he obtains new benefits coverage by reason of new
employment, or (B) the 2 year anniversary of his termination of employment
(1 1/2 year anniversary in the case of Mr. McCoy). In addition, the Company must
reimburse the executive for any legal fees and expenses he incurs in
successfully enforcing these rights.
The Company has also offered "stay-put" bonuses to Messrs. Roth, Denman, McCoy,
McCabe and Alexander. These bonuses will be paid to the named executives if
they do not voluntarily leave the Company prior to any change in control and for
specified times thereafter. The maximum "stay-put" bonus offered to each of the
named executives is as follows: Mr. Roth, $313,254; Dr. Denman, $165,770; Mr.
McCoy, $50,000; Mr. McCabe, $121,307; and Mr. Alexander, $84,804. Each of these
amounts will be paid in 3 equal installments. The first installment will be
paid if the executive does not voluntarily leave the Company through the date of
the change in control. The second installment will be paid if the executive
does not voluntarily leave the Company for 3 months after the change in control.
The third installment will be paid if the executive does not leave the Company
for 9 months after the change in control. The "stay-put" arrangement expires
June 30, 1998, unless a change in control has occurred by such date. The "stay-
put" payment will be accelerated and paid in full if, prior to the end of the
designated 9-month period, the Company terminates the executive's employment
without cause or takes certain other adverse actions with respect to the
executive. In addition, the Company must reimburse the executive for any legal
fees and expenses he incurs in successfully enforcing these rights.
12
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
This report describes the philosophy underlying the cash and equity-based
components of GRCI's executive pay program. It also describes each element of
the program, as well as the rationale for compensation paid to GRCI's Chief
Executive Officer. So that the Company's executive compensation program will be
administered objectively, this Committee is comprised entirely of independent
directors. Further, Committee members have no "interlocking" relationships as
defined by the SEC. The Committee represents the full Board in matters of
executive compensation, and recommends to the Board appropriate methods and
amounts of executive compensation. It also administers the Company's stock
option plans.
COMPENSATION POLICY AND OVERALL OBJECTIVES.
- ------------------------------------------
GRCI's executive compensation program is designed to link a significant part of
executive pay to Company performance, and to the interests of GRCI's
shareholders. In determining or approving the amount and composition of
executive compensation, the Committee's goal is to provide a compensation
package that will enable the Company to attract and retain talented executives,
reward outstanding performance, and encourage GRCI executives to focus on the
interests of shareholders. The Committee's overall focus is on total
compensation, although it also examines the individual elements of compensation.
The primary components of the Company's executive compensation package are
salary, bonus, and stock options.
SALARIES.
- --------
The Committee's review of each executive officer's base salary takes into
consideration the duties of the position, the competitive market, the experience
and qualifications of the executive, the performance of the executive, and
equity issues relating to pay for other Company executives. In making or
approving salary decisions, the Committee exercises its discretion and judgment
based on these factors. No specific formula is applied to determine the weight
of each factor.
BONUSES.
- -------
Under the Company's Incentive Compensation Plan, executives may receive bonuses
based on performance. With the exception of Mr. Roth's bonus, which is
discussed below, bonuses are discretionary, and not targeted to a fixed
percentage of salary; rather, they are based on several performance factors,
including the performance of the Company as a whole or the performance of the
executive's division, improvement of business base, quality of service and
product, control of costs, quality of personnel selection and training, and
conformity to general Company policies and directives. No specific weighting
has been assigned to these performance measures. Bonuses are typically
determined and paid after fiscal year end, in conjunction with a review of the
Company's performance for the year in question. In fiscal 1997, four of the
Company's top 5 executives, including the CEO, received no bonus.
STOCK OPTIONS.
- -------------
GRCI has two types of employee stock option plans. Under conventional option
plans like the 1994 Employee Option Plan ("1994 Plan"), options are granted at
fair market value to key employees who are expected to contribute materially to
the Company's success. The Committee intends to continue using stock options as
the primary long-term incentive, because
13
<PAGE>
they provide rewards to executives only to the extent the Stock price increases
after the options are granted. This helps to focus executives on increasing
shareholder value over the long term.
The Company's officers are also eligible to participate in the Cash Compensation
Replacement Plan ("CCRP"), under which executives may elect quarterly to
exchange up to 25% of their salary and 100% of their bonus for stock or options.
The purpose of the CCRP is to permit and encourage executives to voluntarily
replace one form of compensation (cash) with another (Stock or options).
Participants purchase Stock or options at a discount. The formula under which
options are acquired under the CCRP is described in Note 2 to the Table on page
10 entitled "Option Grants in Last Fiscal Year". The Committee believes that
the CCRP is an appropriate means to encourage equity ownership among executives
and more closely align their interests with those of shareholders, while
reducing the Company's cash outlays for executive compensation. Four of the
Company's top 5 executives, including the CEO, elected to reduce their cash
compensation in order to receive Stock and/or options under the CCRP in fiscal
1997.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER.
- -------------------------------------------
Effective July 1, 1994, Mr. Roth's base salary was increased to $300,000. His
previous salary of $250,000 was the same level of salary that had been paid to
the Company's CEO since 1989. Under the employment agreement described above
under "Employment Agreements", the current level of salary is payable to Mr.
Roth through fiscal 1998. Based on periodic studies of CEO pay levels in the
high-tech industry, the Committee believes that Mr. Roth's salary is roughly at
the median of market levels.
To encourage Mr. Roth to do his utmost to increase the Company's profitability,
his bonus is strictly based on a formula tied to net income. Specifically, Mr.
Roth receives 2% of the Company's consolidated net income, without regard to any
extraordinary items of income or loss. The Committee believes this formula
provides the opportunity for payoffs commensurate with the Company's earnings.
For fiscal 1996 and 1997, this formula resulted in no bonus being paid to Mr.
Roth.
In addition to options purchased by Mr. Roth under the CCRP, during fiscal 1997
the Committee granted Mr. Roth a stock option to purchase 50,000 shares at an
exercise price of $23.19 under the 1994 Plan. This amount was determined as
appropriate to align Mr. Roth's compensation package with shareholder interests
and was also considered to be consistent with competitive market practice.
DEDUCTIBILITY OF COMPENSATION UNDER SECTION 162(M) OF THE INTERNAL REVENUE CODE.
- -------------------------------------------------------------------------------
Because the salary and bonus levels of the Company's CEO and other executive
officers are well below the $1 million cap on deductible executive compensation
under Section 162(m) of the Internal Revenue Code, the Committee believes there
is no current need to qualify these salary and bonus components of the Company's
executive compensation program under that Section. The Committee has, however,
sought to ensure that compensation that may in the future be recognized by
executives under the Company's stock option programs will be fully deductible
under Section 162(m). Nevertheless, the Committee reserves the right to award
future compensation which would not (or potentially would not) comply, if it
determines this to be in the Company's best interest.
14
<PAGE>
CHANGE IN CONTROL SEVERANCE AND RELATED ITEMS.
- ---------------------------------------------
In July 1997, the Board of Directors, on recommendation of the Compensation
Committee, implemented certain changes in the Company's change in control
severance policy, to bring the policy more into line with current market
practices. An independent compensation consultant, Frederick W. Cook & Co.,
Inc., found that the Company's change in control severance was inferior to
current market practices, and recommended the adoption of the new policy
(including the "stay-put" bonuses), which was subsequently adopted by the Board.
The new policy is described above under "EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS." The Compensation Committee
believes that the new change in control severance policy (including the "stay-
put" bonuses) is in the best interests of the Company and its shareholders,
because it is designed to retain key executives in spite of the uncertainties
which may occur during any change in control. The loss of key executives during
a change in control would be disruptive to the Company's business and
detrimental to shareholder value.
Leslie B. Disharoon, Chairman Edward C. Meyer
George R. Packard
15
<PAGE>
CUMULATIVE TOTAL SHAREHOLDER RETURN /1/
-
PERFORMANCE GRAPH
[GRAPH APPEARS HERE]
INDEXED RETURNS
<TABLE>
<CAPTION>
BASE YEARS
PERIOD ENDING
------ ------
Company/Index 1992 1993 1994 1995 1996 1997
------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GRC International, Inc. 100 181 369 485 1,181 169
S&P 500 Index 100 114 115 145 183 247
S&P Technology-500 100 117 126 206 245 373
</TABLE>
ANNUAL RETURN PERCENTAGES
<TABLE>
<CAPTION>
YEARS
ENDING
------
Company/Index 1993 1994 1995 1996 1997
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GRC International, Inc. 81 104 31 144 (86)
S&P 500 Index 14 1 26 26 35
S&P Technology-500 17 8 63 19 52
</TABLE>
1/ Graph and tables show cumulative total return through June 30, 1997 of $100
- - investment made on June 30, 1992, with dividends reinvested.
16
<PAGE>
COMPENSATION OF DIRECTORS
Non-employee directors are paid an annual retainer of $12,000 and an additional
$1,000 for each Board meeting they attend, and $500 for each Committee meeting
they attend. Committee Chairmen are paid $800 for each Committee meeting they
attend. The Company also provides each director a $50,000 term life insurance
policy. General Meyer received $100,000 per annum for his services while serving
as Chairman through November 7, 1996. During that time, he did not receive the
annual Board retainer or meeting fees. During the time Mr. Wright has served as
Chairman (since March 10, 1997) he has received the normal Board retainer and
Board and Committee meeting fees, but no special cash compensation as Chairman.
Rather, he was granted an option to purchase 150,000 shares of Stock at $4.125
per share, which was the market price of the Stock at the time of his election
as Chairman. The option expires on March 10, 2007. During the time Mr. Cohen
has served as Vice Chairman (since September 25, 1997) he has received the
normal Board retainer and Board and Committee meeting fees, but no special cash
compensation as Vice Chairman. Rather, he was granted an option to purchase
75,000 shares of Stock at $7.125 per share, which was the market price of the
Stock at the time of his election as Vice Chairman. The option expires on
September 25, 2007.
Non-employee directors may elect to forego their cash compensation in exchange
for Stock, phantom Stock units having the same value as Stock, or stock options.
The exercise price of the options is equal to 25% of the average fair market
value of the Stock during the quarter in which the cash compensation would have
been received. The number of options granted is determined by dividing the
foregone compensation by the option "spread" at grant, which is the difference
between (i) the average fair market value of the Stock during the quarter, and
(ii) the exercise price of the option. This "spread" is less than the "grant
date value" of the option under the Black-Scholes option pricing model. The
options are immediately exercisable. They expire 3 years after a director
leaves the Board, and otherwise have no fixed expiration date.
The Company also has a retirement plan for non-employee directors. The plan
provides that after termination of service of an outside director for any
reason, such director will receive the annual retainer fee in effect at that
time for the lesser of 15 years or life (or the actuarial equivalent in a lump
sum or other format). Outside directors become 50% vested after 5 years of
service, with an additional 10% becoming vested each year thereafter, until full
vesting is achieved after 10 years of service. In the event of a change in
control, however, directors immediately become fully vested.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company loaned Mr. Roth $230,000 in connection with his relocation in 1992
from California to Virginia at the Company's request. The loan is secured by a
second deed of trust on Mr. Roth's Virginia residence, and bears interest at the
rate of 6% per year. Mr. Roth is obligated to make annual interest payments on
the loan. The loan, which was outstanding throughout fiscal 1997, is payable in
full upon the earlier of the sale of his Virginia residence or the first
anniversary of his departure from the Company.
17
<PAGE>
Mercantile-Safe Deposit and Trust Company ("Mercantile"), of which Mr. Baldwin
is Chairman of the Board and Chief Executive Officer, has a revolving credit and
term loan agreement with the Company. The Company owed Mercantile $24.1 million
under this agreement as of June 30, 1997. In addition, in June 1996 the Company
completed a $7.5 million sale-leaseback of its furniture and equipment with
Mercantile, which is accounted for as a financing. The lease has a term of
5 years and requires minimum annual lease payments of $1,554,000 in each of the
five years. The Company has an option to purchase the property at a bargain
price at the end of the lease. The Company owed Mercantile $2.7 million under
this agreement as of June 30, 1997.
In January 1997, the Company arranged for up to $22 million in financing,
consisting of a $4 million 5% convertible debenture ("Debenture") with the
Halifax Fund, L.P. ("Halifax") and an $18 million equity line ("Equity Line")
with Cripple Creek Securities, LLC ("Cripple Creek") whereby Cripple Creek may
purchase up to $18 million in the Company's Common Stock over a 3 1/2 year
period beginning July 1, 1997. The investment manager for Halifax and the sole
member of Cripple Creek is The Palladin Group, L.P. ("Palladin"), of which
Mr. Cohen was a special limited partner until June 30, 1997. In addition,
Mr. Cohen is the general partner of Ramius Capital Group, L.P., which until
June 30, 1997 was an affiliate of Palladin. The Debenture is convertible into
the Company's Common Stock at the lesser of (i) $11 per share, or (ii) 94% of
the low trade during the 3 trading days immediately preceding the date of
conversion. The purchase price under the Equity Line is 94% of the low trade
price during the 3 trading days immediately preceding the purchase. If the
Company issues less than $5 million of Stock under the Equity Line, it must pay
up to $300,000 as liquidated damages. In connection with the convertible
debenture, Halifax received a 7-year warrant to purchase 320,000 shares of Stock
at $8.47 per share, and in connection with the Equity Line, Cripple Creek
received a 7-year warrant to purchase 125,000 shares of Stock at $8.47 per
share. The warrants are not exercisable for 18 months, but if the Company sells
substantially all of its assets or enters into a merger or acquisition or other
similar transaction, the warrants become immediately exercisable and are
repriced at the lesser of (i) $8.47 per share, or (ii) 80% of the transaction
value; and in such event, the Debenture may be redeemed at 115% of the amount
outstanding. If the Company elects to issue more than $5 million under the
Equity Line, Cripple Creek will receive an additional 7-year warrant to purchase
75,000 shares at 140% of the Stock price at the time the warrant is issued. As
of September 17, 1997, $2 million of the Debenture had been converted into
405,817 shares of Stock, leaving a remaining principal balance of $2 million.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There is no "interlock" or "insider participation" (as those terms are defined
by the SEC) in the Compensation Committee of the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of SEC Forms 3, 4 and 5 and amendments thereto furnished to
the Company with respect to fiscal 1997, James P. McCoy was late in reporting
one stock option exercise.
18
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table sets forth the shares and percentages of Stock beneficially
owned by the Company's principal shareholders, directors, nominees, highest paid
executive officers, and by all directors and executive officers as a group, as
of July 31, 1997, unless another date is indicated. Unless otherwise indicated,
each person shown as the beneficial owner of shares possesses sole voting and
dispositive power with respect to such shares.
<TABLE>
<CAPTION>
Number of Shares % of Class
---------------- ----------
<S> <C> <C>
Edward C. Meyer 1,728,702 (1) 18.1%
Frank J.A. Cilluffo 1,709,862 (2) 17.9%
Cilluffo Associates, L.P. 1,708,000 (3) 17.9%
Warburg, Pincus Counsellors, Inc. 1,159,000 (4) 12.1%
James Roth 245,149 (5) 2.6%
Joseph R. Wright, Jr. 166,503 (6) 1.7%
Gary L. Denman 38,331 (7) 0.4%
James P. McCoy 38,005 (8) 0.4%
Peter A. Cohen 27,000 (9) 0.3%
Thomas E. McCabe 25,340 (10) 0.3%
Leslie B. Disharoon 15,000 0.2%
Charles H.P. Duell 9,295 (11) 0.1%
Herbert Rabin 7,916 (12) 0.1%
H. Furlong Baldwin 6,000 0.1%
George R. Packard 3,433 (13) 0.0%
E. Kirby Warren 1,500 0.0%
Ronald B. Alexander 862 (14) 0.0%
All Directors & Executive Officers (15 persons) 2,314,898 24.2%
</TABLE>
(1) Includes 1,708,000 shares owned by Cilluffo Associates, L.P., of which
General Meyer is a managing general partner. General Meyer shares voting
and dispositive power as to these shares with Cilluffo Associates and its
other managing general partner. Also includes 20,702 shares which may be
acquired by General Meyer in his own right upon exercise of options
exercisable within 60 days.
(2) Includes 1,708,000 shares owned by Cilluffo Associates, L.P., of which Mr.
Cilluffo is a managing general partner. Mr. Cilluffo shares voting and
dispositive power as to these shares with Cilluffo Associates and its other
managing general partner. Also includes 1,862 shares owned by Mr. Cilluffo
individually.
(3) Shares beneficially owned by Cilluffo Associates, L.P. and its managing
general partners, Frank J.A. Cilluffo and General Meyer. See note (1)
above.
(4) Based on a Schedule 13G amendment filed in January 1997, reporting
ownership as of December 31, 1996. Includes 824,500 shares with sole voting
power, 185,000 shares with shared voting power, and 1,024,500 shares with
sole dispositive power. Warburg, Pincus Counsellors, Inc. serves as an
investment advisor to many accounts. The
19
<PAGE>
securities indicated are owned by such accounts, none of which,
individually, owns more than 5% of the Stock.
(5) Includes 168,939 shares subject to options exercisable within 60 days,
70,634 shares with shared voting and dispositive power, 5,353 shares in
the Company's Employee Stock Purchase Plan, and 223 shares in the
Company's Deferred Income Plan.
(6) Includes 155,503 shares subject to options exercisable within 60 days, and
1,000 shares owned by Mr. Wright's wife.
(7) Includes 35,843 shares subject to options exercisable within 60 days,
2,477 shares in the Company's Employee Stock Purchase Plan, and 11 shares
in the Company's Deferred Income Plan.
(8) Includes 28,750 shares subject to options exercisable within 60 days, and
264 shares in the Company's Deferred Income Plan.
(9) Includes 9,500 shares held by family members not in Mr. Cohen's household,
for which shares Mr. Cohen has investment discretion.
(10) Includes 17,248 shares subject to options exercisable within 60 days,
7,870 shares with shared voting and dispositive power, and 223 shares in
the Company's Deferred Income Plan.
(11) Includes 3,000 shares owned by a general partnership. Mr. Duell disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(12) Represents shares subject to options exercisable within 60 days.
(13) Includes 3,083 shares subject to options exercisable within 60 days.
(14) Includes 488 shares subject to options exercisable within 60 days, and 279
shares in the Company's Employee Stock Purchase Plan.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
To be considered for inclusion in the proxy materials relating to the 1998
Annual Meeting of Shareholders, shareholder proposals must be received by the
Secretary, GRC International, Inc., 1900 Gallows Road, Vienna, Virginia 22182,
on or before June 9, 1998.
By Order of the Board of Directors
THOMAS E. McCABE
Senior Vice President, General Counsel & Secretary
Dated: October 7, 1997
20
<PAGE>
PROXY GRC INTERNATIONAL, INC. PROXY
The undersigned hereby authorizes H. FURLONG BALDWIN, LESLIE B. DISHAROON, E.
KIRBY WARREN and JOSEPH R. WRIGHT, and each of them, with several powers of
substitution, to vote and otherwise represent all shares of Common Stock of GRC
INTERNATIONAL, INC. ("Company") owned or otherwise held by the undersigned at
the Annual Meeting of Shareholders of the Company on November 6, 1997, and at
any and all adjournments thereof, as follows:
The Board of Directors recommends a vote "FOR" Items 1-2.
1. ELECTION OF DIRECTORS
---------------------
<TABLE>
<S> <C>
___FOR all nominees NOMINEES: PETER A. COHEN, CHARLES H.P. DUELL, GEORGE R.
PACKARD and HERBERT RABIN. To withhold vote from
individual nominee(s), check here [__] and write
name(s) of nominee(s) as to whom vote is withheld.
________________________________________________________
________________________________________________________
</TABLE>
___WITHHOLD AUTHORITY to vote for all nominees
2. RATIFICATION OF DELOITTE & TOUCHE AS INDEPENDENT PUBLIC ACCOUNTANTS
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___FOR ___AGAINST ___ABSTAIN
The shares represented by this proxy will be voted as directed or, if no
direction is made, will be voted "FOR" the items set forth above.
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
(continued and to be signed on reverse side)
<PAGE>
(continued from other side)
THE UNDERSIGNED CONFERS UPON THE PROXIES HEREBY APPOINTED AUTHORITY TO ACT UPON
ALL MATTERS INCIDENT TO THE CONDUCT OF THE MEETING AND IN THEIR DISCRETION UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. MANAGEMENT KNOWS OF
NO OTHER MATTERS TO BE PRESENTED AT THE MEETING.
All other proxies previously given by the undersigned to vote shares of Common
Stock of the Company are hereby expressly revoked.
Please sign exactly as your name appears hereon. If you are signing for the
shareholder, please sign the shareholder's name and your own name, and state the
capacity in which you are signing.
---------------------------------------------
Signature
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Additional Signature (if held jointly)
Date: _________________________________, 1997
