<PAGE> 1
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:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
GENERAL DYNAMICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
GENARAL DYANMICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
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(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
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(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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 registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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- ---------------
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
1994
[GENERAL DYNAMICS LOGO]
<PAGE> 3
GENERAL DYNAMICS CORPORATION
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
March 30, 1994
TO OUR SHAREHOLDERS:
You are cordially invited to the 1994 Annual Meeting of Shareholders to be
held at the McGraw-Hill Building, 1221 Avenue of the Americas, New York, New
York 10020, on Wednesday, May 4, 1994, beginning at 9:00 a.m. The principal
items of business at the meeting will be the election of Directors and the
selection of independent auditors for the coming year. In addition, two
shareholder proposals may be presented.
I am pleased to report that the task of turning around General
Dynamics--which began when I became Chairman in January, 1991--was essentially
completed as we entered 1994. Over the past three years, operating and financial
performances have been rebuilt and the Company has been reshaped to better meet
the demands of a rapidly contracting defense marketplace. Each of the major
businesses under our stewardship in 1991 is better positioned today for the
post-Cold War era, either with General Dynamics or with other companies.
Further, as we rebuilt and reshaped our Company for the future, we have
delivered a remarkable 553% total return to shareholders since January 1, 1991.
Without question, the shareholder-value oriented management incentive program
adopted by our Board and overwhelmingly approved by shareholders in 1991 has
been extraordinarily effective.
The successful turnaround of General Dynamics has created a new Company,
with a core of profitable continuing operations and impressive financial
capacity to take advantage of future opportunities. Today's General Dynamics is
solidly positioned to continue generating superior returns to shareholders.
Chief Executive Officer Jim Mellor and I examine in more detail the new General
Dynamics, beginning on page 2 of the Shareholder Report which accompanies this
Proxy Statement.
With the turnaround of the Company completed, our 1994 Annual Meeting is an
appropriate time to also complete the management transition initiated at our
1993 Annual Meeting. Last year, when I retired as an employee of the Company, at
my recommendation the Board transferred my duties as chief executive officer to
our President Jim Mellor. Our Company's strong performance over the past year
has clearly demonstrated Jim's exceptional leadership skills. Accordingly, the
Board has accepted my further recommendation that we complete the transfer of
duties by electing Jim Chairman at this year's Annual Meeting. At that time, I
will step down from the Board in keeping with the spirit of the recent
amendments to the corporate by-laws which limit
<PAGE> 4
the Board membership of a former employee chairman to a one-year transitional
period following his retirement as an employee. Similarly, our Vice Chairman
Harvey Kapnick, who also retired as an employee last year, will not stand for
re-election to the Board this year. Harvey's role in overseeing business
development and financial strategy has been transferred to Executive Vice
President Nick Chabraja based on Nick's exceptional performance as a corporate
officer over the past year, as well as his history of prior service to General
Dynamics as outside counsel. Accordingly, Nick is standing for election as a
director at this year's Annual Meeting. Finally, as indicated at last year's
Annual Meeting, the size of the Board is being reduced this year to better
reflect the smaller size of the new General Dynamics. The nine nominees standing
for election this year are presented beginning on page 3 of this Proxy
Statement. They are highly qualified, and fully dedicated to enhancing the value
of our shares.
The remarkable turnaround at General Dynamics during the past three years
is a source of deep personal gratification for me. I am equally pleased that,
going forward, the Company has a strong and enduring business core,
extraordinary financial capacity, and a skilled and highly motivated management
team dedicated to delivering additional value to shareholders. I want to thank
you for your unwavering support as we implemented a strategy which has
successfully restored operating and financial performances at General Dynamics,
appropriately reshaped our Company for the post-Cold War era, and generated
superior returns for our shareholders.
It is important that your shares be represented at the meeting. Please give
careful consideration to the matters to be voted upon, complete and sign the
accompanying Proxy, and return it promptly in the envelope provided.
If you plan to attend the meeting, kindly so indicate in the space provided
on the Proxy. An admission card will be sent to you.
Sincerely yours,
/S/ WILLIAM A. ANDERS
----------------------------------
William A. Anders
Chairman of the Board of Directors
<PAGE> 5
GENERAL DYNAMICS CORPORATION
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, MAY 4, 1994
The Annual Meeting of Shareholders of General Dynamics Corporation, a
Delaware corporation (the "Company"), will be held at the offices of
McGraw-Hill, 1221 Avenue of the Americas, New York, New York 10020, on
Wednesday, May 4, 1994, at 9:00 a.m., for the following purposes:
1. To elect Directors to hold office for one year, until their
respective successors shall have been elected and shall have qualified or as
otherwise provided in the By-Laws of the Company, all as more fully
described in the accompanying Proxy Statement.
2. To consider and act upon a proposal to select Arthur Andersen & Co.
as independent auditors to audit the books, records, and accounts of the
Company for 1994.
3. To consider and act upon the shareholder proposals set forth on pages
27 to 30 of the accompanying Proxy Statement, if they are properly presented
at the meeting.
4. To transact all other business that may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 11, 1994, as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting of Shareholders.
A copy of the 1993 Shareholder Report of the Company is being mailed with
this Notice of Annual Meeting and Proxy Statement to shareholders of record on
March 11, 1994.
It is important that your shares be represented and voted at the meeting.
You should, therefore, complete, sign, and return your Proxy at your earliest
convenience.
By Order of the Board of Directors,
Falls Church, Virginia, March 30, 1994 E. Alan Klobasa, Secretary
<PAGE> 6
PROXY STATEMENT
March 30, 1994
The accompanying Proxy (the "Proxy") is solicited on behalf of the Board of
Directors of GENERAL DYNAMICS CORPORATION, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Shareholders to be held at 9:00
a.m. on Wednesday, May 4, 1994 (the "Annual Meeting"). Any duly executed Proxy
may be revoked at any time before it is voted at the meeting at the option of
the person or persons executing it by giving written notice to the Secretary of
the Company, by delivering to the Company another duly executed Proxy dated
after the date of the Proxy being revoked, or by voting in person at the Annual
Meeting.
After giving effect to the Stock Split (described below), at the close of
business on March 11, 1994, the record date (the "Record Date") for the Annual
Meeting, the Company had outstanding and entitled to vote 63,340,390 shares of
its Common Stock, par value $1 per share (the "Common Stock"). Each share of
Common Stock is entitled to one vote on each matter properly presented for
action at the Annual Meeting.
On March 4, 1994, the Company declared a two-for-one stock split (the "Stock
Split") of its Common Stock, payable on April 11, 1994, in the form of a 100%
stock dividend to shareholders of record at the close of business on March 21,
1994. All share amounts and per share prices with respect to the Common Stock in
this Proxy Statement have been adjusted to reflect the Stock Split.
This Proxy Statement, the accompanying Notice of Annual Meeting of
Shareholders to be held May 4, 1994, and the Proxy are being forwarded to
shareholders on or about March 30, 1994.
The address of the Company's principal executive offices is 3190 Fairview
Park Drive, Falls Church, Virginia 22042-4523, and the telephone number is (703)
876-3000.
PRINCIPAL SHAREHOLDERS
On July 23, 1992, Warren E. Buffett ("Buffett"), Berkshire Hathaway Inc.
("Berkshire"), National Indemnity Company ("NIC") and National Fire and Marine
Insurance Company ("NFMIC"), together as a group (the "Buffett Group"), filed a
Schedule 13G with the Securities and Exchange Commission disclosing that the
members of the Buffett Group were the beneficial owners of over 10% of the
Common Stock. The Buffett Group disclosed that they became the beneficial owners
of more than 10% of the Common Stock as a result of the completion by the
Company of its tender offer on July 8, 1992. The address of Buffett and
Berkshire is 1440 Kiewit Plaza, Omaha, Nebraska 68131. The address of NIC and
NFMIC is 3024 Harney Street, Omaha, Nebraska 68131.
The Buffett Group's Schedule 13G disclosed that, as of July 22, 1992, the
Buffett Group were the beneficial owners of 8,700,000 shares of the Common Stock
of the Company, constituting on the Record Date approximately 13.7% of the
Common Stock outstanding and entitled to vote. According to the Schedule 13G,
Buffett and Berkshire each were the beneficial owners of 8,700,000 shares of the
Common Stock, with "shared voting power" and "shared dispositive power." Of the
8,700,000 shares of Common Stock held by the Buffett Group, the Schedule 13G
disclosed that NIC held 7,944,000 shares, constituting on the Record Date 12.5%
of the Common Stock outstanding and entitled to vote with "shared voting power"
and "shared
1
<PAGE> 7
dispositive power" and NFMIC held 755,600 shares, constituting on the Record
Date 1.2% of the Common Stock outstanding and entitled to vote with "shared
voting power" and "shared dispositive power."
The Board of Directors of the Company has accepted an agreement by the
Buffett Group pursuant to which the Buffett Group granted to the Secretary of
the Company a Proxy covering all voting securities of the Company owned by the
Buffett Group and agreed not to dispose of such voting securities to any person
who is the beneficial owner of 5% or more of the voting securities of the
Company or any other person seeking a change in control of the Company. The
Proxy is exercisable as long as Mr. Anders remains Chairman of the Board of
Directors of the Company.
Although no other person or group owned beneficially more than 5% of the
Common Stock outstanding on the Record Date, a number of persons acting
together, including Lester Crown and his son, James S. Crown, Charles H.
Goodman, members of their families, relatives, certain family partnerships,
trusts associated with the Crown and Goodman families, and other entities, were
the beneficial owners, as of August 25, 1992, of an aggregate of 8,268,362
shares of Common Stock, constituting on the Record Date approximately 13.1% of
the Common Stock outstanding and entitled to vote. A Schedule 13D, as last
amended by a filing on August 25, 1992, relating to the ownership of shares of
Common Stock by these persons and entities, has been filed with the Securities
and Exchange Commission by Mr. Gerald Ratner, as attorney and agent, 222 North
LaSalle Street, Chicago, Illinois 60601. These persons and entities, including
Mr. Lester Crown, Mr. James Crown and Mr. Goodman, disclaim that they are a
group for purposes of Section 13(d) of the Securities Exchange Act of 1934 or
otherwise, and disclaim that any one of them is the beneficial owner of shares
owned by any other person or entity filing the Schedule 13D.
In addition, on the Record Date, The Northern Trust Company, the trustee of
the Salaried Savings Plan and the Hourly Savings Plan, held of record 6,220,572
shares of Common Stock for the account of participants in these plans, or 9.8%
of the shares of Common Stock outstanding and entitled to vote on the Record
Date for the Annual Meeting. The Northern Trust Company has expressly disclaimed
beneficial ownership of these shares.
ELECTION OF DIRECTORS
As described in the Company's 1993 Proxy Statement, over the past year the
Board of Directors has considered changes in the composition of the Board in
order to further enhance management's accountability to the Board and the
Board's accountability to the shareholders. Based on these principles the Board
has decided that the size of the Board be reduced to nine of the current
members. The six Directors named below will not stand for re-election.
With the turnaround of the Company now accomplished, Messrs. Anders and
Kapnick will not stand for re-election, as they complete the transition which
began with their retirement last year as employees of the Company. Moreover,
because they are now past the Company's mandatory retirement age of 75, Messrs.
Ayers and Stein will not stand for re-election. Messrs. Lewis and Pace will not
stand for re-election consistent with the Company's policy, as expressed in the
1993 Proxy Statement, that former chairmen not serve as directors for a period
longer than one year following their retirement as employees of the Company. All
of the remaining Directors of the Company will stand for re-election.
2
<PAGE> 8
On March 4, 1994, the Board of Directors elected Nicholas D. Chabraja to the
office of Executive Vice President of the Company, promoting him from Senior
Vice President and General Counsel. In view of Mr. Chabraja's increased
responsibilities at the Company, Mr. Chabraja was also elected to the Board of
Directors.
As a result of the various changes in the Board of Directors discussed
above, a Board of nine Directors is to be elected at the Annual Meeting. All
Directors will hold office until the next Annual Meeting and until their
respective successors are elected and qualified or as otherwise provided in the
By-Laws of the Company.
Each Proxy executed and returned by a shareholder will be voted for the
election of the nominees for Director listed below, unless otherwise indicated
on the Proxy. In the event that any nominee withdraws or for any reason is not
able to serve as a Director, all Proxies received will be voted for the
remainder of those nominated and for any replacement nominee designated by the
Executive and Nominating Committee of the Board of Directors.
NAME, AGE, YEAR FIRST ELECTED A DIRECTOR,
PRINCIPAL OCCUPATION -- CURRENT AND LAST FIVE YEARS
AND OTHER DIRECTORSHIPS
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FRANK C. CARLUCCI, 63, Director since 1991.
Chairman since February, 1993 and Vice Chairman from January, 1989 to
February, 1993 of The Carlyle Group (merchant bankers). U.S. Secretary of
Defense from 1987 to 1989. Assistant to the President for National Security
Affairs from 1986 to 1987. U.S. Ambassador to Portugal from 1975 to 1978.
Director of Ashland Oil, Inc., Bell Atlantic Corporation, CB Commercial Real
Estate Group, Inc., Kaman Corporation, Neurogen Corp. (Chairman), Northern
Telecom Limited, Quaker Oats Company, SunResorts Ltd. N.V., The Upjohn
Company, and Westinghouse Electric Corporation.
NICHOLAS D. CHABRAJA, 51, Director since March 4, 1994.
Executive Vice President of the Company since March 4, 1994, and Senior Vice
President and General Counsel from January 1, 1993, to March 4, 1994. Partner
at the law firm of Jenner & Block since 1975 and Senior Partner since 1986.
WILLIAM J. CROWE, JR., 69, Director since 1992.
Retired Admiral, U.S. Navy. Chairman of the Joint Chiefs of Staff from 1985 to
1989. Chairman, President's Foreign Intelligence Advisory Board since
February, 1993. Director of Merrill Lynch & Co., Inc., Pfizer, Inc., Norfolk
Southern Corporation and Texaco Inc.
JAMES S. CROWN, 40, Director since 1987.
General Partner of Henry Crown and Company (Not Incorporated) (diversified
investments) since 1985. Director of First Chicago Corporation and PEC Israel
Economic Corporation.
3
<PAGE> 9
NAME, AGE, YEAR FIRST ELECTED A DIRECTOR,
PRINCIPAL OCCUPATION -- CURRENT AND LAST FIVE YEARS
AND OTHER DIRECTORSHIPS
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LESTER CROWN, 68, Director since 1974.
Executive Vice President of the Company from 1976 to 1993. Chairman of
Material Service Corporation (aggregates, ready mix concrete and concrete
pipe, coal and lime) since 1983. Director of Maytag Corporation.
CHARLES H. GOODMAN, 60, Director since 1991.
Vice President of Henry Crown and Company (diversified investments) since 1987
and Vice President of CC Industries, Inc. (real estate, diversified
manufacturing, and cellular telephone systems) since 1973.
JAMES R. MELLOR, 63, Director since 1981.
President and Chief Executive Officer of the Company since May 5, 1993.
President and Chief Operating Officer of the Company from January 1, 1991 to
May 5, 1993. Executive Vice President--Marine, Land Systems and International
of the Company from 1983 to 1990. President and Chief Operating Officer of AM
International Inc. (graphics) from 1977 to 1983. Executive Vice President of
Litton Industries, Inc. (navigation and communications systems and products)
from 1973 to 1977. Director of Bergen Brunswig Corporation, Computer Sciences
Corporation and Kerr Group, Inc.
ALLEN E. PUCKETT, 74, Director since 1987.
Chairman Emeritus of Hughes Aircraft Company (defense and communications
systems and equipment) since April 1987. Director of Logicon, Inc. and Lone
Star Industries, Inc.
BERNARD W. ROGERS, 72, Director since 1987.
Retired General, U.S. Army. Supreme Allied
Commander-Europe/Commander-in-Chief, U.S. European Command from 1979 to 1987.
Chief of Staff of the U.S. Army from 1976 to 1979. Senior Consultant to The
Coca-Cola Company (beverages) since 1987. Director of Kemper National
Insurance Companies and Thomas Industries Inc.
Mr. Crowe has been nominated to the position of Ambassador to the United
Kingdom of Great Britain and Northern Ireland. In the event Mr. Crowe is
appointed to this position prior to the date of the Annual Meeting, he will
withdraw his nomination to serve as a Director, and the size of the Board of
Directors will be decreased to eight directors. In such a case, the Executive
and Nominating Committee of the Board of Directors will consider increasing the
size of the Board of Directors by one member and appointing an additional member
to the Board of Directors after the Annual Meeting of Shareholders. Messrs.
Puckett and Rogers will remain on the Board of Directors for the next year to
provide continuity of membership and expertise in the space and armored vehicles
businesses of the Company.
4
<PAGE> 10
The following table shows the total number of shares of Common Stock of the
Company (as adjusted for the Stock Split) beneficially owned on December 31,
1993, by (i) all Directors, the Chief Executive Officer, the next four most
highly compensated executive officers, and another executive officer of the
Company, and (ii) all Directors and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(a)(b)
--------------------------------
SHARES PERCENT
NAME OWNED OF CLASS
<S> <C> <C>
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WILLIAM A. ANDERS 727,100(c) 1.15%
THOMAS G. AYERS 600(d) (e)
NICHOLAS D. CHABRAJA 44,900 (e)
FRANK C. CARLUCCI 2,100(f) (e)
WILLIAM J. CROWE, JR. 400(g) (e)
JAMES S. CROWN 3,278,482(h) 5.18%
LESTER CROWN 6,717,476(i) 10.61%
JAMES J. CUNNANE 269,764 .43%
CHARLES H. GOODMAN 6,006,386(j) 9.48%
HARVEY KAPNICK 408,808(k) .65%
DAVID S. LEWIS 65,000(l) (e)
JAMES R. MELLOR 564,590 .89%
STANLEY C. PACE 50,462 (e)
ALLEN E. PUCKETT 2,000 (e)
BERNARD W. ROGERS 600(m) (e)
ELLIOT H. STEIN 5,000 (e)
ROGER E. TETRAULT 164,948 .26%
JAMES E. TURNER, JR. 278,848 .44%
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP 11,504,374(n) 18.16%
</TABLE>
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(a) Based on information furnished to the Company as to shares of stock
beneficially owned by each Director and executive officer on January 31,
1994. Includes shares as of January 31, 1994, in the Savings and Stock
Investment Plan of the Company voted by the Directors or other executive
officers and also includes shares of Common Stock subject to resale
restrictions, which restrictions have not expired.
(b) Includes options exercisable within the next 60 days.
(c) Includes 20,000 shares owned by the Anders Foundation of which Mr. Anders
is president and with respect to which he has sole investment and voting
power.
(d) The shares beneficially owned by Mr. Ayers are held in a trust of which Mr.
Ayers and his wife are co-trustees and with respect to which he has shared
investment and voting power.
(e) Less than .15%.
(f) The shares beneficially owned by Mr. Carlucci are held in joint tenancy
with his wife with shared investment and voting power.
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<PAGE> 11
(g) The shares beneficially owned by Mr. Crowe are held in a trust with respect
to which he has sole investment and voting power.
(h) Of the aggregate 8,268,362 shares of Common Stock held by the Crown and
Goodman families as of February 14, 1994, Mr. James Crown is deemed to be
the beneficial owner of 3,278,482 shares. Mr. James Crown has sole
investment and voting power with respect to 2,396 shares and shared
investment and voting power with respect to 3,276,086 shares. Of the
3,278,482 shares of Common Stock deemed to be beneficially owned by Mr.
James Crown, he disclaims beneficial ownership as to 3,276,086 shares. In
addition to the 3,278,482 shares he is deemed to beneficially own, Mr.
James Crown has an economic interest in an additional 4,448,108 shares.
(i) Of the aggregate 8,268,362 shares of Common Stock held by the Crown and
Goodman families as of February 14, 1994, Mr. Lester Crown is deemed to be
the beneficial owner of 6,717,476 shares. Mr. Lester Crown has sole
investment and voting power with respect to 370,240 shares and shared
investment and voting power with respect to 6,347,236 shares. Of the
6,717,476 shares of Common Stock deemed to be beneficially owned by Mr.
Lester Crown, he disclaims beneficial ownership as to 6,490,022 shares.
(j) Of the aggregate 8,268,362 shares of Common Stock held by the Crown and
Goodman families as of February 14, 1994, Mr. Goodman is deemed to be the
beneficial owner of 6,006,386 shares. Mr. Goodman has shared investment and
voting power with respect to 1,899,128 shares. Of the 6,006,386 shares of
Common Stock deemed to be beneficially owned by Mr. Goodman, he disclaims
beneficial ownership as to all of the shares.
(k) Includes 51,208 shares owned by the Kapnick Foundation, of which Mr.
Kapnick is president and with respect to which he has sole investment and
voting power.
(l) Includes 41,620 shares held in a trust with respect to which Mr. Lewis has
sole investment and voting power.
(m) The shares beneficially owned by Mr. Rogers are held in joint tenancy with
his wife with shared investment and voting power.
(n) The shares shown as beneficially owned by Mr. Lester Crown, Mr. James Crown
and Mr. Goodman have been consolidated for purposes of these totals in
order to eliminate duplications.
BOARD OF DIRECTORS AND BOARD COMMITTEES
1993 BOARD MEETINGS
During 1993, the Board of Directors of the Company held a total of 11
meetings. All incumbent Directors attended at least 75% of the meetings of the
Board and of the Committees of the Board on which they served during the periods
of service. As a group, incumbent Directors attended 95.6% of all Board and
Committee meetings held in 1993.
BOARD COMMITTEES
Members of the Committees of the Board of Directors were not employees of
the Company with the exception of Mr. Mellor, who served as a member of the
Executive and Nominating Committee, Mr. Lester Crown, who was an employee of the
Company until April 30, 1993, and Messrs. Anders and Kapnick, who were employees
of the Company until May 31, 1993.
The Audit Committee consisted of Mr. Ayers, Chairman, Mr. Crowe, Mr. James
Crown, Mr. Kapnick and Mr. Rogers, none of whom is an officer or employee of the
Company, except for Mr. Kapnick, who was an employee until May 31, 1993. The
Committee considers and advises the Board of Directors on the scope of the
annual audit by the independent auditors for the Company, the annual financial
statements, the opinion of the independent auditors, the Company's internal
audit organization and procedures, and miscellaneous
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<PAGE> 12
auditing matters. The Audit Committee also recommends the selection of the
independent auditors and monitors audit fees and expenses, including fees
incurred for non-audit services. The Audit Committee held eight meetings in
1993.
The Benefit Plans Committee consisted of Mr. Lewis, Chairman, Mr. Goodman,
Mr. Pace and Mr. Puckett. The Committee reviews and monitors the investment and
safekeeping of the assets of all trusts established in connection with employee
benefit plans of the Company and its subsidiaries. The Benefit Plans Committee
held four meetings in 1993.
The Compensation Committee consisted of Mr. Stein, Chairman, Mr. Ayers, Mr.
Carlucci and Mr. Puckett, none of whom is eligible to participate in the
Company's incentive compensation plans. The Committee establishes overall
incentive compensation programs and policies for the Company. The Committee
monitors the selection and performance, as well as reviews and approves the
compensation, of key executives. The Compensation Committee held seven meetings
in 1993.
The Executive and Nominating Committee consisted of Mr. Lester Crown,
Chairman, Mr. Anders, Mr. James Crown, Mr. Mellor, Mr. Rogers and Mr. Stein. The
Committee acts on behalf of the Board between meetings of the Board, reviews
candidates proposed for membership on the Board of Directors, and recommends the
Director nominees proposed for election at the Annual Meeting of Shareholders or
to fill vacancies between Annual Meetings of Shareholders. The Executive and
Nominating Committee will consider qualified nominees recommended by
shareholders. Shareholders who wish to suggest qualified nominees should write
to the Secretary of the Company, 3190 Fairview Park Drive, Falls Church,
Virginia 22042-4523. The Executive and Nominating Committee held two meetings in
1993.
The Committee on Corporate Responsibility consisted of Mr. Rogers, Chairman,
Mr. Carlucci, Mr. Crowe, Mr. James Crown and Mr. Goodman. The Committee monitors
the policies, practices, and programs of the Company as they relate to its
corporate responsibilities to government and commercial customers, suppliers,
employees, shareholders, and the communities in which the operations of the
Company are located. The Committee on Corporate Responsibility held seven
meetings in 1993.
The Finance Committee consisted of Mr. Kapnick, Chairman, Mr. Ayers, Mr.
James Crown and Mr. Stein. The Committee provides advice, analysis, and counsel
to the Company regarding financing, dividend policy, stock purchases, and other
matters having an impact on the financial condition or operations of the
Company. The Finance Committee held five meetings in 1993.
DIRECTOR COMPENSATION
The Company pays an annual retainer to its outside Directors of $35,000 per
year. The Company also pays a fee of $2,000 for attendance at each meeting of
the Board and $1,000 for attendance at each meeting of a Committee of the Board.
In addition, Chairmen of Committees of the Board who are outside Directors are
paid an additional annual retainer of $10,000. Directors who are employees of
the Company are not paid for attendance at Board and Committee meetings.
Directors are also reimbursed for travel expenses and for certain expenses in
connection with special services rendered to the Company. In 1993, the outside
Directors were paid an aggregate of $840,333 in retainers and fees and the
Company paid an additional $20,400 for their special travel and accident
insurance coverage. During 1993, and until the Annual Meeting, Mr. Anders, in
his capacity as Chairman of the Board, received $100,000 per year in lieu of the
retainer and meeting fees.
7
<PAGE> 13
Mr. Mellor, upon becoming Chairman of the Board, will not receive any additional
compensation in this respect.
The Company's retirement plan for Directors provides that Directors are
eligible for benefits if they have not been an employee of the Company and have
served as a Director for at least five years, or if less than five years,
retired at an age that is established by the Board of Directors as a mandatory
retirement age for Directors. However, any Director who has been both an outside
Director and an employee for different periods of time prior to April 1, 1993,
is also eligible to receive benefits. Benefits are equal to the average of a
Director's income, consisting of retainer and fees, for the three highest years.
Benefits are paid for the life of the Director or ten years, whichever is
longer. If a Director has been an outside Board member for more than ten years,
the period of payment is the longer of the life of the Director or the number of
years of outside Board membership. Unpaid portions of benefits may be paid, if
elected by the Director, to the spouse or estate of a Director. Payments may be
made in a lump sum if an appropriate election is made.
Messrs. Ayers, Kapnick, Lewis, Pace and Stein will receive the benefits
described above upon their retirements from the Board of Directors. Pursuant to
the terms of his employment agreement with the Company, Mr. Anders will receive
certain other benefits. See "Executive Compensation -- Retirement Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consisted of Mr. Stein, Chairman, Mr. Ayers, Mr.
Carlucci and Mr. Puckett. The Company has engaged Mr. Carlucci to provide advice
to the Company with respect to alternatives available for the resolution, by
settlement or otherwise, of the dispute now in litigation by the Company and
McDonnell Douglas Corporation against the United States arising out of the
termination of the U.S. Navy's A-12 program to develop a new advanced jet
fighter. Mr. Carlucci is paid a quarterly retainer of $20,000 and is reimbursed
for expenses incurred on behalf of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report on Executive
Compensation.
The Compensation Committee's policies applicable to the Company's executive
officers for 1993 must be viewed in the context of the overall compensation
strategy originally developed by the Board of Directors in early 1991 and
reaffirmed by the Board of Directors in late 1993, when a new management team
was being assembled and organized. That strategy is designed to attract and
retain the management team and to provide them with appropriate incentives to
continue the Company's fine performance in the face of a significant decline in
defense spending. The objective is to provide appropriate incentives, including
a substantial equity component, designed to enhance shareholder value. Thus, if
the efforts of management and key employees result in significant improvement in
shareholder value, management and key employees participating in the
compensation plan will likewise be rewarded.
In giving effect to this plan in late 1993, the Compensation Committee
adopted a new equity incentive program (the "New Program") for 1994 and 1995
consisting of Performance Stock Options and Performance Restricted Stock. Awards
of Performance Stock Options and Performance Restricted Stock were made in late
1993 in such amounts as were anticipated to be made in both 1994 and 1995. The
Chief Executive Officer and the named individuals (excluding Messrs. Anders,
Cunnane and Kapnick) received grants (in present value
8
<PAGE> 14
dollars) 67% of which were comprised of Performance Stock Options and 33% of
which were comprised of Performance Restricted Stock, whereas all other persons
eligible for incentive compensation received grants 50% of which were comprised
of Performance Stock Options and 50% of which were comprised of Performance
Restricted Stock.
The Performance Stock Options were granted and are exercisable at $47 per
share (the fair market value of the Common Stock on the date of grant). Fifty
percent of the Performance Stock Options may be exercised on or after December
31, 1994, if and when the price of the Common Stock has attained and maintained
$52.50 per share for 30 consecutive trading days anytime before or after
December 31, 1994. The balance of Performance Stock Options may be exercised on
or after December 31, 1995, if and when the price of the Common Stock has
attained and maintained $60 per share for 30 consecutive trading days anytime
before or after December 31, 1995. For accounting reasons, the Performance Stock
Options are exercisable 30 days before the end of their five-year term, whether
or not the price targets have been met.
The Performance Restricted Stock has a feature which will increase or
decrease the number of shares initially granted at twice the rate of the
corresponding increase or decrease in the stock price from the date of grant to
the end of each performance period. Fifty percent of the grant is earned on
December 31, 1994, the end of the first performance period, and the balance is
earned on December 31, 1995, the end of the second performance period. At the
end of each performance period, the average price of Common Stock over the
preceding 30 trading days (the "Average Price") will be compared to the price
per share on the grant date. That difference will be multiplied by the number of
shares of Performance Restricted Stock to be earned at the end of each
performance period and the resulting product will be divided by the Average
Price. The number of shares of Common Stock so determined will be added to (in
the case of a higher Average Price) or subtracted from (in the case of a lower
Average Price) the number of shares of Performance Restricted Stock to be earned
at that time. Once the number of shares of Performance Restricted Stock has been
adjusted, restrictions will continue to be imposed for a period of two years, at
the end of which time all restrictions will lapse.
The design of the New Program is targeted at achieving increased shareholder
value for the Company in a contracting industry. Moreover, the mix of
Performance Stock Options and Performance Restricted Stock is expected to
further focus key officers on increasing shareholder value by creating
additional risk and incentive for those individuals most involved in directing
the business. The 50/50 weighing of the grants for the rest of management
permits the Company to retain talented high potential employees by providing
them with a larger percentage of Performance Restricted Stock which has lower
risk and incentive features than the Performance Stock Options.
The Company's compensation package also consists of a cash component of base
salary and bonus. Target levels of compensation for senior officers are intended
to be consistent with the compensation of senior officers of businesses in the
Company's industry and in Fortune 500 companies of similar size. Market data for
salary, bonus and long-term awards from several major compensation surveys
provided to the Company by outside consultants is reviewed by the Compensation
Committee prior to granting annual bonuses, salary increases and long-term
awards. Each individual's performance is compared to goals and objectives
established at the beginning of the fiscal year for that individual in concert
with the Company's strategic goals and objectives and with each business unit's
operating plan. These goals include, but are not limited to, return on equity,
cash flow, increase in shareholder value, return on assets, increases in
earnings per share and profitability in backlog. The Compensation Committee then
determines the appropriate total
9
<PAGE> 15
compensation level for each senior officer based on the individual's performance
measured against pre-established objectives for that year, the Company's overall
performance, the performance of the relevant business unit for managers of that
business unit and the survey data provided to the Company by the independent
outside consultants.
Measurable performance goals are established prior to each performance
period for each executive under the Plan and are reviewed and certified by the
Committee prior to determination of each individual's annual bonus. The amount
of the annual bonus is determined by the Committee based on the individual and
Company performances as well as the market data provided by the compensation
consultants. For executives whose performance far exceeds goals, the bonus may
exceed the percentile of market data. Executives whose performance meets or
slightly exceeds their goals may receive a bonus between the 50th and 75th
percentiles of market. To the extent that some executives do not meet their
goals, bonuses may be reduced significantly below the 50th percentile or
eliminated.
For 1993, the Compensation Committee determined that the salary of Mr.
Mellor was competitive with those of other chief executives within the industry
and Fortune 500 companies of similar size. The Committee concluded that the
Company had attained or exceeded its performance goals for 1993. The 1993
Company goals were substantially to increase the Company's return on equity and
cash flow as well as to improve the performance of the operating units and
sustain or increase the margin on active contracts for the Company as a whole.
Another 1993 goal of primary importance was to maintain or increase total
shareholder return. None of these goals played a more significant role than
others in determining the compensation. Based upon the Company's successful
performance of its 1993 goals, the Compensation Committee approved a bonus for
Mr. Mellor of $1,350,000, slightly less than that awarded by the Compensation
Committee to the Chief Executive Officer for 1992 performance.
Effective January 1, 1994, the allowable deduction for federal income tax
purposes of compensation paid by a publicly-held corporation to its chief
executive officer and its other four most highly compensated executive officers
employed at year end is $1,000,000 per executive per year. This limitation does
not apply to performance-based compensation.
The Committee and its compensation consultant have considered the
implications of the law and proposed Internal Revenue Service regulations and
have concluded that a middle-ground policy is appropriate with respect to this
limit. The use of judgment and discretion has been a critical element of the
Committee's executive compensation philosophy in the past, and the Committee
believes it is in the best interests of the shareholders to maintain
discretionary control over certain aspects of executive compensation in the
future. In essence, the Committee believes that the judgmental assessment of the
Company's performance and that of individual executives is critical with respect
to effective executive compensation management. Because of the importance of
judgment and discretion, certain aspects of executive compensation in the future
might not qualify for deductibility under the law and the Company will forego a
deduction for compensation expense. The Committee believes that the amount of
the deduction foregone will be immaterial.
In general, the Company's policy will be to attempt to structure a portion
of executive compensation so that it meets the performance-based compensation
exception to the $1,000,000 limit while maintaining discretionary control over
other compensation.
10
<PAGE> 16
The Company has taken certain actions to attempt to qualify the awards made
under the New Program as performance-based compensation. Because the plan under
which the New Program awards were granted has been approved by the shareholders
and is administered by a committee of outside directors, it is afforded
transitional relief from some of the requirements which would otherwise have to
be met. This transitional relief should be sufficient to qualify the Performance
Stock Options, but the Committee has also amended that plan to limit the number
of options which may be granted to any one executive to 500,000 annually. The
stock based performance criteria are designed to qualify the Performance
Restricted Stock.
The appreciation in the value of the Company's Common Stock in the years
1991, 1992 and 1993 and the resulting increase of over 500% in total shareholder
return are powerful evidence of the successful strategy of creating incentives
for the management team and all employees to enhance shareholder value. This
increase in shareholder value since year-end 1990 has significantly enhanced the
potential value of the Restricted Stock and stock options to key executives.
The Company's compensation program is designed to increase not only
shareholder value but also to maintain reasonable costs for the Company's
customers. This is evidenced by the fact that less than ten percent of the
estimated value of total compensation to corporate officers during 1991, 1992
and 1993 was charged as costs under the Company's U.S. Government contracts,(1)
and, therefore, payable by its U.S. Government customers.
The following performance graphs compare the cumulative total shareholder
return, assuming reinvestment of dividends, on the Company's Common Stock with
the cumulative total return, assuming reinvestment of dividends, of the Standard
& Poor's Aerospace/Defense Index and the Standard & Poor's 500 Composite Stock
Price Index (both of which include the Company), for the periods indicated.
(1) Only salary and bonus and the value of Restricted Stock on the date of
grant, to the extent allowable under government contracts, are reimbursed to
the Company by the government under those contracts. This percentage was
derived by computing those costs which were determined to be allowable under
the government contracts for fiscal years 1991, 1992 and 1993.
11
<PAGE> 17
FIVE YEAR HISTORICAL PERFORMANCE
CUMULATIVE TOTAL RETURN BASED ON
REINVESTMENT OF $100 BEGINNING DECEMBER 31, 1988(1)
<TABLE>
<CAPTION>
S&P Aero-
Measurement Period General Dy- space/Defense
(Fiscal Year Covered) namics S&P 500 Index
<S> <C> <C> <C>
1988 100 100 100
1989 90 132 118
1990 52 128 123
1991 115 166 147
1992 226 179 155
1993 341 197 202
</TABLE>
(1) Mr. Anders and his new management team began in January 1991.
12
<PAGE> 18
THREE YEAR HISTORICAL PERFORMANCE
CUMULATIVE TOTAL RETURN BASED ON
REINVESTMENT OF $100 BEGINNING DECEMBER 31, 1990
<TABLE>
<CAPTION>
S&P AERO-
MEASUREMENT PERIOD GENERAL DY- SPACE/DEFENSE
(FISCAL YEAR COVERED) NAMICS S&P 500 INDEX
<S> <C> <C> <C>
1990 100 100 100
1991 219 130 120
1992 432 140 126
1993 653 155 164
</TABLE>
13
<PAGE> 19
Over the 1991-1993 turnaround period, which began with Mr. Anders and his
management team in January 1991, operating performance was dramatically
improved, Company debt was substantially reduced, the financial condition of the
Company was greatly strengthened, $2,500,000,000 was returned to shareholders
through a tender offer and special distributions, the regular quarterly dividend
was increased 140%, cash balances rose significantly and total shareholder
return (including dividends) was 553%. In the judgment of the Compensation
Committee, the incentive compensation program put in place in 1991 has achieved
the challenging performance objectives set in 1991 for strengthening the Company
for the benefit of its customers and employees and resulted in a marked increase
in shareholder value.
This report is submitted by the Compensation Committee, which is comprised
of four outside directors.
Mr. Stein, Chairman
Mr. Ayers
Mr. Carlucci
Mr. Puckett
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth a summary of compensation for services in all
capacities to the Company and its subsidiaries for 1993, 1992 and 1991 for the
Chief Executive Officer, the next four most highly compensated executive
officers of the Company at the end of 1993, an individual who was Chief
Executive Officer during 1993, and another executive officer of the Company
during 1993. This summary is supplemented by full statements describing each
element of compensation contained later in this Proxy Statement.
14
<PAGE> 20
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------- ----------------------------- -------------------------
<CAPTION>
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS(a) (b)(c) AWARD(a)(d) OPTIONS/SARS(a) PAYOUTS (b)(e)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WILLIAM A. ANDERS(f) 1993 $491,528 $ 583,000 $1,087,231 $ 0 0 $ 0 $15,755,933
Chairman of the 1992 900,000 1,400,000 5,549,192 0 0 0 53,653
Board 1991 800,000 700,000 2,534,608 320,000 2,950,000
HARVEY KAPNICK(g) 1993 $298,679 $ 451,000 $1,746,669 $ 0 0 $ 0 $ 9,052,176
Vice-Chairman 1992 650,000 1,100,000 824,371 0 0 0 52,654
of the Board 1991 426,923 550,000 1,864,094 440,000 1,736,250
JAMES R. MELLOR 1993 $670,000 $1,350,000 $ 757,388 $1,410,000 240,000 $ 0 $12,121,770
President and 1992 700,000 1,100,000 2,052,614 0 0 0 51,704
Chief Executive 1991 650,000 550,000 1,693,125 260,000 2,396,875
Officer
NICHOLAS D. 1993 $350,000 $ 325,000 $ 28,645 $ 658,000 100,000 $ 0 $ 753,044
CHABRAJA(h) 1992 0 0 0 1,723,125 0 0 0
Senior Vice 1991 0 0 0 0 0
President
and General Counsel
JAMES J. CUNNANE(i) 1993 $305,000 $ 205,000 $ 320,353 $ 0 0 $ 0 $ 4,703,324
Senior Vice 1992 335,000 205,000 2,452,910 0 0 0 23,658
President 1991 310,000 165,000 479,154 124,000 1,143,125
and Chief Financial
Officer
JAMES E. TURNER, JR. 1993 $356,000 $ 400,000 $ 459,494 $ 564,000 90,000 $ 0 $ 5,309,423
Executive Vice 1992 356,000 345,000 985,540 0 0 0 26,479
President 1991 340,000 244,000 737,074 136,000 1,253,751
and President,
Electric
Boat Division
ROGER E. TETRAULT 1993 $276,000 $ 225,000 $ 253,869 $ 470,000 70,000 $ 0 $ 3,231,096
Vice President and 1992 262,000 190,000 322,089 0 0 0 18,922
President, Land 1991 250,000 103,000 248,889 100,000 250,000
Systems
Division
</TABLE>
- --------------------------------------------------------------------------------
(a) Bonus payments, awards of Common Stock subject to resale restrictions
("Restricted Stock") and stock options are reported with respect to the
fiscal year for which the related services were rendered, or at the time of
grant with regard to grants made upon commencement of employment, although
the actual award may have been made in the succeeding year.
(b) In accordance with the transitional procedures set forth in the Securities
and Exchange Commission release adopting the new executive compensation
rules, the Company has not provided any information for the year 1991 in
the "Other Annual Compensation" and "All Other Compensation" columns above
for any fiscal year of the Company which ended prior to December 15, 1992.
(c) "Other Annual Compensation" is comprised of the following items: (i)
non-cash items provided to management, including club memberships,
financial planning services, special travel, accident and supplementary
life insurance, and the use of the aircraft and automobiles owned or leased
by the Company ("Perquisites"); (ii) amounts reimbursed for the payment of
taxes; (iii) payment of dividend
15
<PAGE> 21
equivalents with regard to shares of Restricted Stock; and (iv) amounts
paid out of the Special Distribution Account of each individual as
explained hereinafter:
On January 15, 1992, the shareholders of the Company approved an
amendment to the Incentive Compensation Plan to permit the benefits of
any special distributions to shareholders to also be received by holders
of stock options and Restricted Stock. Special distributions made with
reference to awards of Restricted Stock were placed in the Special
Distribution Account of each individual employee owning shares of
Restricted Stock and held in the Special Distribution Account until such
time as the restrictions lapsed on the Restricted Stock. Special
distributions with regard to stock options were reflected by decreasing
the option exercise price according to a formula and crediting the excess
to the Special Distribution Account. To the extent the amount in a
Special Distribution Account exceeded 90% of the exercise price of a
stock option, the excess was then paid to the optionee. During 1993, the
Company declared three special distributions aggregating $50 per share
(before the 100% stock dividend) to all shareholders of the Company. The
amounts shown in this table include amounts distributed from the Special
Distribution Account for each individual. These individuals received the
same special distributions as all other shareholders of the Company as
part of the Company's plan to return excess cash assets to shareholders.
The amounts shown in this table also include the following: for Mr. Anders,
Perquisites of $92,754, of which $58,997 relates to personal travel; and
for Mr. Mellor, Perquisites of $62,168, of which $20,530 is for personal
financial planning.
(d) The dollar value of awards of Restricted Stock is calculated by multiplying
the price of the Company's unrestricted Common Stock on the date of grant
by the number of shares of Restricted Stock awarded. All of the values
reflected in the "Summary Compensation Table" are calculated as described
above. As of December 31, 1993, Mr. Anders held a total of 131,520 shares
of Restricted Stock with an aggregate market value of $6,136,237; Mr.
Kapnick held no shares of Restricted Stock; Mr. Mellor held a total of
133,648 shares of Restricted Stock with an aggregate market value of
$6,235,521; Mr. Chabraja held a total of 44,000 shares of Restricted Stock
with an aggregate market value of $2,052,877; Mr. Cunnane held a total of
31,480 shares of Restricted Stock with an aggregate market value of
$1,468,740; Mr. Turner held a total of 66,696 shares of Restricted Stock
with an aggregate market value of $3,111,789; and Mr. Tetrault held a total
of 32,020 shares of Restricted Stock with an aggregate market value of
$1,493,935.
(e) Reflects (i) amounts contributed by the Company under its Savings and Stock
Investment Plan and allocations to the Supplemental Savings and Stock
Investment Plan (the "Salaried Plans"), (ii) payments by the Company for
term life insurance, (iii) amounts representing cash distributions received
by all shareholders of the Company which were deposited in but not paid out
of Special Distribution Accounts [see footnote (c) above for a description
of these accounts], and (iv) amounts paid or accrued pursuant to
arrangements entered into in 1993 with executives who would be retiring or
resigning from the Company during 1993 and arrangements with executives who
would be remaining with the Company. See "Employment Agreements and Other
Arrangements" on page 23 of this Proxy Statement.
The amounts shown include the following: for Mr. Anders, $31,938 matching
payments to Salaried Plans, $29 term life insurance premiums, $7,323,966
deposited in his Special Distribution Account in connection with special
distributions made to all shareholders of the Company and also received by
holders of awards of stock options and Restricted Stock, and $8,400,000
paid or accrued pursuant to the terms of an agreement dated March 17, 1993,
covering the transfer of his duties and responsibilities as Chief Executive
Officer in conjunction with his retirement from the Company and relieving
the Company of certain obligations contained in Mr. Anders' 1989 employment
agreement and his change-of-control agreement adopted by the Board of
Directors in 1989 and given to Mr. Anders at the time he joined the Company
in 1990; for Mr. Kapnick, $19,637 matching payments to Salaried Plans,
$5,564 term life insurance premiums, $3,026,975 deposited in his Special
Distribution Account in connection with special distributions made to all
shareholders of the Company and also received by holders of awards of stock
options and Restricted Stock, and $6,000,000 paid or accrued pursuant to
the terms of an agreement dated March 17, 1993, concerning his retirement
as an employee of the Company, pursuant to which Mr. Kapnick agreed to
forego any rights under a change-of-control agreement
16
<PAGE> 22
adopted by the Board of Directors in 1989 and given to Mr. Kapnick at the
time he joined the Company as an employee in 1991, and rights which he has
to medical and life insurance, career assistance, pension extensions,
severance benefits and business transaction awards; for Mr. Mellor, $41,954
matching payments to Salaried Plans, $9,393 term life insurance premiums,
$5,870,423 deposited in his Special Distribution Account in connection with
special distributions made to all shareholders of the Company and also
received by holders of awards of stock options and Restricted Stock, and
$6,200,000 paid or accrued pursuant to the terms of an agreement dated
March 17, 1993, pursuant to which Mr. Mellor waived certain employee
compensation rights, including any rights he may have had under a
change-of-control agreement adopted by the Board of Directors and given to
Mr. Mellor in 1989; for Mr. Chabraja, no matching payments to Salaried
Plans, $3,044 term life insurance premiums, and $750,000 deposited in his
Special Distribution Account in connection with special distributions made
to all shareholders of the Company and also received by holders of awards
of stock options and Restricted Stock; for Mr. Cunnane, $23,267 matching
payments to Salaried Plans, $4,120 term life insurance premiums, $2,350,937
deposited in his Special Distribution Account in connection with special
distributions made to all shareholders of the Company and also received by
holders of awards of stock options and Restricted Stock, and $2,325,000
paid or accrued pursuant to the terms of an agreement dated March 16, 1993,
and amended November 12, 1993 (in conjunction with Mr. Cunnane's retirement
from the Company), pursuant to which Mr. Cunnane waived certain employee
compensation rights, including any rights he may have had under a
change-of-control agreement adopted by the Board of Directors and given to
Mr. Cunnane in 1989; for Mr. Turner, $22,360 matching payments to Salaried
Plans, $4,378 term life insurance premiums, $3,082,685 deposited in his
Special Distribution Account in connection with special distributions made
to all shareholders of the Company and also received by holders of awards
of stock options and Restricted Stock, and $2,200,000 paid or accrued
pursuant to the terms of an agreement dated March 17, 1993, pursuant to
which Mr. Turner waived certain employee compensation rights, including any
rights he may have had under a change-of-control agreement adopted by the
Board of Directors and given to Mr. Turner in 1989; and for Mr. Tetrault,
$16,957 matching payments to Salaried Plans, $2,400 term life insurance
premiums, $1,811,739 deposited in his Special Distribution Account in
connection with special distributions made to all shareholders of the
Company and also received by holders of awards of stock options and
Restricted Stock, and $1,400,000 paid or accrued pursuant to the terms of
an agreement dated March 17, 1993, pursuant to which Mr. Tetrault waived
certain employee compensation rights, including any rights he may have had
under a change-of-control agreement adopted by the Board of Directors in
1989 and given to Mr. Tetrault when he joined the Company in 1991.
(f) William A. Anders retired as Chief Executive Officer on May 5, 1993, and as
an employee of the Company on May 31, 1993. In 1993, Mr. Anders received a
bonus equivalent to his 1992 bonus prorated for his months of service to
the Company in 1993.
(g) Harvey Kapnick retired as an employee of the Company on May 31, 1993. In
1993, Mr. Kapnick received a bonus equivalent to his 1992 bonus prorated
for his months of service to the Company in 1993.
(h) Nicholas D. Chabraja was elected on March 4, 1994, to the position of
Executive Vice President of the Company.
(i) James J. Cunnane retired as Chief Financial Officer of the Company,
effective December 17, 1993, and as an executive officer and employee of
the Company effective December 31, 1993.
STOCK OPTION AWARDS
Under its incentive compensation program the Company is authorized to award
incentive stock options, meeting the applicable requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), or stock options which do not
qualify under Code requirements. The option price of all stock options shall not
be less than 100% of the fair market value of the Common Stock on the date of
the award. Stock options may be exercised for cash or Common Stock, or a
combination of both, under procedures established by the Compensation Committee.
17
<PAGE> 23
The Compensation Committee is authorized to establish (i) the term of each
stock option which, in the case of incentive stock options, shall not be more
than ten years, (ii) the terms and conditions upon which and the times when each
stock option shall be exercised, and (iii) the terms and conditions under which
stock options may be exercised after termination of employment. All stock
options granted prior to October 25, 1993, (except those which were issued in
connection with the termination of and in substitution for benefits under the
Gain/Sharing Plan as described in the Company's Proxy Statement dated March 28,
1991, and those described below) are awarded for terms of ten years and are
exercisable in their entirety beginning 18 months after the date of the award.
The term of the Gain/Sharing Plan options expires on December 2, 1996. The
Compensation Committee cannot award stock appreciation rights.
On October 25, 1993, the Compensation Committee of the Board of Directors
approved the New Program consisting, in part, of Performance Stock Options.
Fifty percent of the Performance Stock Options may be exercised on or after
December 31, 1994, if and when the price of the Common Stock has attained and
maintained $52.50 per share for 30 consecutive trading days anytime before or
after December 31, 1994. The balance of the Performance Stock Options may be
exercised on or after December 31, 1995, if and when the price of the Common
Stock has attained and maintained $60 per share for 30 consecutive trading days
anytime before or after December 31, 1995. For accounting reasons, the
Performance Stock Options are exercisable 30 days before the end of their
five-year term, whether or not the price targets have been met.
The following table sets forth information with respect to stock options
granted on October 25, 1993, to the named executives pursuant to the New
Program.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------------------- ------------------------
PERCENTAGE
OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED FISCAL YEAR BASE PRICE DATE 5% 10%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WILLIAM A. ANDERS 0 0.0% $ 0.00 -- $ 0 $ 0
HARVEY KAPNICK 0 0.0 0.00 -- 0 0
JAMES R. MELLOR 240,000 17.2 47.00 10/25/98 3,116,456 6,886,553
NICHOLAS D. CHABRAJA 100,000 7.2 47.00 10/25/98 1,298,523 2,869,397
JAMES J. CUNNANE 0 0.0 0.00 -- 0 0
JAMES E. TURNER, JR. 90,000 6.5 47.00 10/25/98 1,168,671 2,582,457
ROGER E. TETRAULT 70,000 5.0 47.00 10/25/98 908,966 2,008,578
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 24
The following table sets forth information with respect to option exercises
and year-end values during 1993 by the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES ---------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE(e)/ EXERCISABLE(e)/
NAME EXERCISE REALIZED(A) UNEXERCISABLE(u) UNEXERCISABLE(u)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WILLIAM A. ANDERS 0 $ 0 0(e) $ 0(e)
320,000(u) 10,282,400(u)
HARVEY KAPNICK 0 0 0(e) 0(e)
240,000(u) 7,711,800(u)
JAMES R. MELLOR 0 0 0(e) 0(e)
500,000(u) 8,354,450(u)
NICHOLAS D. CHABRAJA 0 0 0(e) 0(e)
100,000(u) 0(u)
JAMES J. CUNNANE 0 0 0(e) 0(e)
124,000(u) 3,984,430(u)
JAMES E. TURNER, JR. 0 0 0(e) 0(e)
226,000(u) 4,370,020(u)
ROGER E. TETRAULT 79,400 2,801,335 0(e) 0(e)
170,000(u) 3,213,250(u)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The value realized is computed by multiplying the difference between the
exercise price of the stock option and the market price of the Common Stock
on the date of exercise by the number of shares of Common Stock with
respect to which the option was exercised.
RESTRICTED STOCK AWARDS
The Company can award shares of Restricted Stock to participants in its
Incentive Compensation Plan. Awards of Restricted Stock generally provide for
restrictions to lapse over time. Holders of awards are entitled to vote the
shares awarded and to receive dividends on the shares from the date the award of
shares is made. On February 15, 1991, the Board, in order to incentivize the new
management team to enhance shareholder value and in connection with the award of
Restricted Stock, committed to make additional awards of Restricted Stock in
1992 and 1993 to certain of its key executives. At the Special Meeting of
Shareholders held on January 15, 1992, the Compensation Committee was authorized
to then issue in 1992 with respect to 1991 performance and in accord with the
commitment of the Board of Directors made in February, 1991, the Restricted
Stock committed to be awarded in 1992 and 1993. The Company made no awards of
Restricted Stock to the Chief Executive Officer and the named individuals with
respect to 1992.
Awards of Performance Restricted Stock were made pursuant to the New Program
on October 25, 1993. The Performance Restricted Stock has a feature which will
increase or decrease the number of shares initially granted at twice the rate of
the corresponding increase or decrease in the stock price from the date of grant
to the end of each performance period. Fifty percent of the grant is earned on
December 31, 1994, the end of the first performance period, and the balance is
earned on December 31, 1995, the end of the second performance
19
<PAGE> 25
period. At the end of each performance period, the average price of Common Stock
over the preceding 30 trading days (the "Average Price") will be compared to the
price per share on the grant date. That difference will be multiplied by the
number of shares of Performance Restricted Stock to be earned at the end of each
performance period and the resulting product will be divided by the Average
Price. The number of shares of Common Stock so determined will be added to (in
the case of a higher Average Price) or subtracted from (in the case of a lower
Average Price) the number of shares of Performance Restricted Stock to be earned
at that time. Once the number of shares of Performance Restricted Stock has been
adjusted, restrictions will continue to be imposed for a period of two years, at
the end of which time all restrictions will lapse.
For example, for a grantee who was to earn 1,000 shares of Performance
Restricted Stock at the end of the first performance period, if the Average
Price is $51.70 and the price on the date of grant was $47, then the $4.70
increase in the price will be multiplied by 1,000 and the $4,700 product so
obtained will be divided by $51.70 so that the grantee will earn an additional
91 shares of Performance Restricted Stock. The 91 additional shares will be
added to the 1,000 original shares. The restrictions will not lapse on the 1,091
shares until January 1, 1997.
Performance Restricted Stock awards were made on October 25, 1993, as
follows: Mr. Mellor-30,000 shares; Mr. Chabraja-14,000 shares; Mr. Turner-12,000
shares; and Mr. Tetrault-10,000 shares.
RETIREMENT PLANS
The Company and its subsidiaries maintain retirement plans (the "Retirement
Plans") for officers and other salaried employees. Active participants in the
Retirement Plans numbered approximately 13,000 as of January 1, 1994 (excluding
employees of operations which the Company has sold). Membership in the
Retirement Plans is automatic for any eligible salaried employee not included in
a unit where pensions are the subject of collective bargaining and who has
completed one year of continuous service or who has attained age 40. The
Retirement Plans are non-contributory. The amount of the Company's contribution
for any individual member cannot be readily calculated because the contribution
is based upon actuarial assumptions for the population as a whole.
The Retirement Plans for salaried employees were amended, effective July 1,
1990, to adopt a benefit structure based upon final average pay in lieu of the
prior career average pay formula. Upon retirement at the normal retirement age
of 65, or at or after age 62 for participants with ten or more years of
continuous service, a member of a Retirement Plan is entitled to the full normal
monthly retirement benefit earned through the date of retirement. This monthly
benefit will equal 1 1/3% of final average pay per year of Retirement Plan
membership up to a maximum of 40 years of membership. "Final average pay" means
the average of a member's highest consecutive 60 monthly base rates of pay
received during the member's last 120 months of salaried employment as a
Retirement Plan member. The compensation used in this average also includes 100%
of the original value of any bonus awards (excluding the value of any stock
options, Restricted Stock, Gain/Sharing Plan awards, or any previously granted
long-term compensation awards) which have been earned out. See the "Summary
Compensation Table" under the caption "Summary Compensation" above for the
salary and bonus amounts earned by the Chief Executive Officer and the named
individuals.
Reduced retirement benefits are payable upon early retirement if a member
retires between the ages of 55 and 62 with ten or more years of continuous
service. Retirement benefits are fully vested when a member
20
<PAGE> 26
has completed five years of continuous service. The benefits under the final
average pay formula are not subject to any reduction for social security or
other offset amounts. The amount of benefits which may be paid under the
Retirement Plans is limited by the Code. To the extent that any benefits accrued
under the formulas in the Retirement Plans for salaried employees exceed those
limitations, the excess is paid as an operating expense under a separate,
unfunded, non tax qualified program. It has been assumed that each individual
will continue as a Retirement Plan member until normal retirement date or the
actual date of retirement and that current earnings will remain constant over
this period. In addition, it has been assumed that each individual will elect to
receive the benefit in the form of a single life annuity. The table below sets
forth projected annual benefits payable at age 65 based upon earnings and years
of credited service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
- --------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
$ 450,000 $ 30,000 $ 60,000 $ 90,000 $120,000 $150,000 $ 180,000
500,000 33,333 66,667 100,000 133,333 166,667 200,000
550,000 36,667 73,333 110,000 146,667 183,333 220,000
600,000 40,000 80,000 120,000 160,000 200,000 240,000
650,000 43,333 86,667 130,000 173,333 216,667 260,000
700,000 46,667 93,333 140,000 186,667 233,333 280,000
750,000 50,000 100,000 150,000 200,000 250,000 300,000
1,000,000 66,667 133,333 200,000 266,667 333,333 400,000
1,500,000 100,000 200,000 300,000 400,000 500,000 600,000
2,000,000 133,333 266,667 400,000 533,333 666,667 800,000
2,500,000 166,667 333,333 500,000 666,667 833,333 1,000,000
- --------------------------------------------------------------------------------------------
</TABLE>
As of January 1, 1994, the persons named in the "Summary Compensation Table"
under the heading "Executive Compensation" were credited with the following
years of service under the retirement plans: Harvey Kapnick, 2 years; James R.
Mellor, 12 years; Nicholas D. Chabraja, 11 months; James J. Cunnane, 15 years;
James E. Turner, Jr., 5 years; and Roger E. Tetrault, 2 years. Mr. Kapnick was
65 years old when he joined the Company and, as a result, became immediately
vested. Mr. Kapnick was entitled to a lifetime retirement benefit equal to
$41,021 per year, beginning June 1, 1993. In lieu thereof, Mr. Kapnick elected
to receive and is being paid $5,888 per year as a ten-year certain benefit from
the tax qualified General Dynamics Salaried Retirement Plan, and he was paid a
lump sum benefit from the General Dynamics Supplemental Retirement Plan in the
amount of $285,973.
Effective July 1, 1993, salaried retirees age 65 or older who were then
receiving retiree medical coverage began to receive a $94 per month pension
improvement in lieu of the current post 65 retiree medical coverage. The retiree
receives an additional $94 per month pension improvement for an eligible spouse.
Current employees who retire at age 65 with at least ten years of credited
service will also receive a $94 per month pension improvement at age 65. If the
employee retires with less than ten years of continuous service
21
<PAGE> 27
or with a vested pension before age 55, a prorated pension improvement will be
provided at age 65. The retiree will receive an additional amount equal to the
amount received by the retiree for an eligible spouse.
Mr. Anders retired on June 1, 1993. He did not participate in the Retirement
Plan for salaried employees. In lieu thereof, salary continuation and retirement
benefits were to be provided to him pursuant to his employment agreement entered
into at the time he joined the Company, September 22, 1989 (the "Anders
Employment Agreement"). Under this Agreement, Mr. Anders would have been
entitled to an annual retirement benefit for life equal to the sum of $250,000
plus $2,315 per full month of service with the Company from the commencement of
his employment on January 1, 1990, until the termination of his employment. He
would have been entitled to an annual benefit of $344,909 commencing November 1,
1998 (age 65), or a reduced annual benefit of $279,375 commencing immediately.
Mr. Anders had the right to convert his retirement benefit for life to certain
alternative forms on an actuarially adjusted basis. However, Mr. Anders and the
Company agreed that he would forego this retirement benefit, and in lieu thereof
entered into a split-dollar life insurance arrangement with the Company. Under
this arrangement, the Company has agreed to pay an annual premium equal to
$250,000 to each of two insurance companies (a total of $500,000) for a period
of ten years. The Company would then receive a reimbursement of all its
premiums, a total of $5,000,000, at the end of 15 years. Since the Company will
receive a reimbursement of the premiums it pays, the cost to the Company
pursuant to this arrangement is equal to the interest that would have been
earned on the annual premiums, which, calculated at eight percent over the
fifteen years, is approximately $1,862,300. This amount is approximately the
same as the present value of the joint and survivor annuity alternative of
retirement benefits provided in Mr. Anders' employment agreement. During 1993,
the Company recorded an expense of approximately $665,700 to amortize the cost
of this benefit.
Mr. Mellor has entered into an agreement with the Company to receive an
enhancement to his retirement benefits with the result that his aggregate
retirement benefit will total $300,000 per year. That amount is offset by any
amounts he is to receive under the General Dynamics Salaried Retirement Plans.
The agreement provides that if the Company's liability associated with providing
this aggregate retirement benefit is less than $800,000, then he shall receive
the difference as a lump sum payment within 30 days following the date on which
Mr. Mellor begins to receive the benefit. If the actual liability to provide the
additional benefit is greater than $800,000, General Dynamics will pay the
difference. Assuming Mr. Mellor continues to be employed by the Company until
June 1, 1995 (age 65), the present value of the additional benefit based on an
eight percent interest assumption would be approximately $717,300. During 1993,
the Company recorded an expense of approximately $262,500 to amortize the cost
of this benefit to Mr. Mellor.
Mr. Turner entered into an agreement with the Company dated September 1,
1988, providing him with an enhancement to his retirement benefit which is
intended to ensure he receives a benefit equivalent to the one he would have
received if he had continued to be covered by the defined benefit retirement
plans maintained by his former employer, the Newport News Shipbuilding and
Drydock Company (the "Newport News Plan"). The benefit is based on the formula
in that plan reduced by benefits actually payable under the Newport News and
General Dynamics Plans. Since Mr. Turner has received substantial increases in
his compensation and commensurate increases in his retirement plan benefit
accruals, Mr. Turner currently will not be entitled to any supplemental benefits
pursuant to his employment agreement.
Mr. Tetrault entered into an agreement with the Company dated July 3, 1991,
to receive an enhancement to his retirement benefit which is intended to ensure
he receives a benefit equivalent to the one he would
22
<PAGE> 28
have received had he continued to be covered under the Babcock and Wilcox
Retirement Plan. The benefit is based on the formula in that plan reduced by
benefits actually payable under the Babcock and Wilcox and General Dynamics
Plans. In addition to this benefit, the agreement also provides for an
additional annual lifetime benefit of $5,000 commencing at age 65. The present
value of Mr. Tetrault's benefit, based on an eight percent interest rate and
assuming he continues in service until his first opportunity to retire at
October 1, 1996, is estimated to be equal to $267,000. During 1993, the Company
recorded an expense of $17,700 to amortize the cost of this retirement benefit.
The foregoing benefits for Messrs. Anders, Mellor, Turner and Tetrault are
subject to the same level of risk as all other general unsecured obligations of
the Company.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
TERMINATION OF CERTAIN BENEFITS
In 1993, at the request of the Board of Directors, the Compensation
Committee developed a program for executives who would be retiring or resigning
from the Company in connection with the Company's downsizing that provided the
Company with a waiver and release of those employees' rights under existing
programs for insurance and other benefit policies, existing severance benefits,
certain relocation allowances and change-of-control agreements in consideration
for the Company's payment of an enhanced severance/early retirement package. For
the executives who would remain with the Company, in exchange for the release of
their rights under prior change-of-control agreements adopted by the Board of
Directors in 1989, and in further consideration of their written commitment to
remain with the Company in a given role for a defined period, these employees
were to receive a payment to be made in installments. These agreements do not
affect the employees' rights under Company Retirement Plans.
For employees who separated from the Company, payments were in large part
paid when the employee left the Company's employment, with a portion retained
until the first anniversary of that date. For employees who remained with the
Company, one-half of the payment was made upon execution of the agreement to
remain with the Company and the remainder will be paid in 1995, usually upon the
second anniversary of that agreement. The Company paid $34,000,000 to members of
this group of employees in 1993 and will pay a total of approximately
$12,000,000 to members of this group of employees in 1994 and 1995.
Messrs. Anders, Kapnick, Mellor, Cunnane, Turner and Tetrault each entered
into agreements, described below, with the Company.
EMPLOYMENT AND OTHER AGREEMENTS
The Company entered into an agreement with Mr. Anders, dated March 17, 1993
(the "Anders Agreement"), concerning the transfer of his duties and
responsibilities as Chief Executive Officer to Mr. Mellor and his retirement as
an employee of the Company. Pursuant to the Anders Agreement, the Company has
been relieved of certain obligations to Mr. Anders under his employment
agreement with the Company, dated September 22, 1989 (the "Anders Employment
Agreement"), and, in addition, Mr. Anders has agreed to forego any rights under
a change-of-control agreement adopted by the Board of Directors in 1989 and
given to Mr. Anders at the time he joined the Company in 1990 and rights which
he had had to medical and life insurance, career assistance, pension extensions,
severance benefits and business transaction
23
<PAGE> 29
awards. In consideration of the foregoing, Mr. Anders received $5,700,000, of
which $5,500,000 was paid on June 30, 1993, and $200,000 will be held until May
31, 1994. In addition, $2,700,000 was paid to Mr. Anders on June 30, 1993, in
satisfaction of the Company's obligation to Mr. Anders, under certain provisions
of the Anders Employment Agreement, regarding payments due to him upon the
termination of his employment after January 1, 1993. The Anders Agreement also
provides for Mr. Anders to receive an annual fee of $100,000 for his service as
Chairman of the Board of Directors. The Anders Agreement confirms Mr. Anders'
commitment to provide consulting services to the Company for a ten-year period
at no cost to the Company.
The Company entered into an agreement with Mr. Kapnick, dated March 17, 1993
(the "Kapnick Agreement"), concerning his retirement as an employee of the
Company. Pursuant to the Kapnick Agreement, Mr. Kapnick agreed to forego any
rights under a change-of-control agreement adopted by the Board of Directors in
1989 and given to Mr. Kapnick at the time he joined the Company as an employee
in 1991 and rights which he has to medical and life insurance, career
assistance, pension extensions, severance benefits and business transaction
awards. In consideration of the foregoing, Mr. Kapnick was paid $5,800,000 on
June 30, 1993, and is to be paid $200,000 on May 31, 1994.
In connection with his continued employment with the Company as President
and his assumption of the duties of Chief Executive Officer, the Company entered
into an agreement with Mr. Mellor, dated March 17, 1993 (the "Mellor
Agreement"). Pursuant to the Mellor Agreement, Mr. Mellor's base salary was
established at $670,000. In consideration for his waiver of certain employee
compensation rights, including any rights he may have had under a
change-of-control agreement adopted by the Board of Directors and given to Mr.
Mellor in 1989 and in consideration of his remaining as an employee of the
Company until at least December, 1995, Mr. Mellor received a payment of
$3,100,000 upon execution of the Mellor Agreement and is to be paid another
$3,100,000 on December 31, 1995.
The Company entered into an agreement with Mr. Chabraja dated February 3,
1993, which was subsequently amended on December 22, 1993 (together the
"Chabraja Agreement"). Pursuant to the Chabraja Agreement, Mr. Chabraja, who had
been serving the Company as acting General Counsel since the retirement of Mr.
Robert Duesenberg, effective December 31, 1992, agreed to serve as Senior Vice
President and General Counsel. In consideration for entering into the Chabraja
Agreement and remaining an employee of the Company at least through December 31,
1994, Mr. Chabraja received 30,000 shares of Restricted Stock on February 3,
1993. It was agreed that Mr. Chabraja would remain a partner of Jenner & Block
and reside in Chicago, but devote substantially all of his time and attention to
the business affairs of the Company. Additionally, it was agreed that Mr.
Chabraja will not participate in any fees that Jenner & Block derives from its
representation of the Company. On March 4, 1994, Mr. Chabraja was promoted to
the position of Executive Vice President and elected a member of the Board of
Directors of the Company.
The Company entered into an agreement with Mr. Cunnane, dated March 16, 1993
(the "Cunnane Agreement"), concerning his continued employment as Senior Vice
President-Finance and Administration of the Company. Pursuant to the Cunnane
Agreement, Mr. Cunnane received certain payments in consideration for his waiver
of certain employee compensation rights, including all rights he may have had
under a change-of-control agreement adopted by the Board of Directors and given
to Mr. Cunnane in 1989, and in consideration of his remaining an employee of the
Company until at least March, 1995. The Cunnane Agreement was modified on
November 12, 1993, in conjunction with Mr. Cunnane's resignation of employment
with the Company, effective December 31, 1993. Mr. Cunnane received the
following payments: $725,000 upon execution of the Cunnane Agreement; $1,125,000
on December 15, 1993; and
24
<PAGE> 30
$275,000 paid in three equal installments from January through March of 1994. An
additional $200,000 is to be paid on March 31, 1995.
In connection with his continued employment with the Company as Executive
Vice President and President, Electric Boat Division, the Company entered into
an agreement with Mr. Turner, dated March 17, 1993 (the "Turner Agreement").
Pursuant to the Turner Agreement, in consideration for his waiver of certain
employee compensation rights, including any rights he may have had under a
change-of-control agreement adopted by the Board of Directors and given to Mr.
Turner in 1989 and in consideration of his remaining as an employee of the
Company until at least March 1995, Mr. Turner received a payment of $1,100,000
upon execution of the Turner Agreement and is to be paid another $1,100,000 on
March 31, 1995.
In connection with his continued employment with the Company as Corporate
Vice President and President, Land Systems Division, the Company entered into an
agreement with Mr. Tetrault, dated March 17, 1993 (the "Tetrault Agreement").
Pursuant to the Tetrault Agreement, in consideration for his waiver of certain
employee compensation rights, including any rights he may have had under a
change-of-control agreement adopted by the Board of Directors in 1989 and given
to Mr. Tetrault when he joined the Company in 1991 and in consideration of his
remaining as an employee of the Company until at least March 1995, Mr. Tetrault
received a payment of $700,000 upon execution of the Tetrault Agreement and is
to be paid another $700,000 on March 31, 1995.
TRANSACTIONS INVOLVING DIRECTORS AND OTHERS
The following transactions relate to payments made in 1993 except as
indicated.
Material Service Corporation ("Material Service"), an indirect subsidiary of
the Company, occupies storage facilities in space leased from CC Industries,
Inc. ("CCI"). Payments for the rental of such storage space aggregated $78,442
in 1993. Material Service also provided $2,220 of printing and miscellaneous
services to CCI in 1993.
In 1993, Material Service paid Lemont Shipbuilding & Repair Company, a
division of Exchange Building Corporation, which is a subsidiary of CCI
("Exchange"), $163,642 pursuant to fleeting service agreements. In 1993,
American Envelope Company, a subsidiary of Exchange, paid Material Service $251
for printing services. Aurora Venture, a partnership in which University
Exchange Corporation, a subsidiary of Exchange, has a 75% interest, paid $600 to
Material Service in 1993 for sign board rent.
During 1993, as in prior years, Freeman United Coal Mining Company, an
indirect subsidiary of the Company, paid royalties to certain trusts under
leases of coal lands as restated in 1964, the beneficiaries of which trusts
include certain associates of Mr. Lester Crown, Mr. James Crown and Mr. Goodman.
The portion of the royalties paid for the direct or indirect benefit of those
associates was $2,892,074.
Henry Crown and Company owns a Cessna Model 650 Citation III airplane. The
Company and its subsidiaries use the airplane for corporate purposes and
reimburse Henry Crown and Company for such use in accordance with Company
policies regarding the use of corporate aircraft, which policies are consistent
with applicable regulations. During 1993, the Company paid Henry Crown and
Company $142,138 for corporate use of the airplane during 1992 and 1993, and
Henry Crown and Company billed an additional $10,836 to the Company for
corporate use of the airplane in 1993 which was paid during 1994. Material
Service paid $17,514 to Henry Crown and Company in 1993 for use of the airplane,
and Marblehead Lime
25
<PAGE> 31
Company, a subsidiary of Material Service, paid $68,139 to Henry Crown and
Company in 1993 for use of the airplane. Henry Crown and Company paid $4,941 to
Material Service in 1993 for printing and miscellaneous services and Material
Service paid $463 to Henry Crown and Company in 1993 for miscellaneous services.
Mr. Lester Crown, a Director of the Company, is Chairman of the Board of
Directors of CCI and President of Henry Crown and Company and Mr. James Crown, a
Director of the Company, is a Vice President of both CCI and Henry Crown and
Company and a general partner of Henry Crown and Company (Not Incorporated), a
limited partnership (HC Co. Partnership). Charles H. Goodman, a Director of the
Company, is a Vice President of both CCI and Henry Crown and Company. Mr. James
Crown has an approximate 0.1% interest in HC Co. Partnership and is a
beneficiary of various trusts, including a trust of which Mr. Lester Crown and
Mr. Goodman are trustees, which have an approximate 8.5% interest in HC Co.
Partnership. All of the stock of CCI and Henry Crown and Company is owned by HC
Co. Partnership.
The Company has engaged Mr. Carlucci, a Director, to provide advice to the
Company in respect to alternatives available for the resolution, by settlement
or otherwise, of the dispute now in litigation by the Company and McDonnell
Douglas Corporation against the United States arising out of the termination of
the U.S. Navy's A-12 program to develop a new advanced jet fighter. Mr. Carlucci
is paid a quarterly retainer of $20,000, and is reimbursed for expenses incurred
on behalf of the Company.
Mr. Chabraja, a Director of the Company, is a Senior Partner of the law firm
of Jenner & Block which has, since 1960, provided legal services to the Company.
Mr. Chabraja's agreement with the Company provides that he will not participate
in any revenues which Jenner & Block derives from its representation of the
Company nor will Jenner & Block bill the Company for any time which Mr. Chabraja
devotes to the Company's affairs. During 1993, Mr. Chabraja did, and he intends
in 1994 to continue to, devote substantially all of his business time and
attention to the affairs of the Company. In 1993, the Company paid Jenner &
Block $12,721,447 for legal fees.
In the opinion of management, the terms of the above transactions were at
least as favorable to the Company as those available from unaffiliated parties.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of the Audit Committee,
proposes that Arthur Andersen & Co. be selected as the independent auditors to
audit the books, records, and accounts of the Company for 1994. The firm
commenced auditing the books of the Company and its predecessor, Electric Boat
Company, in 1949.
Representatives of Arthur Andersen & Co. are expected to be present at the
Annual Meeting of Shareholders, will have the opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE SELECTION OF ARTHUR
ANDERSEN & CO. SHARES REPRESENTED BY THE PROXY WILL BE VOTED FOR UNLESS
SHAREHOLDERS DIRECT OTHERWISE.
26
<PAGE> 32
SHAREHOLDER PROPOSAL
The Company has been advised by the custodian of the New York City
Employees' Retirement System ("TRS"), 1 Centre Street, New York, New York
10007-2341, owners of more than 2,000 shares of Common Stock, that they intend
to present to the Annual Meeting the following:
THE PROPOSAL
WHEREAS, the New York City Employees' Retirement System is concerned about the
long-term economic performance of the companies in which it owns stock, and
WHEREAS, the board of directors of a company is accountable to shareholders for
the performance of management and the company, and TRS believes that a
majority of directors should be independent of management, and
WHEREAS, the board of directors is meant to be an independent body elected by
shareholders and is charged by law and by shareholders with the duty,
authority and responsibility to formulate and direct corporate policies, and
WHEREAS, the board of directors should monitor the activities of management in
the implementation of those policies for the best interest of shareholders,
and
WHEREAS, the Company's interests can best be served by having directors who are
independent of management and who represent a breadth of experience,
NOW THEREFORE, BE IT RESOLVED THAT: the shareholders request that the board of
directors amend the By-Laws to provide that the board of directors consist of
a majority of independent directors. For those purposes, an independent
director is one who: (1) has not been employed by the company, or an
affiliate, in an executive capacity within the last five years; (2) is not,
and has not been, a member of a company that is one [sic] this company's paid
advisors or consultants; (3) is not employed by a significant customer or
supplier; (4) does not and did not have a personal services contract with the
company; (5) is not employed by a tax-exempt organization that receives
significant contributions from the company; (6) is not a relative of the
management of the company; (7) has not had any business relationship that
would be required to be disclosed under Regulation S-K. We request that this
by-law amendment be applied only to nominees for director at meetings
subsequent to the 1994 annual meeting and that it not apply to incumbent
directors.
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE SHAREHOLDER PROPOSAL
In light of the actions taken by the Board of Directors, as described below
and in the Chairman's letter to the shareholders, the shareholder proposal is
unnecessary. For the last two years, the shareholders of the Company did not
vote in favor of the two nearly identical proposals submitted by the same
proponents. The Board of Directors agrees with the general premise of the
proposal, that the number of inside directors should be low. However, the
proposal's definition of "independent director" is unduly restrictive and would
disadvantage the Company in obtaining the advice and counsel of talented
individuals. Therefore, your Board of Directors recommends that all shareholders
vote AGAINST.
27
<PAGE> 33
In 1994, in view of the changes in the Company's management and structure,
the Board of Directors of the Company is making changes in the composition of
the Board which will further enhance management's accountability to the Board
and the Board's accountability to the shareholders as described under the
caption "Election of Directors."
The Company has consistently followed a policy of adding to its Board of
Directors eminently qualified non-employees whom the Company believes could
provide substantial benefit and guidance to the Company. The Company's
non-employee nominees being represented to this Annual Meeting include the
following national government and military leaders: former Secretary of Defense,
Frank C. Carlucci; former Chairman of the Joint Chiefs of Staff and current
Chairman of the President's Foreign Intelligence Advisory Board, William J.
Crowe, Jr.; and former U.S. Army Chief of Staff and NATO Supreme Allied
Commander Europe, retired General Bernard W. Rogers. Also being nominated are
distinguished business leaders. Upon election of the current nominees, only two
of the Board's nine directors will be employees. It is hard to believe that any
other composition of the Board of Directors could have exceeded the 534% total
return (including dividends) over the 1991-1993 turnaround period. All
shareholders, including TRS, were greatly benefitted by these results.
In light of the foregoing and in view of the Board of Directors' belief that
the definition of "independent director" in the proposal is excessively narrow
and would disadvantage the Company in maintaining for its benefit the advice and
counsel of talented individuals, your Board of Directors recommends a vote
AGAINST the proposal.
RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE SHAREHOLDER PROPOSAL.
SHARES REPRESENTED BY THE PROXY WILL BE VOTED AGAINST UNLESS SHAREHOLDERS DIRECT
OTHERWISE.
SHAREHOLDER PROPOSAL
The Company has been advised by representatives of (i) the Loretto Literary
& Benevolent Institution, Loretto Motherhouse, Nerinx, Kentucky 40049, owners of
200 shares of Common Stock, (ii) Glenmary Home Missioners (The Home Missioners
of America), P. O. Box 465618, Cincinnati, Ohio 45246-5618, owners of 200 shares
of Common Stock, and (iii) The Missionary Oblates of Mary Immaculate of the
Central United States Province, 159 Moore Street, Lowell, Massachusetts 01852,
owners of 11,800 shares of Common Stock, that they intend to present to the
Annual Meeting the following:
THE PROPOSAL
WHEREAS, the sudden and unplanned shift away from weapons procurement has
resulted in defense industry plant closings nationwide as well as many thousands
of worker layoffs;
WHEREAS, civilian manufacturing is the cornerstone of the economic security
of our nation;
WHEREAS, economic conversion in a company or at a plant dependent upon
defense contracts means the planned transfer of productive resources to more
stable, diversified operations;
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WHEREAS, domestic and social programs receive continual federal cuts (in
favor of military expenditures) causing decline in health care, eduction [sic],
job training and affordable housing, contributing to loss of employee morale and
increases in drug and crime problems;
WHEREAS, in light of General Dynamics's dependency on military contracts,
the growing citizen concerns and national policy shifts, we believe it in the
best interests of our employees and shareholders to plan for economic
conversion;
THEREFORE BE IT RESOLVED: The shareholders request the Board of Directors to
provide a comprehensive report describing our Company's plans for workers and
facilities dependent upon defense contracts. The report should be available to
shareholders on request, may omit proprietary information and be prepared at
reasonable cost.
STATEMENT OF SUPPORT
We believe the projected decline in arms procurement and weapons development
is affecting all companies which bid on contracts for the Department of
Defense -- the sales of the missile division to General Motors as just one
example of the current defense economy. The report requested will demonstrate
our Company's concern for shareholders, employees and the environment. We hope
the report will include information responding to the following areas.
1. Criteria used for decisions to continue weapons production and a summary
of corporate policy on defense contracts and weapons manufacture.
2. Policies and procedures for diversification of contracts, commercial as
well as military.
3. Summarize strategic planning process for studying environmentally
sustainable civilian commercial directions including worker retraining,
retooling of production facilities, identification of new products and
markets and cooperation with local, state and Federal economic conversion
programs.
4. Brief descriptions of projects for which General Dynamics has applied for
funding, for example, the federal Technology Reinvestment Project.
5. Establishment of planning committees at each General Dynamics site
dependent on defense contracts to work cooperatively with employees,
members of the community and state agencies specializing in conversion
planning.
Nationwide, declines in earning, plant closings and worker layoffs are
causing great hardships not only for the companies but for employees, their
families and the communities involved. As shareholders, we hope to avoid this
financial devastation and suffering by encouraging General Dynamics to be an
innovative planner and responsible employer by demonstrating leadership in
economic conversion. If you agree, please support this resolution by voting YES.
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE SHAREHOLDER PROPOSAL
Your Board of Directors feels very strongly that the shareholder proposal is
contrary to the best interests of the Company, its employees, and shareholders,
and recommends that all shareholders vote AGAINST.
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In our opinion, the proposal is totally political and ideological in nature,
and is not proper for consideration at this shareholders' meeting. The proposal
is being addressed in the wrong forum. The U.S. Constitution entrusts to our
government the great responsibility of safeguarding the freedom of the people of
this country. We believe further that it is the government's duty to determine
what actions should be taken to meet that responsibility and, where the
government believes that certain weapon systems are necessary to that end, it is
our responsibility to develop and provide the systems when called upon because
of our expertise.
The purpose of the proposal is to put forth again this year, as in past
years, the view of the proponents that your Company should withdraw from most of
the businesses in which it is engaged. We believe that the conversion these
proponents want would be enormously prejudicial to the interests of the Company,
its employees, and all but the small group of shareholders who advocate these
goals. More importantly, we believe that the Company's plan for the distribution
of excess cash to shareholders permits them more effectively to redeploy those
resources to other industries and thus contribute to America's economic growth,
competitive strength and job creation. We believe this is the more appropriate
method of converting defense industry assets to other uses.
RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE SHAREHOLDER PROPOSAL.
SHARES REPRESENTED BY THE PROXY WILL BE VOTED AGAINST UNLESS SHAREHOLDERS DIRECT
OTHERWISE.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the Company's officers
and directors, and persons who are holders of more than 10% of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission and the New York Stock Exchange, Inc. and to furnish the Company with
copies of these forms.
Based on its review of the copies of Forms 3, 4 and 5 submitted to the
Company, the Company believes that all the officers, directors and persons who
hold more than 10% of the Common Stock complied with all filing requirements.
SHAREHOLDER PROPOSALS - 1995
MEETING OF SHAREHOLDERS
Any proposal of a shareholder intended to be presented at the Company's 1995
Annual Meeting of Shareholders must be received by the Company no later than
November 30, 1994, in order to be considered for inclusion in the Proxy
Statement and form of Proxy for that meeting.
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<PAGE> 36
VOTE REQUIRED
The nine nominees for election to the Board of Directors at the Annual
Meeting who receive the greatest number of votes cast for Directors at that
meeting, a quorum being present, shall become Directors. The affirmative vote of
a majority of the shares present in person or represented by proxy at the
meeting and voting on each shareholder proposal is required for the adoption of
each shareholder proposal. Abstentions and broker non-votes will not be
tabulated as negative votes on each shareholder proposal, but will be included
in computing the number of shares present for purposes of determining the
presence of a quorum for the Annual Meeting.
OTHER MATTERS THAT MAY
COME BEFORE THE MEETING
As of the date of this Proxy Statement, the only matters expected to come
before the meeting are those set forth above. If any other matter or matters are
properly brought before the meeting or any adjournment thereof, it is the
intention of the persons named in the accompanying form of Proxy to vote Proxies
on those matters in accordance with their best judgment.
SOLICITATION OF PROXIES AND COST THEREOF
The cost of solicitation of Proxies will be borne by the Company.
Solicitation will be made initially by mail. The Directors and officers and
other employees of the Company may, without compensation other than their usual
compensation, solicit Proxies by mail, telephone, telegraph, or personal
interview. In addition, solicitation of brokerage firms, dealers, banks, voting
trustees and their nominees will be made by the means described above by
Georgeson & Company Inc., Wall Street Plaza, New York, New York 10005, at an
anticipated cost of $17,000 plus certain out-of-pocket expenses. The Company
will also reimburse brokerage firms, banks, voting trustees, nominees and other
record holders for their out-of-pocket expenses in forwarding proxy material to
the beneficial owners of Common Stock.
Falls Church, Virginia, March 30, 1994
GENERAL DYNAMICS CORPORATION WILL FURNISH, WITHOUT CHARGE TO ANY
SHAREHOLDER, A COPY OF ITS FORM 10-K REPORT THAT IS FILED ANNUALLY WITH THE
SECURITIES AND EXCHANGE COMMISSION. A COPY OF THIS REPORT FOR 1993 MAY BE
OBTAINED UPON WRITTEN REQUEST TO E. ALAN KLOBASA, SECRETARY, GENERAL DYNAMICS
CORPORATION, 3190 FAIRVIEW PARK DRIVE, FALLS CHURCH, VIRGINIA 22042-4523.
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P GENERAL DYNAMICS CORPORATION
R
O PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 4, 1994
X
Y THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE CORPORATION.
The undersigned hereby appoints WILLIAM A. ANDERS, JAMES R.
MELLOR, and NICHOLAS D. CHABRAJA, and each of them, as proxy of
proxies, with power of substitution, to vote all shares of Common
Stock of GENERAL DYNAMICS CORPORATION which the undersigned is entitled
to vote at the 1994 Annual Meeting of Shareholders, and at any
adjournment thereof, upon the matters set forth on the reverse side and
upon such other matters as may properly come before the meeting, all as
more fully described in the Proxy Statement for said Annual Meeting.
Nominees: F.C. Carlucci, N.D. Chabraja, W.J. Crowe, Jr.,
J.S. Crown, L. Crown, C.H. Goodman,
J.R. Mellor, A.E. Puckett, B.W. Rogers.
SEE REVERSE
SIDE
<PAGE> 38
/ X / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
ON ANY OTHER MATTERS THAT MAY COME BEFORE THE MEETING, THIS PROXY WILL BE
VOTED IN THE DISCRETION OF THE PROXIES NAMES ON THE FACE OF THIS CARD. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS, FOR ITEM
2, AND AGAINST ITEMS 3 AND 4.
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS THE BOARD OF DIRECTORS
A VOTE FOR ITEMS 1 AND 2 RECOMMENDS A VOTE AGAINST
ITEMS 3 AND 4.
<S> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of / / / / 2. Selection of / / / / / / 3. The Shareholder / / / / / /
Directors: Arthur Andersen Proposal with
(see reverse) & Co. as in- regard to the
For all nominees listed dependent auditors composition of
the Board of Directos.
4. The Shareholder / / / / / /
- ------------------------------------ Proposal with
regard to economic
conversion.
I will attend the metting and / /
request an admission card.
Please sign exactly as name appears hereon.
Executors, administrators, turstees, etc.
should so indicate when signing.
----------------------------------------------------
1994
----------------------------------------------------
SIGNATURE(S) DATE
</TABLE>
