SCHEDULE 14A
(Rule 14A-101)
Information Required in Proxy Statement
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:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss.
240.14a-12
[ ] Confidential, For Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
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)(1) 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>
[GRAPHIC OMITTED]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on
________, November __, 1999
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 ________, November __, 1999, at 1:30 p.m. local time for the following
purposes:
1. To elect 2 directors for a 3-year term ending in 2002, 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, 2000.
3. To consider and act upon a shareholder proposal to terminate the
Shareholder Rights Plan.
4. To consider and act upon any other matters which may properly come before
the meeting, or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on September 17, 1999, as
the record date for the determination of shareholders entitled to notice of, and
to vote at, the Annual Meeting, or any adjournment or postponement thereof.
By Order of the Board of Directors
THOMAS E. McCABE
Senior Vice President, Director of Corporate Development,
General Counsel & Secretary
October __, 1999
1900 Gallows Road
Vienna, Virginia 22182
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ELECTION OF DIRECTORS 3
RATIFICATION OF ACCOUNTANTS 8
OTHER INFORMATION 9
Operation of Board and Committees 9
Executive Officers 10
Summary Compensation Table 11
Option Grants in Last Fiscal Year 12
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values 13
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements 14
Compensation Committee Report on Executive Compensation 15
Performance Graph 18
Compensation of Directors 19
Certain Relationships and Related Transactions 20
Compensation Committee Interlocks and Insider Participation 21
Section 16(a) Beneficial Ownership Reporting Compliance 21
Security Ownership of Principal Shareholders and Management 22
SHAREHOLDER PROPOSAL TO TERMINATE THE SHAREHOLDER RIGHTS PLAN 24
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS 27
APPENDIX A 28
</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 ________, November __, 1999, at 1:30 p.m., and any adjournment or
postponement thereof. GRCI's Annual Report to Shareholders for the year ended
June 30, 1999, this proxy statement and the accompanying proxy are first being
sent or given to shareholders on or about October __, 1999.
- --------------------------------------------------------------------------------
PROXY CONTEST WARNING
You may receive proxy soliciting materials from Cilluffo Associates, L.P. on
behalf of its own nominees to the Company's Board of Directors. These nominees
have NOT been endorsed by your Board.
Your Board of Directors urges you to vote FOR the Company's nominees, Gary L.
Denman (President and Chief Executive Officer) and Joseph R. Wright, Jr.
(Chairman of the Board of Directors).
- --------------------------------------------------------------------------------
Only the holders of record of the Company's $0.10 par value Common Stock
("Stock") at the close of business on September 17, 1999, will be entitled to
vote at the meeting. On that date the Company had 12,323,626 shares of Stock
outstanding. Holders of the Stock are entitled to one vote per share on all
business of the meeting other than the election of directors. In the case of
election of directors, each shareholder has the right to vote his shares
cumulatively. Cumulative voting permits a shareholder to cast a number of votes
equal to the number of directors to be elected multiplied by the number of
shares registered in that shareholder's name on the record date, and to cast all
such votes for one nominee, or to distribute those votes among the nominees in
accordance with that shareholder's choice. The presence, in person or by proxy,
of a majority of the outstanding shares of Stock will constitute a quorum for
the meeting.
The two nominees for director receiving the most votes will be elected as
directors, 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 (including a contested election of
directors) 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-
<PAGE>
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.
Unless revoked prior to exercise, all WHITE 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 WHITE proxy,
the proxy will be voted accordingly. If a choice is not indicated, the WHITE
proxy will be voted in the manner recommended by the Board and, in particular,
FOR the election of the Company's nominees for directors named in this proxy
statement. If a proxy is executed and returned (whether such proxy was solicited
by the Company or by Cilluffo Associates), 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
WHITE 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.
Management does not intend to present to the meeting any matter not referred to
above, and, with the exception of the shareholder proposal described later in
this document, 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 and
in person. Proxies may also be solicited by telephone by regular employees of
the Company, who will receive no additional compensation therefor.
The Company has engaged the proxy solicitation firm of Georgeson & Company to
assist in the solicitation of proxies at an estimated cost of $25,000 plus
expenses. Georgeson & Company will employ approximately 35 people to solicit the
Company's shareholders. 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.
Expenses related to the solicitation of shareholders, in excess of those
normally spent for an annual meeting, are expected to aggregate approximately
$500,000, of which approximately $100,000 has been spent to date.
Appendix A sets forth certain information relating to the Company's directors,
executive officers and employees who may solicit proxies on the Company's
behalf.
YOUR VOTE IS IMPORTANT! Please sign and date the enclosed WHITE 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. In the event you attend the
meeting, the WHITE proxy will not be used if you revoke it or vote in person on
a given item. If you have already given a proxy to Cilluffo Associates on behalf
of its nominees, you may revoke that proxy by signing, dating and returning the
enclosed WHITE proxy.
2
<PAGE>
ELECTION OF DIRECTORS
The Board presently consists of 3 classes, with 3 directors in each class. The
class of directors whose terms expire at the 1999 Annual Meeting of Shareholders
is the first class. The current members of the first class are H. Furlong
Baldwin, Gary L. Denman and Joseph R. Wright, Jr. H. Furlong Baldwin, however,
has decided not to run for re-election, and therefore the Board has reduced the
size of the first class from 3 to 2 directors and has reduced the size of the
Board from 9 to 8 directors, all effective at the conclusion of Mr. Baldwin's
current term at the 1999 Annual Meeting of Shareholders. The Company's nominees
for election to the first class are Gary L. Denman and Joseph R. Wright, Jr. The
Company's nominees and the 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 second and third classes will be elected for 3-year terms at the
2000 and 2001 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. Cumulative voting permits a shareholder to cast a number of votes
equal to the number of directors to be elected multiplied by the number of
shares registered in that shareholder's 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 WHITE proxy
card or by personal vote at the Annual Meeting. Unless otherwise directed on the
WHITE 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 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. If, however, 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 that follows sets forth (i) the name, age 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. Following the table, additional information is provided regarding
all Company nominees and directors.
3
<PAGE>
<TABLE>
<CAPTION>
COMPANY NOMINEES, CONTINUING TERM FIRST
DIRECTORS AND PRINCIPAL OCCUPATIONS AGE EXPIRES ELECTED
----------------------------------- --- ------- -------
COMPANY NOMINEES:
<S> .............................................................................. <C> <C> <C>
GARY L. DENMAN
President & CEO, GRC International, Inc. ...................................... 60 2002 1998
JOSEPH R. WRIGHT, Jr
Chairman, GRC International, Inc. .............................................
Chairman & CEO, AmTec, Inc. ................................................... 61 2002 1994
DIRECTORS WITH CONTINUING TERMS:
PETER A. COHEN
Principal, Ramius Capital Group ............................................... 53 2000 1997
CHARLES H.P. DUELL
President, Middleton Place Foundation
and Middleton Inn Company .................................................... 61 2000 1993
GERALD R. McNICHOLS
Sr. Vice President & Gen. Manager, MCR Div'n, GRCI ............................ 56 2000 1999
President & CEO, MCR Federal, Inc. ...........................................
FRANK J.A. CILLUFFO
Managing General Partner, Cilluffo Associates, L.P. ........................... 56 2001 1996
LESLIE B. DISHAROON
Corporate Director ............................................................ 67 2001 1992
LEON E. SALOMON
Corporate Director ............................................................ 62 2001 1999
</TABLE>
4
<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS
H. FURLONG BALDWIN, 67, 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; Constellation Energy Group, Inc.; CSX Corporation;
Offitbank; Wills Group; and The St. Paul Companies. He is a Trustee and Past
Chairman of Johns Hopkins Hospital and Johns Hopkins Health System, and a
Trustee of Johns Hopkins University. He is a Governor of the National
Association of Securities Dealers, Inc.
FRANK J.A. CILLUFFO, 56, is a managing general partner of Cilluffo Associates,
L.P., a firm that principally invests in securities for its own account.
PETER A. COHEN, 53, 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 with Shearson
Lehman Brothers and its predecessors, culminating 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, Telecom Italia Sp.A. and Andover Togs Inc. He is a Trustee of Mt.
Sinai Hospital and a board member of The Ohio State University Foundation. 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, The New York City Opera and
the Museum of Jewish Heritage.
GARY L. DENMAN, 60, has been President and Chief Executive Officer since July 1,
1998. He was President and Chief Operating Officer from March 1998 to June 1998.
From 1995 to 1998, he was Executive Vice President and Chief Operating Officer.
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 ("DARPA"), the premier Federal research and development
agency. He was Deputy Director of DARPA from 1990 to 1992. Prior to joining
DARPA 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. He is also a director of the Southern Research
Institute.
LESLIE B. DISHAROON, 67, 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 Travelers Property Casualty Co. He is Chairman of MSD&T Funds,
Inc. and Chairman of the Board of the Johns Hopkins Health System Endowment.
CHARLES H.P. DUELL, 61, 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
5
<PAGE>
Reserves (and associated funds). He is a Trustee Emeritus of the National Trust
for Historic Preservation, and is Chairman of the Board of Architectural Review
for the City of Charleston.
GERALD R. McNICHOLS, 56, was elected to GRC's Board of Directors and named
Senior Vice President & General Manager of GRC's new MCR Division on September
23, 1999. He was President and CEO of Management Consulting & Research, Inc. and
its subsidiaries ("MCR") for 22 years until GRC's acquisition of MCR in
September 1999. He continues to serve as President and CEO of MCR Federal, a
subsidiary of GRC. He has more than 30 years experience leading and managing
complex management consulting tasks. As President & CEO of MCR, Dr. McNichols
led his company in performing studies for government and industry clients. Prior
to starting MCR in 1977, Dr. McNichols was Vice President of J. Watson Noah
Associates, Inc. (cost analysis consultants) and Vice President of GENTECH, Inc.
(information systems consultants). During nine years of previous government
service he was Special Assistant to the Deputy Assistant Secretary of Defense
(Resource Analysis). He was commissioned by the Air Force in 1965, and spent
four years on the Air Staff before joining the Office of the Secretary of
Defense. He has been an adjunct professor at George Mason University and The
George Washington University. He is a Certified Cost Estimator/Analyst (CCEA).
He is co-author of the textbook Operations Research in Decision Making (1975);
author of "Software Development Cost Models," Chapter 12 of the book Software
Reliability (1986); author of "The Economics of Computing Methods of Cost
Assessment," Part 4 of the book Software System Design Methods (1986); author of
"Uncertainties of LCC Predictions," a chapter in Electronic Systems
Effectiveness and Life Cycle Costing (1983); and a frequent presenter at
professional conferences on Y2K, Risk Analysis, and Cost Analysis.
LEON E. SALOMON, 63, recently retired from Rubbermaid as Senior Vice President
for Procurement. He joined Rubbermaid in 1996 serving as the Corporate Vice
President, Purchasing and Logistics for approximately two years. He served with
the United States Army for 37 years, achieving the rank of General. From
February 1994 until his retirement in May 1996, he commanded the U.S. Army
Materiel Command where he oversaw daily operations for an organization of more
the 70,000 people and 255 worldwide facilities. He had numerous command and
staff positions leading to his final assignment. From 1992 to 1994, he was the
Deputy Chief of Staff for Logistics, Department of the Army. Prior to that, he
served in a wide variety of logistical, managerial, and policy and programming
positions with increasing scope and levels of responsibility throughout the U.S.
Army. He was promoted to brigadier general in 1984 and served as a general
officer for 12 years. He has been a member of the Board of Directors of Primex
Technologies Inc. since 1996. He is a member of the Board of Directors of Armed
Forces Benefit Association Financial Services Company. He is a Senior Fellow for
the Association of the United States Army and is a member of the Army Science
Board.
JOSEPH R. WRIGHT, Jr., 61, 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 that provides voice, data and Internet telephony services
worldwide and has telecom interests in China. He is co-Chairman of Baker &
Taylor Holdings Inc., an international book and video distribution Company. From
1989 to 1994, he served as Executive Vice President, Vice Chairman and director
of W.R. Grace & Co., an international specialty chemicals and health care
company. From 1988 to 1989, he was a 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, Deputy Secretary of Commerce from 1981
to 1982, President of Citicorp Retail Services and Retail Consumer Services from
1976 to 1981, and a partner/Vice President at Booz, Allen and Hamilton Inc. from
1966 to 1971. He is also a director of AmTec, Baker & Taylor, PanAmSat, RealMed,
Fusion Telecommunications International, Inc. and Barington Capital Corporation.
6
<PAGE>
CILLUFFO ASSOCIATES' SOLICITATION
Cilluffo Associates, L.P. ("Cilluffo Associates") has nominated individuals for
election to the Board of Directors in opposition of the Company's nominees.
The Board urges you to vote on the enclosed WHITE proxy card "FOR" the Company
nominees. Do not vote on any proxy card furnished by Cilluffo Associates.
---
Cilluffo Associates has had at least one representative on the Board
continuously since 1992, and two representatives from 1996 to 1998. Through
Frank Cilluffo's current membership on the Board, which will continue until the
2001 annual meeting of shareholders, Cilluffo Associates holds a percentage of
the Board seats that closely corresponds with its percentage ownership of the
Company's stock. Despite its longtime Board representation, Cilluffo Associates
is seeking a voice that is disproportionately larger than both its percentage
share ownership and the Board representation of Dr. McNichols, the Company's
largest shareholder.
The Board believes the shareholders' interests are far better served by
re-electing Chairman Joseph Wright and President and CEO Gary Denman to the
Board than by an expansion of Cilluffo Associates' existing representation.
Under the leadership of Messrs. Wright and Denman, the Company has delivered
vastly improved results since implementing an aggressive growth and
profitability strategy. Since 1998, annual revenues have increased 26% and
annual operating income has grown 71%. Operating margins have increased very
substantially, from 4.1% for fiscal 1998 to 5.6% for fiscal 1999. Shareholder
equity increased 46%, from $27.4 million at the end of fiscal 1998 to $40.1
million at the end of fiscal 1999. Messrs. Wright and Denman are executing a
strategy of growth in key federal markets through aggressive business
development founded on the Company's excellent reputation of customer
satisfaction. Failure to elect these two top leaders could seriously impair the
continued successful execution of their strategy to aggressively build
shareholder value.
Because shareholders may cumulate votes in the election of directors, a
shareholder with shares representing more than one-third of the total votes cast
at the Annual Meeting would have the power to elect one of the two directors to
be elected. Cilluffo Associates has reported that it beneficially owned, as of
September 1, 1999, 1,708,000 shares (representing 13.9% of the outstanding
shares as of the record date) and that it will vote those shares in favor of its
nominees for election to the Board. As of September 3, 1999, the current
directors, excluding Mr. Cilluffo, owned a total of 2,150,430 shares
(representing 17.4% of the outstanding shares) (excluding shares issuable upon
exercise of options) and have advised the Company that they will vote those
shares in favor of the Company's nominees for election to the Board. If either
of the Company's nominees is not elected to the Board at the Annual Meeting, the
Board may, and it reserves the right to, appoint that nominee to the Board after
the meeting if it determines such action to be in the best interests of the
Company and its shareholders.
The Board urges you to vote "FOR" the Company's nominees - Gary L. Denman and
Joseph R. Wright, Jr. on the enclosed white proxy card.
VOTE REQUIRED
- -------------
The nominees elected as directors will be the two nominees receiving the most
votes of the shares present in person or represented by proxy at the Annual
Meeting and entitled to vote on the election of directors.
7
<PAGE>
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, 2000. 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 the
affirmative vote of a majority of the shares present in person 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.
8
<PAGE>
OTHER INFORMATION
OPERATION OF BOARD AND COMMITTEES
The Board has standing Audit, Compensation, Administrative/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 independent public
accountants. During fiscal 1999, the Committee held 3 meetings. The members of
the Committee are Mr. Baldwin (Chairman), Mr. Disharoon and Mr. Cilluffo.
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 1999, the
Committee held 5 meetings. The members of the Committee are Mr. Disharoon
(Chairman), Mr. Cohen and Mr. Duell.
The Administrative/Ethics Committee monitors the Company's retirement plan and
ethical compliance within the Company. During fiscal 1999, the Committee held 3
meetings. The members of the Committee are Mr. Duell (Chairman), Mr. Cilluffo
and Gen. Salomon.
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 1999, the
Committee held 4 meetings. Currently, all members of the Board are on the
Executive & Nominating Committee.
The Company's Bylaws provide that the Chairman of the Board is an ex-officio
member of all the standing committees upon which he does not serve as a regular
standing member, and that the President is an ex-officio member of the Executive
& Nominating Committee.
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, Director of Corporate Development, 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 6 meetings during fiscal 1999. No Board member attended fewer
than 75% of the meetings of the Board and Board Committees on which that
director served, except for General Salomon, who attended 1 of his 2 Board and
Committee meetings since his appointment to the Board in April 1999, and Mr.
Cilluffo, who attended only 9 of his 14 Board and Committee meetings.
9
<PAGE>
EXECUTIVE OFFICERS
In addition to Dr. Denman, the following persons are executive officers of the
Company as of August 31, 1999:
MICHAEL G. STOLARIK, 48, has been Executive Vice President, Chief Operating
Officer and Acting Director of Information Systems Division (ISD) since April
1999. He was Senior Vice President, Strategic Planning from 1998 to April 1999.
He was also Acting Director of the Company's Decision Technologies Division
(DTD) from July 1998 to January 1999, and Acting Director of the Company's SWL
Division from January 1999 to February 1999. He was President and Chief
Executive Officer for Space Applications Corporation from 1995 to 1997. From
1975 to 1995, he was at BDM International. He served as BDM's Corporate Vice
President from 1989 to 1995, with responsibility for the company's operating
group performing information technology and systems integration projects. He was
Vice President and General Manager of BDM's Communications and Data Systems
Division from 1987 to 1989, and Vice President of Information Systems from 1985
to 1987. He also served as BDM's Chief Information Officer in 1994 and 1995.
THOMAS E. McCABE, 44, is Senior Vice President, Director of Corporate
Development, General Counsel and Secretary. He joined the Company as Vice
President-Legal and Secretary in 1992, and was promoted to the additional
offices of General Counsel in 1993, Senior Vice President in 1995, and Director
of Corporate Development in 1998. 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 Charles Richey in the U.S. District Court for
D.C. from 1981 to 1982.
JAMES P. ALLEN, 50, has been Senior Vice President, Chief Financial Officer and
Treasurer since January 1999. He was Executive Vice President and CFO of CACI
International from 1996 to 1998. He was Vice President of Finance for I-Net,
Inc. in 1995. He was Executive Vice President of Finance and Administration for
RJO Enterprises, Inc. from 1992 to 1995. From 1979 to 1989, he held various
positions with Fairchild Industries culminating as Vice President and
Controller, and from 1989 to 1992, he was Vice President-Finance, CFO and
Treasurer for its spin-off, Fairchild Space and Defense Corp.
10
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
A N N U A L C O M P E N S A T I O N LONG TERM COMPENSATION
----------------------------------- ----------------------
Name and Other Annual AWARDS All Other
Principal Position Year Salary 1/ Bonus 1/ Compensation 1,2/ Securities Underlying Options 1,3 Compensation 4/
------------------ ---- -------- ------- ------------- ----------------------------- -------------
<S> .............................<C> <C> <C> <C> <C> <C>
Gary L. Denman ..................1999 $297,411 5/ $125,560 5/ $60,682 32,200 5/ $15,272
President and CEO ...............1998 $187,308 5/ $125,560 5/ $12,173 268,724 5/ $12,639
1997 $180,000 5/ - 0 - $ 5,569 29,196 5/ $12,850
Michael G. Stolarik .............1999 $172,856 6/ $ 95,000 6/ $36,529 80,000 $ 9,901
Executive VP and COO ............1998 $ 43,750 6/ $ 17,000 6/ $ 6,125 10,000 N/A
.................................1997 N/A N/A N/A N/A N/A
Thomas E. McCabe ................1999 $195,190 $ 50,000 N/A 20,000 $10,495
Senior VP, Dir. of Corp. Dev't, .1998 $181,569 $ 57,300 N/A 25,000 $11,033
General Counsel & Secretary .....1997 $148,698 7/ - 0 - $ 5,876 27,173 7/ $11.015
James L. Selsor .................1999 $158,904 8/ $ 40,000 $ 1,459 20,000 $12,736
Senior VP, Director ISD .........1998 $140,616 8/ $101,960 $ 1,758 10,000 $11,182
.................................1997 $130,693 8/ $ 61,418 8/ $ 491 6,789 8/ $11,553
James P. Allen ..................1999 $ 70,857 9/ - 0 9/ $24,755 81,821 9/ $ 713
Senior VP, Chief Financial ......1998 N/A N/A N/A N/A N/A
Officer & Treasurer .............1997 N/A N/A N/A N/A N/A
</TABLE>
1/ Under the Cash Compensation Replacement Plan ("CCRP"), officers may
exchange up to 25% of salary and 100% of bonus in exchange for stock or
options at a discount. The CCRP is designed to encourage officers to
forego cash compensation in exchange for equity (stock or options). In
the table above, salary and bonus replaced with options are not included
in the "Salary" and "Bonus" columns, but salary and bonus replaced with
shares of stock are included in those columns. CCRP stock and option
discounts are included in the "Other Annual Compensation" column. CCRP
options are also included in the "Securities Underlying Options" column.
The discount formulas are described in Note 2 to the Table on the next
page entitled "Option Grants in Last Fiscal Year".
2/ Represents discounts on purchase of stock or options under the CCRP.
3/ Options in this column were awarded under conventional option plans,
unless notes indicate that the executive has given up salary or bonus in
exchange for options (at a discount) under the CCRP.
4/ Company contributions to defined contribution retirement plan.
5/ Under the CCRP, Dr. Denman gave up $32,589 of salary and $125,560 of
bonus for 32,200 options in 1999, $20,812 of salary and $57,300 of bonus
for 18,724 options in 1998, and $20,000 of salary for 4,196 options in
1997.
6/ Under the CCRP, Mr. Stolarik gave up $34,117 of salary and $95,000 of
bonus for 15,136 shares of stock in 1999, and $7,500 of salary and
$17,000 of bonus for 4,182 shares of stock in 1998. He joined the Company
on March 16, 1998.
7/ Under the CCRP, Mr. McCabe gave up $20,053 of salary for 2,133 options
and $21,876 of salary for 5,140 shares of stock in 1997.
8/ Under the CCRP, Mr. Selsor gave up $5,834 of salary for 1,116 shares of
stock in 1999, $7,031 of salary for 1,326 shares of stock in 1998, $1,758
of salary for 423 shares of stock in 1997, and $3,119 of salary for 334
options in 1997.
9/ Under the CCRP, Mr. Allen gave up $17,813 of salary and $40,000 of bonus
for 11,821 options in 1999. Mr. Allen joined the Company on January 13,
1999.
11
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Number of % of Total
Securities Options Exercise Market
Underlying Granted to or Base Price at Grant
Options Employees Price Date of Expiration Date
Name Granted(#) in Fiscal Year ($/Sh) Grant Date Value 3/
---- ---------- -------------- ------ ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Gary L. Denman 1,831 2/ 0.3% $1.77 2/ $4.44 2/ $ 5,878
2,266 2/ 0.4% $1.52 2/ $6.78 2/ $ 12,848
2,098 2/ 0.4% $1.64 2/ $6.69 2/ $ 11,539
1,816 2/ 0.3% $1.90 2/ $8.38 2/ $ 12,712
24,189 2/ 4.4% $2.16 2/ $8.84 2/ $175,854
Michael G. Stolarik 20,000 1/ 3.6% $4.84 $4.84 9/17/08 $ 43,200
60,000 1/ 10.8% $6.69 $6.69 4/5/09 $178,800
Thomas E. McCabe 20,000 1/ 3.6% $4.84 $4.84 9/17/08 $ 43,200
James L. Selsor 20,000 1/ 3.6% $4.84 $4.84 9/17/08 $ 43,200
James P. Allen 70,000 1/ 12.6% $7.16 $7.16 1/13/09 $223,300
1,507 2/ 0.3% $1.64 2/ $6.69 2/ $ 8,289
2,608 2/ 0.4% $1.90 2/ $8.38 2/ $ 18,256
7,706 2/ 1.4% $2.16 2/ $8.84 2/ $ 56,02
</TABLE>
- ----------------------------------------
1/ Options granted under conventional stock option plans. The options are
50% exercisable 2 years after grant, 25% exercisable 3 years after grant,
and 25% exercisable 4 years after grant, and expire 10 years after grant.
2/ Options under the Cash Compensation Replacement Plan ("CCRP") are granted
at the end of each calendar quarter to officers who have elected to
forego cash compensation in exchange for options under the plan. Officers
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 officer 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 3). 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. (As explained in the
Summary Compensation Table on the preceding page and in the Compensation
Committee Report on Executive Compensation below, the CCRP also permits
officers to purchase Stock at a similar discount. The number of shares
awarded is determined by dividing the foregone compensation by 80% of the
average fair market value of the Stock during the quarter. This formula
gives the officer a 20% discount from the average fair market value
during the quarter.)
3/ Grant date values were calculated using the Black-Scholes option pricing
model, assuming (i) 5-year term for options; (ii) 6% annual interest
rate; (iii) 40% 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.
12
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at Fiscal Year-End(#) at Fiscal Year-End 1/
on Value -------------------- ------------------
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Denman - 0 - - 0 - 195,617 173,422 $237,242 $251,735
Michael G. Stolarik - 0 - - 0 - - 0 - 90,000 - 0 - $209,960
Thomas E. McCabe - 0 - - 0 - 33,488 62,910 $ 2,120 $149,492
James L. Selsor - 0 - - 0 - 53,238 - 0 - $106,129 - 0 -
James P. Allen - 0 - - 0 - 3,292 74,115 $ 22,044 $ 99,591
</TABLE>
- ----------------------------------
1/ Option values calculated by subtracting (i) the exercise price of the
named executives' options from (ii) $8.50, which was the closing price of
the Stock on June 30, 1999, then multiplying such amount by the aggregate
number of shares underlying the named executive's options.
13
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has an employment agreement with Dr. Denman which provides for an
annual salary of $330,000, and an annual bonus equal to 2% of the Company's net
income, without regard to extraordinary items. The agreement is for a three-year
term expiring June 30, 2001, but is terminable immediately by the Company for
cause. During the 30 months following a change in control, if the Company
terminated his employment without cause or took certain other adverse actions,
he would receive a lump-sum severance payment equal to 2 times his annual salary
and 2 times his target bonus (2% of the Company's budgeted net income), and his
employee benefits would 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. The agreement provides an annual
financial and estate planning allowance of up to $10,000. It also provides Dr.
Denman and his wife with lifetime dental and vision insurance.
The Company has employment agreements with Messrs. Stolarik, McCabe and Allen
which provide for annual salaries, effective October 1, 1999, of $228,804,
$206,964 and $195,708, respectively. 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 terminated employment without cause or took certain other adverse
actions, the executive would receive a lump-sum severance payment equal to 2
times his annual salary, and his employee benefits would 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. In
addition, the Company must reimburse him for any legal fees and expenses he
incurs in successfully enforcing these rights.
The Company had an employment agreement with Mr. Selsor which provided for an
annual salary of $165,000. The agreement was terminable 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 terminated his
employment without cause or took certain other adverse actions, he would have
received a lump-sum severance payment equal to 1.5 times his annual salary, and
his employee benefits would have continued until the earlier of (A) such time as
he obtains new benefits coverage by reason of new employment, or (B) the 1.5
year anniversary of his termination of employment. In addition, the Company
would have had to reimburse him for any legal fees and expenses he incurred in
successfully enforcing these rights. Mr. Selsor and the Company entered into a
Separation and Release Agreement dated April 20, 1999, with respect to Mr.
Selsor's resignation as an officer, whereby his salary and benefits were
continued through September 22, 1999 and his options were accelerated.
The Company also offered "stay-put" bonuses to Messrs. Roth, Denman, McCabe and
Selsor during fiscal 1998. These bonuses would have been payable to the named
executives in the event of a change in control. The maximum "stay-put" bonus
offered to each of the named executives was as follows: Mr. Roth, $313,254; Dr.
Denman, $165,770; Mr. McCabe, $121,307; Mr. Selsor, $63,076. The "stay-put"
arrangements expired September 30, 1998, and no "stay-put" payments were made.
All of the arrangements described on this page were approved by at least one of
the managing general partners of Cilluffo Associates, L.P., Frank J.A. Cilluffo
and Edward C. Meyer, in their capacity as directors of the Company.
14
<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.
The Committee periodically reviews independent third party surveys to ensure
that the compensation of the Company's executives is at appropriate levels. The
companies contained in these surveys are not the same as either of the groups of
companies comprising the "Russell 2000 Index" or the "S&P Technology Index" in
the stock price performance graph shown below, because many of the companies in
the indices are in different industries or are significantly larger than GRC.
Thus, compensation comparisons between those companies and GRC would be
inappropriate. Based on its review of the surveys, the Committee believes that
GRC's executive compensation, overall, is roughly at the 75th percentile of the
market, without assigning any specific weighting to the various elements of
compensation. The Committee also believes that GRC's executive compensation is
at appropriate levels.
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 the CEO'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
15
<PAGE>
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.
Stock Options.
- -------------
GRCI has two types of employee stock option plans. The first type is the
conventional option plan, under which 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 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 also has a Cash Compensation Replacement Plan ("CCRP"), which is
designed to encourage officers to voluntarily forego cash compensation (up to
25% of salary and 100% of bonus) in exchange for equity (Stock or options) at a
20% discount. The discount formulas are described in Note 2 to the Table on page
12 entitled "Option Grants in Last Fiscal Year". The Committee believes that the
CCRP is an appropriate means to encourage equity ownership among officers and
more closely align their interests with those of shareholders, while reducing
the Company's cash outlays for executive compensation.
Compensation of the Chief Executive Officer.
- -------------------------------------------
Upon President Denman's promotion to CEO on July 1, 1998, the Committee raised
the CEO's salary to $330,000. This amount was determined by the Committee to be
a reasonable increase in the CEO's salary which had been at the $300,000 level
since July 1, 1994. The Committee believes the salary is roughly at the 75th
percentile of market levels based on the surveys mentioned above.
To encourage the CEO to do his utmost to increase the Company's profitability,
his bonus is strictly based on a formula tied to net income. Specifically, the
CEO 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.
Under this formula, the CEO received no bonus for fiscal 1996 and 1997.
For fiscal 1999, the Committee approved an adjustment to President Denman's
bonus, because the bonus had been negotiated on the assumption that all of the
Company's remaining tax loss carryforwards would flow through the Company's
income statement. Instead, upon further consultation and analysis with the
Company's auditors, Deloitte & Touche, it was agreed that the appropriate
accounting treatment was to credit $3.425 million of the tax benefit directly to
equity. This accounting treatment resulted in (a) a reduction of $3.425 million
to the Company's fiscal 1999 net income, and (b) a reduction of $68,500 to
President Denman's bonus. The Committee concluded that, in the interest of
fairness and equity, this deficit should be paid to President Denman as part of
his fiscal 1999 bonus, for a total fiscal 1999 bonus of $251,120.
The Committee also periodically grants conventional stock options to the CEO in
amounts determined by the Committee as appropriate to align his compensation
package with shareholder interests and believed by the Committee to be
consistent with competitive market practice.
16
<PAGE>
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.
Leslie B. Disharoon, Chairman, Compensation Committee
Peter A. Cohen
Charles H.P. Duell
17
<PAGE>
[GRAPH OMITTED]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL SHAREHOLDER RETURN 1/
PERFORMANCE CHART
INDEXED RETURNS
Base Years
Period Ending
------ ------
Company/Index 1994 1995 1996 1997 1998 1999
------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GRC International 100 131 320 46 85 71
S&P Technology Index 100 163 194 295 396 653
S&P 500 Index 100 126 159 214 279 342
Russell 2000 Index 100 118 144 165 190 190
ANNUAL RETURN PERCENTAGES
Years
Ending
------
Company/Index 1995 1996 1997 1998 1999
------------- ---- ---- ---- ---- ----
GRC International 31 144 (86) 86 (17)
S&P Technology Index 63 19 52 34 65
S&P 500 Index 26 26 35 30 23
Russell 2000 Index 18 22 14 15 0
</TABLE>
1/ Graph and tables show cumulative total return through June 30, 1999 of $100
investment made on June 30, 1994, with dividends reinvested. The Russell 2000
Index has been added to the Cumulative Total Shareholder Return chart because it
is the most commonly referenced indicator of small-cap stock performance. The
S&P Technology Index will be eliminated from the chart next year because it is
composed primarily of large-cap companies and electronic hardware manufacturers.
18
<PAGE>
COMPENSATION OF DIRECTORS
Basic Arrangements.
- ------------------
Non-employee directors are paid an annual retainer of $15,000 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. Directors also receive 3,000 stock options annually at the market price.
Alternative Arrangements Available.
- ----------------------------------
Non-employee directors may elect to forego their cash compensation in exchange
for 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.
Chairman's Compensation.
- -----------------------
For his service as Chairman, Mr. Wright receives a Chairman's fee of $25,000 per
quarter in lieu of Board or Committee meeting fees.
In addition, for fiscal 1999, in order to provide a further incentive to the
Chairman along lines that benefit shareholders, the Company agreed to pay Mr.
Wright a bonus, to be paid only to the extent the Company exceeded its budgeted
earnings before taxes (EBT). A 10% increase in EBT would have rendered a bonus
of $30,000, and a 20% increase in EBT would have rendered a bonus of $100,000.
Intervening percentage increases were to be pro-rated. Since the Company's
actual EBT exceeded the ceiling in the bonus plan, the full $100,000 was paid.
Under the terms of the arrangement, Mr. Wright received no cash, but rather
received the bonus in the form of options under the Directors Fee Replacement
Plan.
For fiscal 2000, the Company continued this arrangement with Mr. Wright, with
the numbers being based on the Company's revised fiscal 2000 budget which
includes earnings anticipated from the MCR acquisition.
Termination of Directors Retirement Plan.
- ----------------------------------------
The Company previously had a retirement plan for non-employee directors, but the
plan was terminated effective May 1, 1999. In connection with the termination of
the plan, directors received the actuarial value of their plan interests in
deferred stock units at the market price, payable in stock upon their departure
from the Board.
19
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company previously loaned its former President and CEO Jim Roth $230,000 in
connection with his relocation in 1992 from California to Virginia at the
Company's request. The loan was secured by a second deed of trust on Mr. Roth's
Virginia residence, and, until July 1, 1998, bore interest at the rate of 6% per
year. From 1993 through 1998, Mr. Roth made annual interest payments as required
under the loan. Effective July 1, 1998, one-half of the outstanding principal
amount of the loan was forgiven, and the loan ceased to bear interest. The
second half of the loan was forgiven effective June 30, 1999. To strengthen its
marketing to certain classified government customers, the Company entered into a
consulting agreement with Mr. Roth at a rate of $1,600 per day plus expenses,
with a guaranteed minimum of 10 days per month through November 5, 1998. Under
this agreement, Mr. Roth received $59,727 for his consulting services and
expenses. Effective November 6, 1998, the Company renewed the agreement at the
same rate but with the guaranteed minimum reduced to 7 days per month. The
second agreement has a three-year term and a cost ceiling of $403,200 but may be
terminated by either party on 30 days written notice. Under the second
agreement, Mr. Roth received $132,057 for his services and expenses during
fiscal 1999.
Mercantile-Safe Deposit and Trust Company ("Mercantile"), of which Mr. Baldwin
is Chairman of the Board and CEO, has a revolving credit and term loan agreement
with the Company. The highest level of borrowings under this agreement during
fiscal 1999 was $23.7 million. Borrowings as of June 30, 1999 were $12.6
million. In addition, in 1996, the Company financed a $7.5 million equipment
lease with Mercantile, and repaid the final $1.0 million of that amount during
fiscal 1999.
On September 2, 1999, GRC International, Inc. ("GRC") completed its acquisition
of Management Consulting & Research, Inc. ("MCR"), of which Dr. McNichols was
President, CEO and principal shareholder. The gross purchase price was
approximately $27 million, consisting of 2,000,000 shares of Stock of GRC issued
to Dr. McNichols, valued at approximately $16 million, and approximately $11
million in cash. The net cash payment was approximately $7 million, and the net
purchase price was approximately $23 million, as a result of approximately $4
million of MCR cash being used to pay a portion of the acquisition price. In
addition to the 2 million shares of Stock, Dr. McNichols also received
$5,892,795 in cash from GRC, from which sum $1,433,398 was paid to MCR in
repayment of a loan, and $217,168 was paid to MCR to release MCR's interest in a
split-dollar life insurance policy in which family members of McNichols are the
intended beneficiaries, and the balance of $4,242,229 was paid to McNichols. In
connection with the acquisition, Dr. McNichols indemnified GRC for breaches of
the acquisition agreement, subject to certain limitations, and GRC agreed to pay
Dr. McNichols $300,000 on the second and third anniversaries of the acquisition
in exchange for an agreement not to compete with GRC or MCR for three years. Dr.
McNichols currently serves as Senior Vice President and General Manager of GRC's
MCR Division and President & CEO of MCR Federal, Inc., a subsidiary of GRC, at
an annual salary of $147,680.
Effective May 24, 1999, the Company and General Salomon entered into a
consulting agreement, which expires on May 30, 2000, unless extended by mutual
agreement. The agreement contains a cost ceiling of $20,000 for the current
period of performance. Under the agreement, he provides consulting services, as
requested by GRCI, to assist in forming strategic alliances and partnerships in
support of GRCI's pursuit of business opportunities related to the GCSS-Army
program and in support of GRCI's strategic business goals. As a consultant, he
is compensated at the rate of $2,000 per day plus actual and reasonable
expenses. During fiscal 1999, he received $4,102 for his consulting services and
expenses.
20
<PAGE>
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 1999, all of such forms were filed on a
timely basis with respect to fiscal 1999.
21
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
<TABLE>
<CAPTION>
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 September 3, 1999, 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. The percentage of the
class owned is based on the 12,323,626 shares outstanding on the record date.
Number of Shares % of Class
---------------- ----------
<S> <C> <C>
Gerald R. McNichols 2,001,700 16.3%
Frank J.A. Cilluffo 1,748,787 (1) 14.2%
Cilluffo Associates, L.P. 1,708,000 (2) 13.9%
Gary L. Denman 230,869 (3) 1.9%
Joseph R. Wright, Jr. 213,809 (4) 1.7%
Peter A. Cohen 139,937 (5) 1.1%
Thomas E. McCabe 64,106 (6) 0.5%
James L. Selsor 32,421 (7) 0.3%
James P. Allen 23,291 (8) 0.2%
Leslie B. Disharoon 22,846 (9) 0.2%
H. Furlong Baldwin 19,417 (10) 0.2%
Charles H.P. Duell 17,882 (11) 0.1%
Michael G. Stolarik 15,786 0.1%
Leon E. Salomon 288 (12) 0.0%
All Directors & Executive Officers (13 persons) 4,531,139 36.8%
</TABLE>
(1) Includes 1,708,000 shares reflected as beneficially owned by Cilluffo
Associates, L.P. as of September 1, 1999 in a preliminary proxy
statement filed by Cilluffo Associates, L.P. with the SEC on September
15, 1999 (the "Cilluffo Proxy Statement"). Mr. Cilluffo, a director of
the Company, is a managing general partner of Cilluffo Associates, L.P.
and may be deemed to beneficially own (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) the shares owned
by Cilluffo Associates. Also includes 12,787 shares reported in the
Cilluffo Proxy Statement as held individually by Mr. Cilluffo and
28,000 shares reported in such proxy statement as held by Four Seas
Partners, a partnership of which Mr. Cilluffo is a general partner.
Excludes 1,618 Deferred Stock Units to be settled in common stock after
Mr. Cilluffo's termination as a director.
(2) Reflected in the Cilluffo Proxy Statement as beneficially owned, as of
September 1, 1999, by Cilluffo Associates, L.P., of which Mr. Cilluffo,
a director of the Company, is a managing general partner. The Cilluffo
Proxy Statement also identifies Edward C. Meyer as a managing general
partner of Cilluffo Associates, L.P. As a managing general partner of
Cilluffo Associates, Gen. Meyer may be deemed to beneficially own the
shares owned by Cilluffo Associates. The Cilluffo Proxy Statement also
reports that Gen. Meyer owns options to purchase 26,966 shares of
common stock.
(3) Includes 195,617 shares subject to options exercisable within 60 days,
7,498 shares in the Company's Employee Stock Purchase Plan and 174
units in the GRCI Stock Fund held in the Company's Deferred Income
Plan.
22
<PAGE>
(4) Includes 183,807 shares subject to options exercisable within 60 days
and 1,000 shares owned by Mr. Wright's wife. Also includes 4,002
Deferred Stock Units to be settled in common stock after termination of
his service as a director.
(5) Includes 75,000 shares subject to options exercisable within 60 days.
Also includes 39,000 shares held by family members not in Mr. Cohen's
household, for which shares Mr. Cohen has investment discretion. Also
includes 706 Deferred Stock Units to be settled in common stock after
termination of his service as a director.
(6) Includes 18,191 units in the GRCI Stock Fund held in the Company's
Deferred Income Plan. Also includes 43,488 shares subject to options
exercisable within 60 days and 1 share in the Company's Employee Stock
Purchase Plan. Includes 2,578 shares with shared voting and dispositive
power.
(7) Includes 23,238 shares subject to options exercisable within 60 days.
Also includes 254 shares in the Company's Deferred Income Plan and 196
shares in the Company's Employee Stock Purchase Plan.
(8) Includes 20,000 shares with shared voting and dispositive power, and
3,292 shares subject to options exercisable within 60 days.
(9) Includes 7,846 Deferred Stock Units to be settled in common stock after
termination of his service as a director.
(10) Includes 13,417 Deferred Stock Units to be settled in common stock
after termination of his service as a director.
(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. Also includes 5,058 Deferred Stock
Units to be settled in common stock after termination of his service as
a director.
(12) Gen. Salomon shares voting and dispositive power as to these shares.
23
<PAGE>
SHAREHOLDER PROPOSAL REGARDING TERMINATION OF SHAREHOLDER RIGHTS PLAN
David and Joyce Corcoran, shareholders of the Company, have submitted the
following proposal and supporting statement for inclusion in this Proxy
Statement and stated their intention to present the same at the Annual Meeting.
In accordance with applicable regulations, the Company will provide the
proponents' address and number of securities held upon written or oral request
to any shareholder.
Proposal
RESOLVED, that the Board of Directors of the Company terminate the Shareholder
Rights Plan adopted by it in 1985 and refrain from adopting any similar plan
unless the plan is approved by the affirmative vote of a majority of outstanding
shares entitled to vote at a meeting of shareholders that is held as soon as
practicable.
Supporting Statement
This is the same proposal we submitted and GRC's shareholders approved at last
year's Annual Meeting. We submit the proposal again because of our
dissatisfaction with management's response.
Our proposal is intended to help restore to shareholders the opportunity to act
on unsolicited tender offers that may provide the shareholders a substantial
premium over the current market value of the Company's common stock. We believe
that the Company's Shareholder Rights Plan deprives the shareholders from
realizing such a premium by limiting their ability to accept or even consider
the merits of an unsolicited tender offer to which the Board or management is
opposed. We also believe such defenses depress the market value of the Company's
common stock and serve to entrench management.
The Securities and Exchange Commission recognized the benefits of tender offers
in 1986 release, stating: 'Tender offers can benefit shareholders by offering
them an opportunity to sell their shares at a premium and by guarding against
management entrenchment. However, because poison pills are intended to deter
non-negotiated tender offers, and because they have this potential effect
without shareholder consent, poison pill plans can effectively prevent
shareholders from even considering the merits of a takeover that is opposed by
the board.' SEC Release No. 34-23486 (July 21, 1986).
The Company's Shareholder Rights Plan is a type of 'poison pill' because it is
designed to make it prohibitively expensive to acquire the Company where an
unsolicited tender offer is not approved by the Board of Directors.
GRC's shareholders voted overwhelmingly for our proposal at last year's Annual
Meeting. In response to our proposal, the Board of GRC finally decided on or
about May 20, 1999, to accelerate the expiration of the Shareholder Rights Plan
to August 31, 2000, from December 31, 2005. The Board, however, reserved the
right to implement a new shareholder rights plan in the future.
We believe that the Board's action fails to implement GRC's shareholders'
mandate given by their overwhelming, two-third's majority approval of our 1998
Proposal. First, the termination of the Shareholder Rights Plan should be
immediate, and second, reinstitution of any similar plan should require the
affirmative vote of a majority of GRC's shareholders. We strongly believe
24
<PAGE>
that any poison pill insulates Company management from direct accountability to
shareholders, particularly when the Company has been performing poorly, and that
management should ask shareholders their opinion before seeking to 'protect'
shareholders from an opportunity to sell their shares in a tender offer.
For these reasons, we are urging GRC shareholders to vote 'For' our proposal.
RESPONSE OF YOUR BOARD
Your Board recommends a vote 'AGAINST' the Proponents' resolution.
The Board of Directors just terminated the Shareholder Rights Plan, effective
August 31, 2000, more than five years sooner than the scheduled expiration date.
The Board provided for this orderly expiration in response to last year's
shareholder vote. At the same time, the Board believes that keeping the Rights
Plan in place for this short additional time, while also reserving the right to
terminate it prior to August 2000, or to adopt a new rights plan thereafter, is
in the best interests of all the Company's shareholders.
The Board of Directors over the last few years has considered a wide range of
strategic options for the Company, with the advice of investment bankers, and
has considered shareholders' views carefully. The Board believes, based on this
evaluation, that keeping the Rights Plan in place for a short period provides
the opportunity to continue to allow the Company to improve its financial
performance, while, if necessary, using the Rights Plan to either deter short
term speculators as the Company continues to show improvement, and/or to
negotiate a higher offer price should the Company receive a fair acquisition
proposal.
In adopting the Rights Plan originally, and in deciding to keep it in place for
a short additional time, the Board considered carefully the Plan's limited
purposes. The Rights Plan is intended to protect the interests of the Company
and all shareholders. The Rights Plan is not intended to prevent a bidder from
making a tender offer or other takeover-type transaction, nor will it impede any
effort to replace the Board or propose and elect alternate nominees for the
class of directors to be elected each year. The Rights Plan is, however, a
fundamental negotiating tool that inhibits abusive conduct and is designed to
protect against practices that do not treat all shareholders equally. The Rights
Plan strengthens your Company's negotiating power and positions the Board to
negotiate the best price for shareholders when the sale of the Company is in the
best interests of the shareholders. The Rights Plan creates an incentive for a
potential acquiror to negotiate in good faith with the Board. Of course, the
Board can redeem the rights and, in deciding whether to do so in connection with
any unsolicited offer, the Board will be bound by its fiduciary obligations to
act in the best interests of the Company and its shareholders.
The benefits of shareholder rights plans have been validated by a study by
Georgeson & Company Inc., in November 1997. The study found that: (i) premiums
paid to companies with shareholder rights plans were on average 8% higher than
premiums paid to purchase target companies that did not have shareholder rights
plans; (ii) the presence of a shareholder rights plan did not increase the
likelihood that a hostile takeover bid would be defeated or that a friendly bid
would be withdrawn; and (iii) a shareholder rights plan did not reduce the
likelihood that a company would become a takeover target (the takeover rate was
similar for companies with and without shareholder rights plans). This
conclusion has been supported by Patrick McGurn, director of corporate programs
for Institutional Shareholder Services, who was recently quoted as saying that
"companies with poison pills tend to get higher premiums paid on
25
<PAGE>
average than companies that don't have pills." (Wall Street Journal, January 29,
1999.) By comparison, the 1986 study relied upon by the proponent in support of
the Proponents' Proposal is over 13 years old.
Also, the Rights Plan, by providing the Board with an additional degree of
control in a takeover situation, enables the Board to calmly evaluate a
potential buyer from the vantage point of the Company's government customers
many of whom may be sensitive to the effect of a change in ownership on the
successful performance of the Company's current contracts, national security
issues, and similar concerns. The Rights Plan also allows the Board to consider
the impact of a takeover proposal on its professional and technical employees,
many of whom are critical to the performance of contracts with government
customers. A material decline in the Company's government contract revenue,
either as a result of government action or the loss of key employees, could
adversely affect shareholder value.
The Board also believes, for these reasons, that it should retain the
flexibility to adopt a new rights plan in the future. Under Delaware law, the
Board has the responsibility to manage and direct the Company's business and
affairs. In order to adopt a rights plan and use it in the face of a takeover
proposal, the Board must determine, in the exercise of its fiduciary duties,
that the plan is in the best interests of the Company. Thus, any commitment by
the Board to seek shareholder approval to adopt and implement a rights plan
would remove the Board's flexibility to respond to market conditions and would
remove the incentive for a potential acquiror to negotiate with the Board so
that stockholders are treated fairly.
Particularly in light of the Board's action to terminate the Rights Plan, the
Board believes that the proponents' actions - which consist of the
reintroduction of last year's resolution and commencement of litigation against
the Company to seek to invalidate the Rights Plan - has required and will
require the Company to spend precious financial resources and time that could be
more effectively devoted to more productive endeavors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE ADOPTION OF THE
SHAREHOLDER PROPOSAL TO TERMINATE THE RIGHTS PLAN.
Approval of this shareholder proposal requires the affirmative vote of a
majority of the shares present in person or by proxy at the Annual Meeting and
entitled to vote on the subject matter. Unless otherwise directed, the persons
named in the enclosed proxy will vote the stock represented by all proxies
received prior to the Annual Meeting, and not properly revoked, excluding broker
non-votes, against this shareholder proposal.
26
<PAGE>
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
To be considered at the 2000 Annual Meeting of Shareholders, any shareholder
proposal, whether submitted under Rule 14a-8 or otherwise, must be received by
the Secretary, GRC International, Inc., 1900 Gallows Road, Vienna, Virginia
22182, on or before June __, 2000.
By Order of the Board of Directors
THOMAS E. McCABE
Senior Vice President, Director of Corporate Development
General Counsel & Secretary
Dated: October __, 1999
27
<PAGE>
APPENDIX A
DIRECTORS, EXECUTIVE OFFICERS AND EMPLOYEES WHO MAY SOLICIT PROXIES
The following table sets forth the name, business address and principal
occupation of the directors, executive officers and employees of the Company
("Participants") who may also solicit proxies from shareholders of the Company.
Unless otherwise indicated, the principal occupation refers to such person's
position with the Company and the business address is GRC International, Inc.,
1900 Gallows Road, Vienna, Virginia 22182.
Directors
- ---------
<TABLE>
<CAPTION>
The principal occupations of the Company's directors who are deemed Participants
in the solicitation are set forth on pages 4 through 6 of this proxy statement.
Their names and business addresses are as follows:
Name Business Address
- ---- ----------------
<S> <C>
H. Furlong Baldwin Mercantile Bankshares Corporation
Two Hopkins Plaza
Baltimore, Maryland 21201
Peter A. Cohen Ramius Capital Group
757 Third Avenue, 27th Floor
New York, New York 10017
Gary L. Denman GRC International, Inc.
1900 Gallows Road
Vienna, Virginia 22182
Leslie B. Disharoon Caves Valley Club
2910 Blendon Road
Owings Mills, Maryland 21117
Charles H.P. Duell Middleton Place
Ashley River Road
Charleston, South Carolina 29414
Gerald R. McNichols GRC International, MCR Division
2000 Corporate Ridge, Suite 400
McLean, Virginia 22102
Leon E. Salomon c/o GRC International, Inc.
1900 Gallows Road
Vienna, Virginia 22182
Joseph R. Wright, Jr. AmTec, Inc.
599 Lexington Avenue, 44th Floor
New York, New York 10022
28
<PAGE>
Executive Officers and Employees
- --------------------------------
Name Principal Occupation
- ---- --------------------
Gary L. Denman President and Chief Executive Officer
Michael G. Stolarik Executive Vice President, Chief Operating Officer and
Acting Director of Information Systems Division
Thomas E. McCabe Senior Vice President, Director of Corporate
Development, General Counsel and Secretary
James P. Allen Senior Vice President, Chief Financial Officer and
Treasurer
Wayne Jackson Director of Corporate Communications
</TABLE>
OWNERSHIP OF THE COMPANY'S SECURITIES BY PARTICIPANTS
Company securities owned of record by each participant are also owned
beneficially by such Participant. The number of shares of Stock held by each
Participant (other than Mr. Jackson) is set forth on pages 22-23 of this proxy
statement. Mr. Jackson beneficially owns 288 shares.
TRANSACTIONS IN THE COMPANY'S SECURITIES BY PARTICIPANTS
<TABLE>
<CAPTION>
The following table sets forth purchases and sales of the Company's securities
by the Participants listed below during the past two years. Unless otherwise
indicated, all transactions are in the public market.
Number of Shares
of Common Stock
Name Date Purchased or (Sold) Footnote
- ---- ---- ------------------ --------
<S> <C> <C> <C>
James P. Allen 3/1/99 3,000
3/2/99 1,000
3/11/99 2,000
3/17/99 2,500
3/18/99 1,000
3/19/99 1,500
3/22/99 1,000
8/20/99 8,000
H. Furlong Baldwin 5/1/99 13,417 (1)
29
<PAGE>
Number of Shares
of Common Stock
Name Date Purchased or (Sold) Footnote
- ---- ---- ------------------ --------
Peter A. Cohen 1/6/98 351 (2)
4/2/98 558 (2)
4//22/98 10,000
4/28/98 2,500
4/28/98 2,500 (3)
7/1/98 251 (2)
10/1/98 389 (2)
10/30/98 2,500
10/30/98 2,000 (3)
11/3/98 10,000 (3)
11/4/98 2,000 (3)
1/4/99 411 (2)
4/1/99 343 (2)
5/1/99 706 (1)
5/21/99 3,000 (3)
7/1/99 428 (2)
Gary L. Denman 1/6/98 449.1824 (4)
4/3/98 475 (4)
7/6/98 474.9270 (4)
10/5/98 861.6236 (4)
1/6/99 942.0366 (4)
4/6/99 698.5684 (4)
7/6/99 651.9500 (4)
8/16/99 16,714 (5,6)
Leslie B. Disharoon 5/1/99 7,846 (1)
Charles H.P. Duell 1/6/98 374 (2)
4/2/98 542 (2)
7/1/98 283 (2)
10/1/98 445 (2)
1/4/99 476 (2)
4/1/99 404 (2)
5/1/99 5,058 (1)
7/1/99 428 (2)
Thomas E. McCabe 4/22/98 5,000 (6)
4/22/98 (5,000)
4/22/98 2,272 (5)
4/22/98 (2,272)
4/22/98 (2,913)
4/22/98 (4,956)
8/4/98 16,117.156 (7)
8/25/99 2,440 (5)
8/25/99 137 (5)
30
<PAGE>
Number of Shares
of Common Stock
Name Date Purchased or (Sold) Footnote
- ---- ---- ------------------ --------
Gerald R. McNichols 5/7/99 1,700
9/3/99 2,000,000 (8)
Leon E. Salomon 7/1/99 288 (2)
Michael G. Stolarik 10/1/98 2,403 (9)
1/4/99 810 (9)
4/1/99 760 (9)
7/1/99 1,122 (9)
Joseph R. Wright, Jr. 4/22/98 10,000
8/3/98 5,000
5/1/99 4,002 (1)
</TABLE>
(1) Deferred Stock Units acquired on termination of Company's Directors
Retirement Plan.
(2) Awarded in lieu of directors fees under the Company's Directors Fee
Replacement Plan.
(3) Purchased and/or held in accounts over which Mr. Cohen has investment
discretion.
(4) Purchased through the Company's Employee Stock Purchase Plan.
(5) Stock option exercise.
(6) Financed in part with margin loan of approximately $67,925, which was
fully repaid as of the date of this proxy statement.
(7) Units of GRC International Stock Fund purchased in Company's Deferred
Income Plan.
(8) Acquired in connection with the acquisition of Management Consulting &
Research, Inc.
(9) Purchased through the Company's Cash Compensation Replacement Plan.
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Appendix A or in the proxy statement, none of the
Participants nor any of their respective affiliates of associates (together, the
"Participant Affiliates"), (i) directly beneficially owns any shares of Stock of
the Company or any securities of any subsidiary of the Company or (ii) has had
any relationship with the Company in any capacity other than as a shareholder,
employee, officer or director. Furthermore, except as described in this Appendix
A or in the proxy statement, no Participant or Participant Affiliate is either a
party to any transaction or series of transactions since July 1, 1998, or has
knowledge of any currently proposed transaction or series of transactions, (i)
to which the Company or any of its subsidiaries was or is to be a party, (ii) in
which the amount involved exceeds $60,000, and (iii) in which any Participant or
Participant Affiliate had or will have, a direct or indirect material interest.
Except for the employment agreements described in the proxy statement, no
Participant or Participant Affiliate has entered into any agreement or
understanding with any person respecting any future transactions to which the
Company or any of its affiliates will or may be a party. Except as described in
this Appendix A or in this proxy statement, there are no contracts, arrangements
or understandings by any Participant or Participant Affiliates within the past
year with any person with respect to the Company's Stock.
31
<PAGE>
- --------------------------------------------------------------------------------
IMPORTANT
1. Be sure to vote on the WHITE proxy card. We urge you not to sign any proxy
card which is sent to you by Cilluffo Associates.
2. If any of your shares are held in the name of a bank, broker or other
nominee, please contact the person responsible for your account and direct
him or her to vote on the WHITE proxy "FOR" management's nominees, "FOR"
approval of Deloitte & Touche as accountants and "AGAINST" the shareholder
proposal to terminate the Shareholder Rights Plan.
3. If you have questions or need assistance in voting your shares, please call
toll free:
GEOERGESON
SHAREHOLDER
COMMUNICATIONS INC.
17 State Street, 10th Floor
New York, NY 10004
Call Toll-Free (800) 223-2064
-----------------------------
- --------------------------------------------------------------------------------
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PROXY GRC INTERNATIONAL, INC. PROXY
The undersigned hereby authorizes PETER A. COHEN, LESLIE B. DISHAROON, CHARLES H.P. DUELL, GERALD R. McNICHOLS
and LEON E. SALOMON, 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 __, 1999, and at any and all adjournments or
postponements thereof, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1-2.
1. ELECTION OF DIRECTORS
___ FOR both nominees NOMINEES: GARY L. DENMAN and JOSEPH R. WRIGHT, JR. To withhold
vote from an individual nominee, check here [__] and write the
name of the nominee as to whom vote is withheld.
---------------------------------------------------------------
To allocate votes among the nominees, write the name(s) of the
nominee(s) and the number of votes allocated to such nominee(s)
--------------------------------------------------------------
___ WITHHOLD AUTHORITY to vote for both nominees
2. RATIFICATION OF DELOITTE & TOUCHE AS INDEPENDENT PUBLIC ACCOUNTANTS
___ FOR ___ AGAINST ___ ABSTAIN
3. SHAREHOLDER PROPOSAL TO TERMINATE THE SHAREHOLDERS RIGHTS PLAN
___ FOR ___ AGAINST ___ ABSTAIN
The shares represented by this proxy will be voted as directed or, if no
direction is made, will be voted "FOR" items 1 and 2.
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
(continued and to be signed on reverse side)
33
<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. Unless otherwise indicated above, such
authority includes the discretionary authority to cumulate votes in connection with the election of directors. If you withhold your
vote for a nominee, all of your cumulative votes will be allocated to the remaining nominee. 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
-------------------------------------------
Additional Signature (if held jointly)
Date: , 1999
--------------------------------
</TABLE>
34
<PAGE>
