<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
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GENERAL DYNAMICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(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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<PAGE> 2
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
1996
[GENERAL DYNAMICS LOGO]
<PAGE> 3
GENERAL DYNAMICS CORPORATION
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
March 25, 1996
TO OUR SHAREHOLDERS:
You are cordially invited to the 1996 Annual Meeting of Shareholders to be
held at the Fairview Park Marriott, 3111 Fairview Park Drive, Falls Church,
Virginia 22042, on Wednesday, May 1, 1996, 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, one
shareholder proposal may be presented.
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/ JAMES R. MELLOR
James R. Mellor
Chairman of the Board of Directors
<PAGE> 4
GENERAL DYNAMICS CORPORATION
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, MAY 1, 1996
The Annual Meeting of Shareholders of General Dynamics Corporation, a
Delaware corporation (the "Company"), will be held at the Fairview Park
Marriott, 3111 Fairview Park Drive, Falls Church, Virginia, on Wednesday, May 1,
1996, 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 LLP as
independent auditors to audit the books, records, and accounts of the
Company for 1996.
3. To consider and act upon the shareholder proposal set forth on pages
19 and 20 of the accompanying Proxy Statement, if it is 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 8, 1996, 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 1995 Shareholder Report of the Company is being mailed with
this Notice of Annual Meeting and Proxy Statement to shareholders of record on
March 8, 1996.
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,
/s/ PAUL A. HESSE
Falls Church, Virginia, March 25, 1996 Paul A. Hesse, Secretary
<PAGE> 5
PROXY STATEMENT
March 25, 1996
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 1, 1996 (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.
At the close of business on March 8, 1996, the record date (the "Record
Date") for the Annual Meeting, the Company had outstanding and entitled to vote
63,180,206 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.
This Proxy Statement, the accompanying Notice of Annual Meeting of
Shareholders to be held May 1, 1996, and the Proxy are being forwarded to
shareholders on or about March 25, 1996.
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
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 12.9% 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.
FMR Corp., a holding company ("FMR"), filed on February 14, 1996, a Schedule
13G with the Securities and Exchange Commission disclosing that it was holding
indirectly over 5% of the Common Stock of the Company. According to the Schedule
13G, FMR was the holder of 5,749,411 shares of the Common Stock, constituting on
the Record Date 9% of the Common Stock outstanding and entitled to vote. Of the
shares of Common Stock held by FMR, 338,532 shares were held with "sole power to
direct the vote," 5,749,411 were held with "sole power to direct the disposition
of" and no shares were held with shared voting power or shared dipositive power.
The address of FMR is 82 Devonshire Street, Boston, Massachusetts 02109.
1
<PAGE> 6
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 5% of the Common
Stock. The Buffett Group disclosed that they became the beneficial owners of
more than 5% 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.
On February 14, 1996, the most recent Schedule 13G of the Buffett Group was
filed with the Securities and Exchange Commission and disclosed that the Buffett
Group was the beneficial owner of 4,963,703 shares of the Common Stock,
constituting on the record date 7.7% of the Common Stock of the Company.
According to the Schedule 13G, Buffett and Berkshire each were the beneficial
owners of 4,963,703 shares of the Common Stock outstanding entitled to vote,
with "shared voting power" and "shared dispositive power." Of the 4,963,703
shares of Common Stock held by the Buffett Group, the Schedule 13G disclosed
that NIC held 4,208,103 shares with "shared voting power" and "shared
dispositive power," and NFMIC held 755,600 shares with "shared voting power" and
"shared dispositive power."
On February 13, 1996, Delaware Management Holdings, Inc. ("Delaware
Management"), filed a Schedule 13G with the Securities and Exchange Commission
disclosing that it was holding indirectly, in conjunction with a group of
investment funds defined as the "Delaware Funds," over 5% of the Common Stock of
the Company. According to the Schedule 13G, Delaware Management was the holder
of 3,577,817 shares of Common Stock, constituting on the Record Date, 5.6% of
the Common Stock outstanding and entitled to vote. Of the shares of Common Stock
held by Delaware Management, 267,107 shares were held with "sole voting power,"
3,170 shares were held with "shared voting power," 3,426,717 shares were held
with "sole dispositive power," and 151,100 shares were held with "shared
dispositive power." The address of Delaware Management is 2005 Market Street,
Philadelphia, Pennsylvania 19103.
In addition, on the Record Date, The Northern Trust Company, the trustee of
the General Dynamics Corporation Savings and Stock Investment Plan and the
General Dynamics Corporation Hourly Employees' Savings and Stock Investment
Plan, held of record 6,083,882 shares of Common Stock for the account of
participants in these plans, or 9.5% 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
A Board of eight 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.
2
<PAGE> 7
NAME, AGE, YEAR FIRST ELECTED A DIRECTOR,
PRINCIPAL OCCUPATION -- CURRENT AND LAST FIVE YEARS
AND OTHER DIRECTORSHIPS
- --------------------------------------------------------------------------------
FRANK C. CARLUCCI, 65, Director since 1991.
Chairman since 1993 and Vice Chairman from 1989 to 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, BDM International, Inc., Kaman Corporation, Neurogen Corporation
(Chairman), Northern Telecom Limited, Pharmacia & Upjohn, Inc., The Quaker
Oats Company, SunResorts Ltd., N.V., Texas Biotechnology Corporation, and
Westinghouse Electric Corporation.
NICHOLAS D. CHABRAJA, 53, Director since 1994.
Executive Vice President of the Company since 1994. Senior Vice President and
General Counsel from 1993 to 1994. Partner at the law firm of Jenner & Block
since 1975 and Senior Partner since 1986.
JAMES S. CROWN, 42, Director since 1987.
General Partner since 1985 of Henry Crown and Company (Not Incorporated)
(diversified investments). Director of First Chicago Corporation. Mr. James
Crown is the son of Mr. Lester Crown and the cousin by marriage of Mr.
Goodman.
LESTER CROWN, 70, Director since 1974.
Chairman since 1983 of Material Service Corporation (aggregates), a subsidiary
of the Company. Executive Vice President of the Company from 1976 to 1993.
Chairman prior to 1989 of CC Industries, Inc. (real estate, diversified
manufacturing, and cellular telephone systems). Director of Maytag
Corporation. Mr. Lester Crown is the father of Mr. James Crown and the cousin
by marriage of Mr. Goodman.
CHARLES H. GOODMAN, 62, Director since 1991.
Vice President since 1987 of Henry Crown and Company (diversified
investments). Vice President since 1973 of CC Industries, Inc. (real estate,
diversified manufacturing, and cellular telephone systems). Mr. Goodman is the
cousin by marriage of Mr. Lester Crown and Mr. James Crown.
JAMES R. MELLOR, 65, Director since 1981.
Chairman and Chief Executive Officer of the Company since 1994. President and
Chief Executive Officer of the Company from 1993 to 1994. President and Chief
Operating Officer of the Company from 1991 to 1993. Executive Vice President
of the Company from 1981 to 1990. President and Chief Operating Officer from
1977 to 1981 of AM International, Inc. (graphics). Executive Vice President
from 1973 to 1977 of Litton Industries, Inc. (navigation and communications
systems and products). Director of Bergen Brunswig Corporation, Computer
Sciences Corporation, and Kerr Group Inc.
GORDON R. SULLIVAN, 58, Director since 1995.
Corporate Vice President since 1995 of Coleman Research Corporation (total
systems engineering and information services). Chief of Staff, U. S. Army,
from 1991 to 1995. Director of Shell Oil Company and Rubbermaid Corporation.
CARLISLE A. H. TROST, 65, Director since 1994.
Consultant since 1990 to the Electric Boat Board of Advisors (formerly General
Dynamics Undersea Warfare Center). Chief of Naval Operations, U.S. Navy, from
1986 to 1990. Director of Lockheed Martin Corporation, The Louisiana Land and
Exploration Company, and General Public Utilities Corporation.
3
<PAGE> 8
The following table shows the total number of shares of Common Stock of the
Company beneficially owned on January 31, 1996, by (i) all Directors, (ii) each
of the executive officers whose names are set forth on the Summary Compensation
Table under "Executive Compensation -- Summary Compensation", and (iii) 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>
- ----------------------------------------------------------------------------------------
DIRECTORS
- ---------
FRANK C. CARLUCCI.......................................... 2,100(d) (c)
NICHOLAS D. CHABRAJA....................................... 60,879 (c)
JAMES S. CROWN............................................. 7,726,590 12.02%(e)
LESTER CROWN............................................... 8,124,575 12.64%(f)
CHARLES H. GOODMAN......................................... 7,383,344 11.49%(g)
JAMES R. MELLOR............................................ 456,553 0.71%
GORDON R. SULLIVAN......................................... 0 (c)
CARLISLE A. H. TROST....................................... 520 (c)
OFFICERS
- --------
JAMES E. TURNER, JR........................................ 199,629 0.31%
ROGER E. TETRAULT.......................................... 118,182 0.18%
MICHAEL J. MANCUSO......................................... 26,204 (c)
DIRECTORS AND ALL EXECUTIVE OFFICERS AS A GROUP............ 9,351,785(h) 14.55%(h)
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Except as noted below, based on information furnished to the Company as to
shares of stock beneficially owned by each Director and executive officer
on January 31, 1996. Includes shares as of January 31, 1996, 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, for which restrictions have not expired.
(b) Includes options exercisable within the next 60 days.
(c) Less than .15%
(d) The shares beneficially owned by Mr. Carlucci are held in joint tenancy
with his wife with shared investment and voting power.
(e) Of the aggregate 8,264,503 shares of Common Stock held by the Crown and
Goodman families as of January 31, 1996, Mr. James Crown is deemed to be
the beneficial owner of 7,726,590 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 7,724,194 shares. Of the
7,726,590 shares of Common Stock deemed to be beneficially owned by Mr.
James Crown, he disclaims beneficial ownership as to 7,724,194 shares.
(f) Of the aggregate 8,264,503 shares of Common Stock held by the Crown and
Goodman families as of January 31, 1996, Mr. Lester Crown is deemed to be
the beneficial owner of 8,124,575 shares. Mr. Lester Crown has sole
investment and voting power with respect to 400,381 shares and shared
investment and voting power with respect to 7,724,194 shares. Of the
8,124,575 shares of Common Stock deemed to be beneficially owned by Mr.
Lester Crown, he disclaims beneficial ownership as to 7,724,194.
(g) Of the aggregate 8,264,503 shares of Common Stock held by the Crown and
Goodman families as of January 31, 1996, Mr. Goodman is deemed to be the
beneficial owner of 7,383,344 shares. Mr. Goodman has shared investment and
voting power with respect to 1,899,128 shares. Of the 7,383,344 shares of
Common Stock deemed to be beneficially owned by Mr. Goodman, he disclaims
beneficial ownership as to all of the shares.
(h) 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.
4
<PAGE> 9
BOARD OF DIRECTORS AND BOARD COMMITTEES
1995 BOARD MEETINGS
During 1995, the Board of Directors of the Company held a total of six
meetings. Each incumbent Director attended at least 83% of the meetings of the
Board and 92% of the meetings of the Committees of the Board on which he served
during the period of service. As a group, incumbent Directors attended 98% of
all Board and Committee meetings held in 1995.
BOARD COMMITTEES
Members of the Committees of the Board of Directors were not employees of
the Company with the exceptions of Mr. Mellor, who served as a member of the
Executive and Nominating Committee, and Mr. Chabraja, who served as a member of
the Executive and Nominating Committee and the Benefit Plans and Investment
Committee. Two Directors, Mr. Allen E. Puckett and Mr. Bernard W. Rogers, did
not stand for reelection at the 1995 Annual Meeting of Shareholders. Mr. Puckett
retired at that time from the Benefits Plan and Investment Committee and the
Compensation Committee and Mr. Rogers retired at that time from the Audit and
Corporate Responsibility Committee and the Executive and Nominating Committee.
The Audit and Corporate Responsibility Committee consists of Mr. Carlucci,
Chairman, Mr. James Crown, Mr. Goodman, Mr. Sullivan, and Mr. Trost, none of
whom is an officer or employee of the Company. 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 program, and
miscellaneous auditing matters. The Committee recommends the selection of the
independent auditors and monitors audit fees and expenses, including fees
incurred for non-audit services. In addition to its audit responsibilities, the
Committee also 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 Audit and Corporate Responsibility
Committee held seven meetings during 1995.
The Benefit Plans and Investment Committee consists of Mr. Goodman,
Chairman, Mr. Chabraja, Mr. Lester Crown, Mr. Sullivan, and Mr. Trost. 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 and Investment Committee held three
meetings in 1995.
The Compensation Committee consists of Mr. Trost, Chairman, Mr. Carlucci,
Mr. James Crown, and Mr. Goodman, 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 five meetings
in 1995.
The Executive and Nominating Committee consists of Mr. Lester Crown,
Chairman, Mr. Chabraja, Mr. James Crown, and Mr. Mellor. 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
5
<PAGE> 10
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 1995.
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 1995, the outside
Directors were paid an aggregate of $663,834 in retainers and fees and the
Company paid an additional $12,650 for their special travel and accident
insurance coverage.
The Company's Retirement Plan for Directors provides that a Director is
eligible for benefits if he has not been an employee of the Company and has
served as a Director for at least five years, or if he has served less than five
years, he has 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 Board membership as an outside Director. 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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Committee") has furnished the
following report on executive compensation. The Committee is composed of the
individuals listed below, all of whom are outside directors of the Company. The
Committee supervises all compensation matters for the Company.
The Committee has designed the Company's compensation program to reward both
individual and collective performance and to create incentives for both
short-term and long-term performances. The objective of the program is to
provide appropriate incentives, including a substantial equity component, in
order to reward senior management for superior performance.
The compensation program includes three components: (i) a base salary, which
is payable in cash, (ii) a bonus, which is payable in cash or stock, or a
combination of both, and (iii) a long-term stock-based incentive award. The base
salary reflects the prevailing market rates and individual performance. The
bonus represents annual performance, both individual and Company-wide, as
compared to the achievement of goals which are set yearly at the beginning of
each fiscal year. The long-term stock-based incentive awards are designed to
strengthen the mutual interest of senior management and the Company's
shareholders.
Each executive officer approves performance goals for those managers
reporting to him; and senior management as a group establishes Company
performance goals that are reviewed and adjusted, if
6
<PAGE> 11
appropriate, by the Committee. Company performance goals include earnings per
share, return on equity, cash flow, net earnings, re-engineering
accomplishments, and progress in the development of a long-term operating
strategy, which will contribute to increased shareholder value. For 1995, the
Company exceeded all of its stated goals.
In awarding the annual compensation to senior management, the Committee
reviews the base salaries, annual bonuses, and long-term incentives awarded by
other companies to senior management. Each year several major compensation
surveys, which include many of the companies within the Standard & Poor's
Aerospace/Defense Index, are provided to the Committee by outside consultants.
Base salaries are targeted around the 50th percentile of market in order to
provide more leverage with the bonus portion and thus put more of the total
compensation at risk. For executives whose annual performance far exceeds the
individual goals set for them, bonuses may exceed the 75th percentile for
positions at the same level in comparable companies, as reflected in the
compensation surveys. Executives whose annual performance meets or exceeds their
goals receive a bonus in the 50th to 75th percentile range of the market, as
reflected on the compensation surveys. To the extent that executives do not meet
their goals, bonuses are usually reduced significantly below the 50th percentile
of the market, or eliminated altogether.
In late 1993, the Committee adopted a new long-term incentive program (the
"New Program") consisting of Performance Stock Options and Performance
Restricted Stock (as defined below) and made grants for the years 1994 and 1995
(the "1993 Grants"). See "Executive Compensation-Stock Option Awards" and
"Restricted Stock Awards" below. Because of the success of the New Program, the
Committee determined that further awards of stock options and Performance
Restricted Stock should be made for 1996 in December of 1995 (the "1995
Grants"). The New Program will continue to focus executives on achieving
increased shareholder value for the Company on a long-term basis.
As a part of the 1995 Grants, stock options (without a performance feature)
were granted and are exercisable at $60.4375 (the fair market value of the
Common Stock on the date of grant). Fifty percent of these stock options may be
exercised on or after December 12, 1996. The balance of these stock options may
be exercised on or after December 12, 1997. The Performance Restricted Stock
issued as part of the 1995 Grants continues to have a performance feature which
will increase or decrease the number of shares initially granted at twice the
rate of the corresponding increase or decrease in the Common Stock price from
the date of grant to the end of the performance period. The Performance
Restricted Stock granted on December 12, 1995, has a performance period of two
years, ending on December 31, 1997.
In reviewing the 1995 performance of James R. Mellor, the Company's Chief
Executive Officer, the Committee determined that Mr. Mellor's base salary was
appropriate in relation to the market data and the base salaries of other chief
executive officers within the aerospace/defense industry and Fortune 500
companies of similar size. The Committee has determined that Mr. Mellor's base
salary will remain at $670,000, and as the Company exceeded the performance
goals for 1995 outlined above, it has awarded Mr. Mellor a cash bonus of
$1,750,000.
Under the New Program, Mr. Mellor received as part of the 1993 Grants,
240,000 Performance Stock Options, and as part of the 1995 Grants, 139,000 stock
options. He also received 31,287 shares of Performance Restricted Stock, as
adjusted for performance, from an original grant of 30,000 shares as part of the
1993 Grants, and another 38,500 shares of Performance Restricted Stock as part
of the 1995 Grants.
7
<PAGE> 12
Effective January 1, 1994, publicly-held corporations are prohibited,
pursuant to the Internal Revenue Code of 1986, as amended ("Section 162(m)"),
from deducting compensation in excess of $1,000,000 to each of its Chief
Executive Officers and its other four most highly compensated executive officers
employed at year end. This limitation does not apply to certain
performance-based compensation, which is awarded pursuant to formula and without
upward adjustment at the discretion of the Committee, such as awards of the
Company's Performance Stock Options and Performance Restricted Stock.
The Committee and one of its compensation consultants have considered the
implications of the tax law and of proposed Internal Revenue Service regulations
and have concluded that discretion and the use of judgment have been critical
elements of the Committee's executive compensation philosophy in the past, and
the Committee believes it is in the best interest of the shareholders to
maintain discretionary control over certain aspects of executive compensation in
the future. Because of the importance of judgment and discretion, certain
portions of executive compensation awards in 1995 will not, and in future years
may not, qualify for deductibility under the law and the Company will forego a
deduction, if any, for compensation expenses in excess of regulatory limits. The
Committee believes that the amount of the deduction foregone will be immaterial.
The Company's compensation program is designed not only to increase
shareholder value, but to do so in a cost effective manner for its U. S.
Government customers. Less than twenty-one percent of the estimated value of
executive compensation to the named corporate officers during 1993, 1994, and
1995, as shown in the Summary Compensation Table and the option exercise table
below, was charged as cost under the Company's U. S. Government contracts, and,
therefore, payable by its U. S. Government customers.
8
<PAGE> 13
The following performance graph compares 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 period indicated.
FIVE-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 CORP. S&P 500 INDEX
<S> <C> <C> <C>
DEC-90 100 100 100
DEC-91 219 130 120
DEC-92 432 140 126
DEC-93 653 155 164
DEC-94 695 157 177
DEC-95 891 215 293
</TABLE>
This report is submitted by the Compensation Committee, which comprises four
outside directors.
Mr. Trost, Chairman
Mr. Carlucci
Mr. James Crown
Mr. Goodman
9
<PAGE> 14
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 1995, 1994, and 1993 for the
Chief Executive Officer and the next four most highly compensated executive
officers of the Company at the end of 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ----------------------- ----------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS(a) (b) AWARD(c) OPTIONS/SARS PAYOUTS (d)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JAMES R. MELLOR 1995 $670,000 $1,750,000 $220,651 $2,326,844 139,000 $ 0 $ 62,129(e)
Chairman of the Board and Chief 1994 670,000 1,600,000 264,970 0 0 0 55,181
Executive Officer 1993 670,000 1,350,000 663,622 1,410,000 240,000 0 12,121,770
NICHOLAS D. CHABRAJA 1995 $500,000 $700,000 $106,720 $1,118,094 67,500 $ 0 $ 5,551
Executive Vice President 1994 500,000 600,000 76,016 279,188 100,000 0 5,550
1993 350,000 325,000 7,645 658,000 100,000 0 753,044
JAMES E. TURNER, JR. 1995 $356,000 $500,000 $ 1,652 $ 604,375 36,000 $ 0 $ 29,726
Executive Vice President, Marine 1994 356,000 475,000 0 0 0 0 30,156
Group 1993 356,000 400,000 408,807 564,000 90,000 0 5,309,423
ROGER E. TETRAULT 1995 $300,000 $300,000 $ 8,840 $ 423,063 25,000 $ 0 $ 22,107
Senior Vice President and 1994 276,000 275,000 19,532 0 0 0 20,614
President, Land Systems 1993 276,000 225,000 234,051 470,000 70,000 0 3,231,096
MICHAEL J. MANCUSO 1995 $220,000 $175,000 $ 5,953 $ 260,533 15,500 $ 0 $ 16,638
Vice President and Chief 1994 220,000 130,000 35,301 115,050 11,000 0 5,178
Financial Officer 1993 165,000 50,000 761 138,638 19,000 0 6,235
</TABLE>
- --------------------------------------------------------------------------------
(a) Bonus payments are reported with respect to the fiscal year for which the
related services were rendered, although the actual award may have been made
in the succeeding year.
(b) "Other Annual Compensation" comprises 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 aircraft and automobiles owned or leased by the Company
("Perquisites"); (ii) amounts reimbursed for the payments of taxes; and
(iii) amounts distributed from the Special Distribution Account, which is
explained hereinafter:
On January 15, 1992, the shareholders of the Company approved an
amendment to the 1988 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
10
<PAGE> 15
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 include the following: for Mr. Mellor, Perquisites of
$149,769, of which $73,102 relates to personal travel and $45,824 relates to
club membership; and for Mr. Chabraja, Perquisites of $77,323, of which
$64,602 is for personal travel.
(c) 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. As of December 31, 1995,
Mr. Mellor held a total of 102,927 shares of Restricted Stock with an
aggregate market value of $6,104,858; Mr. Chabraja held a total of 47,177
shares of Restricted Stock with an aggregate market value of $2,798,186; Mr.
Turner held a total of 38,946 shares of Restricted Stock with an aggregate
market value of $2,309,985; Mr. Tetrault held a total of 23,810 shares of
Restricted Stock with an aggregate market value of $1,412,231; and Mr.
Mancuso held a total of 9,166 shares of Restricted Stock with an aggregate
market value of $543,658. Holders of the awards are entitled to vote the
shares awarded and to receive dividend equivalents on the shares from the
date of grant.
(d) "All Other Compensation" 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
accrued to but not paid out of the Special Distribution Accounts, and (iv)
amounts paid or accrued pursuant to arrangements entered into in 1993 with
executives who would be remaining with the Company. See "Employment
Agreements and Other Arrangements."
(e) Includes the cost to the Company of a split-dollar life insurance policy on
Mr. Mellor and his wife (see "Executive Compensation -- Retirement Plans").
During 1995, the Company paid a premium of $535,806 and an additional
contribution of $535,806 had been made by the Company in 1994. The Company
is entitled to a refund of the premiums paid by it to the insurer pursuant
to the split dollar life insurance arrangement before any dollars are paid
by the insurer to the owner or beneficiaries of the policy, or, in any
event, at the end of fifteen years. The amount of other compensation
associated with the split dollar insurance arrangement in 1995 includes
$7,763, representing the cost of the term life insurance component of the
policy, and $35,909, representing the cost to the Company associated with
the non-term component of the split dollar policy.
STOCK OPTION AWARDS
Under the General Dynamics Corporation 1988 Incentive Compensation Plan, as
amended (the "Incentive Compensation Plan"), 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.
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 December
6, 1991, and those described below), are awarded for terms of ten years and are
exercisable in their entirety
11
<PAGE> 16
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 pursuant to the Incentive Compensation Plan. All stock
options are exercisable at the fair market value of the Common Stock on the date
of grant. Both Performance Stock Options and other stock options may be granted
under the New Program and have terms of five years. Pursuant to the 1993 Grants,
fifty percent of the Performance Stock Options became exercisable after December
31, 1994, since the price of the Common Stock attained and maintained $52.50 per
share for 30 consecutive days in the latter part of 1995. The remaining fifty
percent may be exercised after December 31, 1995, if the price of the Common
Stock attains and maintains $60.00 per share for 30 consecutive days at any time
during the term of the option.
Pursuant to the New Program, the Committee made the 1995 Grants, including
grants of stock options which did not contain any of the performance features of
the Performance Stock Options issued pursuant to the 1993 Grants. Fifty percent
of these stock options may be exercised on or after December 12, 1996. The
balance of these stock options may be exercised on or after December 12, 1997.
The following table sets forth information with respect to stock options
granted during 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
---------------------------------------------------- REALIZABLE VALUE AT
PERCENTAGE OF ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
JAMES R. MELLOR 139,000 19.3% $60.4375 12/11/2000 $2,320,990 $5,128,780
NICHOLAS D. CHABRAJA 67,500 9.4 60.4375 12/11/2000 1,127,099 2,490,595
JAMES E. TURNER, JR. 36,000 5.0 60.4375 12/11/2000 601,120 1,328,317
ROGER E. TETRAULT 25,000 3.5 60.4375 12/11/2000 417,444 922,442
MICHAEL J. MANCUSO 15,500 2.2 60.4375 12/11/2000 258,815 571,914
- ------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 17
The following table sets forth information with respect to option exercises
and year-end values during 1995 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>
- ------------------------------------------------------------------------------------------------------------
JAMES R. MELLOR 120,002(e) $ 1,477,525(e)
0 $ 0 258,998(u) 1,477,475(u)
NICHOLAS D. CHABRAJA 100,002(e) 1,254,710(e)
0 0 167,498(u) 1,254,660(u)
JAMES E. TURNER, JR. 45,002(e) 554,087(e)
0 0 80,998(u) 554,038(u)
ROGER E. TETRAULT 33,938(e) 417,862(e)
1,064 14,497 59,998(u) 430,913(u)
MICHAEL J. MANCUSO 15,002(e) 218,412(e)
0 0 30,498(u) 229,538(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 the awards are entitled to vote the
shares awarded and to receive dividend equivalents on the shares from the date
of grant. Awards of Performance Restricted Stock were made to certain executive
officers pursuant to the New Program during 1993, 1994, and 1995.
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 price of the Common Stock from the
date of grant to the end of the performance period. At the end of the
performance period, the average price per share of Common Stock over the
preceding 30 trading days (the "Average Price") will be compared to the price
per share on the date of grant. That difference will be multiplied by the number
of shares of Performance Restricted Stock to be earned at the end of the
performance period and the resulting product will be divided by the Average
Price. The number of shares of 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 awards made on December
12, 1995, the performance period is two years ending on December 31, 1997.
13
<PAGE> 18
At the end of the first performance period for the 1993 Grants, December
1994, the average price of Common Stock was $43.3188, less than its grant price,
and as a result 16,107 shares of Performance Restricted Stock were forfeited.
The restrictions on the remaining shares of Performance Restricted Stock from
the first performance period will lapse on January 1, 1997. In contrast, at the
end of the second performance period, December 1995, the average price of Common
Stock was $60.3729, higher than its grant price, and as a result 24,872 new
shares of Performance Restricted Stock were granted. The restrictions on the
remaining shares of Performance Restricted Stock from the second performance
period will lapse on January 1, 1998. Performance Restricted Stock awards were
made on December 12, 1995, as follows: Mr. Mellor-38,500 shares; Mr.
Chabraja-18,500 shares; Mr. Turner-10,000 shares; Mr. Tetrault-7,000 shares; and
Mr. Mancuso-4,300 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 7,740 as of January 1, 1996 (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. 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 has completed five years of
continuous service.
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, or any previously granted long-term compensation
awards) which have been earned out. See the "Summary Compensation Table" under
the caption "Executive Compensation -- Summary Compensation" above for the
salary and bonus amounts earned by the Chief Executive Officer and the next four
most highly compensated officers.
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 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.
The table below sets forth projected annual benefits payable at age 65 based
upon earnings and years of credited service. It has been assumed that each
individual will continue as a Retirement Plan member until
14
<PAGE> 19
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.
PENSION PLAN TABLE (a)
<TABLE>
<CAPTION>
YEARS OF SERVICE
- ------------------------------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 350,000 $ 23,333 $ 46,667 $ 70,000 $ 93,333 $ 116,667 $ 140,000
400,000 26,667 53,333 80,000 106,667 133,333 160,000
500,000 33,333 66,667 100,000 133,333 166,667 200,000
600,000 40,000 80,000 120,000 160,000 200,000 240,000
800,000 53,333 106,667 160,000 213,333 266,667 320,000
900,000 60,000 120,000 180,000 240,000 300,000 360,000
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>
(a) Since Mr. Mellor has relinquished his rights to certain supplemental
retirement benefits, his pension benefits are estimated to be approximately
$82,126 per year pursuant to the tax-qualified Retirement Plan, assuming he
continues to be employed until January 1, 1997.
As of January 1, 1996, the persons named in the "Summary Compensation Table"
under the heading "Executive Compensation -- Summary Compensation" were credited
with the following years of service under the retirement plans: James R. Mellor,
14 years; Nicholas D. Chabraja, 3 years; James E. Turner, Jr., 7 years; Roger E.
Tetrault, 4 years; and Michael J. Mancuso, 2 years.
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 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. Mellor and the Company have agreed that he would forego certain
supplemental retirement benefits, and in lieu thereof he entered into a
split-dollar life insurance arrangement with the Company dated November 21, 1994
( the "Insurance Agreement"). Under the Insurance Agreement, the Company has
agreed to pay to the insurer an annual premium equal to $535,806 for a period of
ten years. The Company would then receive a reimbursement of the premiums (a
total of $5,358,060) 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. The present value of the foregone interest is approximately equal to
the present value of the amounts which Mr. Mellor would have received at that
time under the Supplemental Retirement Plan, the Supplemental Savings and Stock
Investment Plan, and the Mellor Employment Agreement (as defined below).
15
<PAGE> 20
On October 3, 1995, Mr. Mellor entered into an agreement with the Company
extending his employment until at least December 31, 1996 (the "Extension
Agreement"). In consideration for his remaining an employee of the Company at
least until that time, Mr. Mellor will receive, pursuant to the Extension
Agreement, an annual supplemental retirement benefit equal to $58,272 upon his
retirement. As part of the Extension Agreement, he will also receive, upon his
retirement, a cash payment of $84,821, which represents the difference between
the amount of benefit under the Supplemental Savings and Stock Investment Plan
("Supplemental SSIP") that he relinquished in 1994 as part of the Insurance
Agreement and the value of Mr. Mellor's account in the Supplemental SSIP as of
December 31, 1994.
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 benefit is based on the formula in that plan, as reduced by
benefits actually payable under the Newport News retirement plan and the
Retirement 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,
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 had he
continued to be covered by his former employer under the Babcock and Wilcox
retirement plan. The benefit is based on the formula in that plan, as reduced by
benefits actually payable under the Babcock and Wilcox retirement plan and the
Retirement Plans. In addition to this benefit, the agreement also provides for
an 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 $308,000. During 1995, the Company recorded an
expense of $6,400 to amortize the cost of this retirement benefit, assuming Mr.
Tetrault would retire at October 1, 2006, at age 65.
The foregoing benefits for Messrs. Mellor 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 were to remain with the Company
after the reorganization of the Company, in exchange for the waiver of certain
employee compensation rights, and in further consideration of their written
commitment to remain with the Company in a given role for a defined period, the
Company provided certain compensation to be paid in installments (the
"Continuation Package"). The Continuation Package did not affect those
employees' right under the Retirement Plans. One-half of the payment under the
Continuation Package was made to the executives upon their execution of their
agreements to remain with the Company. The remainder of the payment was to be
made in 1995, the second anniversary of those agreements, or
16
<PAGE> 21
earlier, if the employee terminated his or her employment with the consent of
the Company. The Company paid an aggregate of $3,650,000 to members of this
group of employees in 1995.
In 1993, Messrs. Mellor, Turner, and Tetrault each entered into employment
agreements with the Company that also terminated prior benefits as described
below.
EMPLOYMENT AGREEMENTS
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 Employment
Agreement"). Pursuant to the Mellor Employment Agreement, Mr. Mellor's base
salary was established at $670,000. In consideration for his waiver of certain
employee compensation rights, and in consideration of his remaining as an
employee of the Company until at least December of 1995, Mr. Mellor received a
payment of $3,100,000 upon execution of the Mellor Employment Agreement and was
to be paid another $3,100,000 on December 31, 1995. On October 3, 1995, Mr.
Mellor entered into an Agreement with the Company extending his employment until
at least December 31, 1996 (the "Extension Agreement"). Pursuant to the
Extension Agreement, all terms and conditions of the Mellor Employment Agreement
were extended until December 31, 1996, except that Mr. Mellor is to receive
certain supplemental retirement benefits described under "Executive
Compensation-Retirement Plans" above. In addition, the $3,100,000, which was to
have been paid by the Company to Mr. Mellor pursuant to the Mellor Employment
Agreement on December 31, 1995, will be disbursed on January 1, 1997. Mr. Mellor
has also agreed to provide the Company consulting services for the period of one
year following his retirement from the Company. In consideration therefore, Mr.
Mellor will retain all of the Performance Restricted Stock which has been issued
to him, subject to the terms and conditions under which it was granted.
The Company entered into an agreement with Mr. Chabraja, dated February 3,
1993, which was subsequently amended on December 22, 1993 (as amended, the
"Chabraja Agreement"). Pursuant to the Chabraja Agreement, Mr. Chabraja agreed
to serve as Senior Vice President and General Counsel. 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 would 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.
In connection with his continued employment with the Company as Executive
Vice President and President, Electric Boat, 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, 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 was paid another
$1,100,000 on March 31, 1995.
In connection with his continued employment with the Company as Vice
President and President, Land Systems, 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, 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 was paid another $700,000 on March
31, 1995.
17
<PAGE> 22
SEPARATION AGREEMENTS
The Company has entered into Severance Protection Agreements with 22 of its
key executives which become effective upon change in control of the Company. A
"change in control" is defined as one of the following events: (i) an
acquisition of the Common Stock of the Company by any person who on the date of
the agreement owned less than 10% of the outstanding shares of Common Stock, and
who after such acquisition owns 30% or more of the outstanding shares of Common
Stock; (ii) a merger, consolidation, or reorganization of the Company, approved
by the shareholders, in which the Company is not the surviving entity; or (iii)
the complete liquidation or dissolution of the Company or the sale of all or
substantially all of its assets. For purposes of calculating ownership,
acquisitions by the Company and the employee benefit plans of the Company are
excepted.
The Severance Protection Agreements provide that, during a period of two
years following the change in control, if the executive's employment is
terminated by the Company without cause or by the executive with good reason (as
defined in the agreements), or by the executive for any reason during the 60-day
period commencing on the first anniversary of the change in control, the Company
shall pay the executive, in addition to all accrued obligations, a lump sum
severance payment equal to a multiple of the sum of the executive's base salary
and bonus, as well as continue other fringe benefits for a corresponding period.
Payments under the Severance Protection Agreement may be subject to excise tax
under Section 4999 of the Internal Revenue Code. If such taxes are due, the
Company will pay such taxes and any associated taxes thereon.
As of the date of this proxy statement, the amount of the Company's
liability pursuant to the respective Severance Protection Agreements may be as
much as $7,400,000 for Mr. Mellor; $6,500,000 for Mr. Chabraja; $1,900,000 for
Mr. Turner; $1,300,000 for Mr. Tetrault; and $2,000,000 for Mr. Mancuso.
TRANSACTIONS INVOLVING DIRECTORS AND OTHERS
Material Service Corporation, an indirect subsidiary of the Company, paid a
subsidiary of CC Industries, Inc. ("CCI") $160,066 pursuant to fleeting service
agreements. Mr. Lester Crown, a Director of the Company, is Chairman of the
Board of Directors of CCI. Mr. James Crown and Mr. Goodman, Directors of the
Company, are Vice Presidents of CCI.
In 1995, the Company entered into an agreement with Crown Golf Properties L.
P. ("Crown Golf Properties"), pursuant to which Crown Golf Properties provides
golf course management services for a golf course owned by one of the Company's
subsidiaries. During 1995, the Company paid Crown Golf Properties $75,000 for
management services and reimbursed it for certain expenses.
Mr. James Crown has an equity interest in the general partnership of Crown
Golf Properties. All of the stock of CCI and a limited partnership interest in
Crown Golf Properties is owned by HC Co. Partnership. 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 is trustee, which have an
approximate 8.5% interest in HC Co. Partnership.
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 in 1995 for the direct or indirect benefit of those
associates was $550,693.
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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 1995, Mr. Chabraja devoted
substantially all of his business time and attention to the affairs of the
Company and he intends to do so again in 1996. In 1995, the Company paid Jenner
& Block $13,606,539 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 and Corporate
Responsibility Committee, proposes that Arthur Andersen LLP be selected as the
independent auditors to audit the books, records, and accounts of the Company
for 1996. The firm commenced auditing the books of the Company and its
predecessor, Electric Boat Company, in 1949.
Representatives of Arthur Andersen LLP 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 LLP. SHARES REPRESENTED BY THE PROXY WILL BE VOTED FOR UNLESS
SHAREHOLDERS DIRECT OTHERWISE.
SHAREHOLDER PROPOSAL
The Company has been advised by the custodian of the New York City
Employees' Retirement System ("NYCERS"), 1 Centre Street, New York, New York
10007-2341, owners of more than 1,000 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 ("NYCERS") 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 NYCERS 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
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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 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 a member of a company that is one of this company's paid advisors or
consultants; (3) is not employed by a significant customer or supplier; (4) is
not remunerated by the company for personal services (consisting of legal,
accounting, investment banking, and management consulting services (whether or
not as an employee) for a corporation, division, or similar organization that
actually provides the personal services, nor an entity from which the company
derives more than 50 percent of its gross revenues.) (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; and (7) is
not part of an interlocking directorate in which the CEO or other executive
officers of the corporation serves on the board of another corporation that
employs the director. We request that this resolution be applied only to
nominees for director at meetings subsequent to the 1996 annual meeting and
that it not apply to incumbent directors.
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE SHAREHOLDER PROPOSAL
For the last three years, the shareholders of the Company did not vote in
favor of the 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, so as to disqualify many
individuals with experience in the Company's industry to the disadvantage of the
Company. Therefore, your Board of Directors recommends that all shareholders
vote AGAINST.
The Board of Directors of the Company has made changes in the composition of
the Board of Directors that enhance management's accountability to the Board and
the Board's representation of shareholder interests. Moreover, 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 for
election to director at this Annual Meeting include the former Secretary of
Defense, Frank C. Carlucci; former Chief of Staff, United States Army, Gordon R.
Sullivan; and former Chief of Naval Operations, United States Navy, Carlisle A.
H. Trost. Also being nominated are distinguished business leaders. Upon election
of the current nominees, only two of the Board's eight directors will be
employees of the Company. The outstanding performance of the Common Stock in the
last few years is the result of the oversight and leadership of the Company's
Board of Directors. All shareholders, including NYCERS, have greatly benefited
from these results.
In light of the foregoing and in view of the belief of the Board of
Directors that the definition of "independent director" in the proposal is
excessively narrow so as to disqualify certain current directors to the
disadvantage of the Company, 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.
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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 solely 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 - 1997
MEETING OF SHAREHOLDERS
Any proposal of a shareholder intended to be presented at the Company's 1997
Annual Meeting of Shareholders must be received by the Company no later than
November 25, 1996, in order to be considered for inclusion in the Proxy
Statement and form of Proxy for that meeting.
VOTE REQUIRED
Each shareholder on the Record Date shall have one vote for each share of
Common Stock registered in such shareholder's name on the books of the Company
on the Record Date. A majority of the shares entitled to vote, present in person
or by proxy, shall constitute a quorum at a meeting of shareholders.
Abstentions will be counted to determine if a quorum is present, but will
not be considered votes cast. Shares for which voting power has been withheld,
such as broker non-votes, do not constitute part of the quorum with respect to
such matter. Consequently, the number of shares representing the quorum present
for the meeting may be greater than the shares present for action on a
particular proposal.
Brokers or nominees who do not have discretionary power to vote shares held
in their name and who have not received instruction from the beneficial owner or
other person entitled to vote the shares will nevertheless be entitled to vote
those shares for the election of Directors and for the selection of the
independent auditors under certain circumstances, pursuant to the rules of The
New York Stock Exchange, Inc. Consequently, those shares will be voted as
indicated by the broker.
The eight nominees for election to the Board of Directors at the Annual
Meeting who receive the greatest number of votes cast for the Directors at the
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, a quorum being present, is required for the adoption of the shareholder
proposal.
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<PAGE> 26
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 soliciting 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 a cost anticipated by the
Company to be $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 25, 1996
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 1995 MAY BE
OBTAINED UPON WRITTEN REQUEST TO PAUL A. HESSE, SECRETARY, GENERAL DYNAMICS
CORPORATION, 3190 FAIRVIEW PARK DRIVE, FALLS CHURCH, VIRGINIA 22042-4523.
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P GENERAL DYNAMICS CORPORATION
R PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 1, 1996.
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE CORPORATION.
X
Y The undersigned hereby appoints JAMES R. MELLOR, NICHOLAS D.
CHABRAJA, and PAUL A. HESSE, and each of them, as proxy or 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 1996 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,
J.S. Crown, L. Crown, C.H. Goodman,
J.R. Mellor, G.R. Sullivan, C.A.H. Trost
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SEE REVERSE
SIDE
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<PAGE> 28
/X/ PLEASE MARK YOUR
VOTES AS IN THIS 3515
EXAMPLE
On any other matters that may come before the meeting, this proxy will
be voted in the discretion of the proxies named 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 Item 3.
- --------------------------------------------------------------------------------
The Board of Directors Recommends a Vote FOR Items 1 and 2.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of
Directors / / / /
(See reverse)
For all nominees listed on reverse except:
- ------------------------------------------------------
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Selection of Arthur
Andersen LLP as / / / / / /
independent auditors.
- --------------------------------------------------------------------------------
The Board of Directors Recommends a Vote AGAINST Item 3.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. The Shareholder Proposal with
regard to the composition of / / / / / /
the Board of Directors.
I will attend the meeting and / /
request an admission card.
Please sign exactly as name appears
hereon. Executors, administrators,
trustees, etc. should so indicate
when signing.
----------------------------------------
1996
----------------------------------------
SIGNATURE(S) DATE
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- FOLD AND DETACH HERE -
[GENERAL DYNAMICS LOGO]
