<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 [ ] 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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
1997
[GENERAL DYNAMICS LOGO]
<PAGE> 3
GENERAL DYNAMICS CORPORATION
3190 Fairview Park Drive, Falls Church, Virginia 22042-4523
March 21, 1997
TO OUR SHAREHOLDERS:
You are cordially invited to the 1997 Annual Meeting of Shareholders to be
held at the Fairview Park Marriott, 3111 Fairview Park Drive, Falls Church,
Virginia 22042, on Wednesday, May 7, 1997, beginning at 9:00 a.m. The principal
items of business at the meeting will be the election of Directors, the approval
of the Company's 1997 Incentive Compensation Plan, 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 TO BE HELD MAY 7, 1997
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 7,
1997, 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 Proxy Statement accompanying this notice.
2. To consider and act upon the Company's 1997 Incentive Compensation
Plan and the setting aside of additional treasury shares of Common Stock in
connection with the granting of options pursuant to the Plan.
3. 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 1997.
4. To consider and act upon the shareholder proposal set forth on pages
23 to 25 of the accompanying Proxy Statement, if it is properly presented at
the meeting.
5. 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 10, 1997, 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 Company's 1996 Shareholder Report is being mailed with this
Notice and Proxy Statement on or about March 21, 1997, to shareholders of
record.
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 21, 1997 Paul A. Hesse, Secretary
<PAGE> 5
PROXY STATEMENT
March 21, 1996
The Board of Directors of GENERAL DYNAMICS CORPORATION, a Delaware
corporation (the "Company"), is soliciting your proxy in the form of the proxy
card (the "Proxy") attached to this Proxy Statement for use at the Annual
Meeting of Shareholders to be held at 9:00 a.m. on Wednesday, May 7, 1997 (the
"Annual Meeting"). You may revoke the Proxy at any time before the Company votes
it at the Annual Meeting, if you so desire, 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 10, 1997, the record date (the "Record
Date") for the Annual Meeting, the Company had outstanding and entitled to vote
63,267,990 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 7, 1997, and the Proxy are being forwarded to
shareholders on or about March 21, 1997.
PRINCIPAL SHAREHOLDERS
Below is a description of the principal shareholders of the Company and
their current holdings.
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 percent 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 (the "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, 1997, a Schedule
13G with the Commission disclosing that it was the beneficial owner of 6,946,404
shares of the Common Stock, constituting on the Record Date 11 percent of the
Common Stock of the Company. According to the Schedule 13G, FMR holds 204,025
shares of Common Stock with "sole power to vote or to direct the vote" and
6,946,404 shares with "sole power to dispose or to direct the disposition of."
The address of FMR is 82 Devonshire Street, Boston, Massachusetts 02109.
On February 13, 1997, 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 Commission and disclosed that the Buffett
1
<PAGE> 6
Group was the beneficial owner of 4,296,471 shares of the Common Stock,
constituting on the Record Date 6.8 percent of the Common Stock of the Company.
According to the Schedule 13G, Buffett and Berkshire each were the beneficial
owners of 4,296,471 shares of Common Stock outstanding entitled to vote, with
"shared voting power" and "shared dispositive power." Of the 4,296,471 shares of
Common Stock held by the Buffett Group, the Schedule 13G disclosed that NIC held
3,540,871 shares with "shared voting power" and "shared dispositive power," and
NFMIC held 755,600 shares with "shared voting power" and "shared dispositive
power."
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 5,768,625 shares of Common Stock for the account of
participants in these plans, or 9.1 percent 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
At the Annual Meeting, you will elect a board of eight directors. Each of
those directors will hold office until the next Annual Meeting and until his
respective successor is elected and qualified, except as otherwise provided in
the By-Laws of the Company.
Your Proxy will be voted for the election of the nominees for director
listed below, unless you indicate otherwise on the Proxy. In the event that any
nominee for director withdraws or for any reason is not able to serve as a
director, the Company will vote your Proxy for the remainder of those nominated
for director 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
- - --------------------------------------------------------------------------------
FRANK C. CARLUCCI, 66, 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. Director of
Ashland Inc., Bell Atlantic Corporation, BDM International, Inc., CB
Commercial Real Estate Services Group, 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, 54, Director since 1994.
Vice Chairman of the Company since December 1996 and designated to assume the
position of Chairman and Chief Executive Officer on June 1, 1997. Executive
Vice President from 1994 to December 1996. Senior Vice President and General
Counsel from 1993 to 1994. Partner at the law firm of Jenner & Block from 1975
and Senior Partner from 1986 to December 1996.
2
<PAGE> 7
JAMES S. CROWN, 43, 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, 71, 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.
Director of Maytag Corporation and 360 degrees Communications Company. Mr.
Lester Crown is the father of Mr. James Crown and the cousin by marriage of
Mr. Goodman.
CHARLES H. GOODMAN, 63, 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, 66, 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. Director of Bergen
Brunswig Corporation, Computer Sciences Corporation, Kerr Group, Inc., and
Pinkerton's, Inc.
GORDON R. SULLIVAN, 59, 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 Army National Bank, Rubbermaid Incorporated,
and Shell Oil Company.
CARLISLE A. H. TROST, 66, Director since 1994.
Chief of Naval Operations, U.S. Navy, from 1986 to 1990. Director of GPU,
Inc., Lockheed Martin Corporation, and The Louisiana Land and Exploration
Company.
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<PAGE> 8
The following table shows the total number of shares of Common Stock of the
Company beneficially owned on December 31, 1996, by (i) each of the executive
officers whose names are set forth on the Summary Compensation Table under
"Executive Compensation -- Summary Compensation," 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>
DIRECTORS
- - ----------
FRANK C. CARLUCCI.......................................... 2,100(c) (d)
NICHOLAS D. CHABRAJA....................................... 294,629 0.47%
JAMES S. CROWN............................................. 7,869,376 12.44%(e)
LESTER CROWN............................................... 6,717,676 10.62%(f)
CHARLES H. GOODMAN......................................... 6,006,386 9.49%(g)
JAMES R. MELLOR............................................ 643,043 1.02%
GORDON R. SULLIVAN......................................... 50 (d)
CARLISLE A. H. TROST....................................... 532 (d)
OFFICERS
- - ---------
JAMES E. TURNER, JR........................................ 258,897 0.41%
ROGER E. TETRAULT.......................................... 163,883 0.26%
MICHAEL J. MANCUSO......................................... 49,284 (d)
DIRECTORS AND ALL EXECUTIVE OFFICERS AS A GROUP............ 9,826,573(h) 15.53%(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 December 31, 1996. Includes shares as of December 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) The shares beneficially owned by Mr. Carlucci are held in joint tenancy
with his wife with shared investment and voting power.
(d) Less than .15%.
(e) Of the aggregate 8,264,562 shares of Common Stock held by the Crown and
Goodman families as of December 31, 1996, Mr. James Crown is deemed to be
the beneficial owner of 7,869,376 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 7,866,980 shares. Of the
7,869,376 shares of Common Stock deemed to be beneficially owned by Mr.
James Crown, he disclaims beneficial ownership as to 7,866,980 shares.
(f) Of the aggregate 8,264,562 shares of Common Stock held by the Crown and
Goodman families as of December 31, 1996, Mr. Lester Crown is deemed to be
the beneficial owner of 6,717,676 shares. Mr. Lester Crown has sole
investment and voting power with respect to 227,654 shares and shared
investment and voting power with respect to 6,490,022 shares. Of the
6,717,676 shares of Common Stock deemed to be beneficially owned by Mr.
Lester Crown, he disclaims beneficial ownership as to 6,490,022.
(g) Of the aggregate 8,264,562 shares of Common Stock held by the Crown and
Goodman families as of December 31, 1996, 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.
(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
1996 BOARD MEETINGS
During 1996, the Board of Directors of the Company held a total of seven
meetings. Each incumbent Director attended at least 86 percent of the meetings
of the Board and 100 percent 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 percent of all Board and Committee meetings held in 1996.
BOARD COMMITTEES
During 1996, 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.
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 in
its relations with the government, 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 1996.
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 1996.
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 two meetings in
1996. Beginning in 1997, a Subcommittee of the Compensation Committee,
comprising Messrs. Carlucci and Trost, will approve compensation paid to the
most highly compensated executives which is subject to the deduction limitation
of Section 162(m) of the Internal Revenue Code of 1986. See "Compensation
Committee Report on Executive Compensation" below.
The Executive and Nominating Committee consists of Mr. Lester Crown,
Chairman, Mr. Carlucci, 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
5
<PAGE> 10
consider qualified nominees recommended by shareholders. If you want to
recommend a person whom you consider qualified to serve on the Board of
Directors of the Company, please write to the Secretary of the Company, 3190
Fairview Park Drive, Falls Church, Virginia 22042-4523. The Executive and
Nominating Committee held three meetings in 1996.
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. The Company does not pay
Directors who are employees of the Company to attend Board and Committee
meetings. The Company reimburses Directors for their travel expenses and for
certain expenses they incur when providing special advisory services to the
Company. In 1996, the outside Directors were paid an aggregate of $391,000 in
retainers and fees, and the Company paid an additional $9,600 for their 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. The Retirement Plan for
Directors will pay benefits 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, at
the request of a Director, to the spouse or estate of a Director. Payments may
be made in a lump sum if an appropriate election is timely received.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Compensation Committee") has
furnished the following report on executive compensation. The Compensation
Committee is composed of the individuals listed below, all of whom are
nonemployee directors of the Company. To comply with Section 162(m) of the
Internal Revenue Code of 1986, as amended ("Section 162(m)"), a subcommittee of
the Compensation Committee (the "Subcommittee") has been created to approve all
awards made to the Chief Executive Officer and the next four most highly
compensated executives. The Subcommittee is composed of two members of the full
Compensation Committee who are outside directors as defined in Section 162(m).
The Compensation Committee supervises all compensation matters not covered by
the Subcommittee.
The Compensation 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
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<PAGE> 11
represents annual performance, both individual and Company-wide, as compared to
the achievement of annual goals which are set 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 appropriate, by the
Compensation 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 1996, the Company exceeded all of
its stated goals.
In awarding the annual compensation to senior management, the Compensation
Committee reviews the base salaries, annual bonuses, and long-term incentives
awarded by peer companies to their senior managements. Each year several major
compensation surveys, which include many of the companies within the Standard &
Poor's Aerospace/Defense Index, are provided to the Compensation Committee by
outside consultants. Base salaries at the Company are targeted around the 50th
percentile of market in order to place more emphasis on an individual's bonus
and thus put more of the total compensation at risk. For executives whose annual
performance significantly exceeds the individual goals set for them, their
bonuses may exceed the 75th percentile for positions at the same level in
comparable companies. Executives whose annual performance meets or exceeds their
goals receive bonuses 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 Compensation Committee adopted a long-term incentive
program consisting of 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 this program, in December of 1995 the
Compensation Committee determined that further awards of stock options and
Performance Restricted Stock should be made for 1996 (the "1995 Grants"). In
March of 1997, the Compensation Committee chose to continue the program for 1997
(the "1997 Grants"). The program will continue to focus executives on achieving
increased shareholder value for the Company on a long-term basis.
As a part of the 1997 Grants, stock options were granted and are exercisable
at $66.1875 (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 March 5, 1998.
The balance of these stock options may be exercised on or after March 5, 1999.
The Performance Restricted Stock issued as part of the 1997 Grants has 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 March 5, 1997, has a
performance period which will end on December 31, 1998.
In reviewing the 1996 performance of James R. Mellor, the Company's Chief
Executive Officer, the Subcommittee determined that Mr. Mellor's base salary and
bonus, which were established late in 1996 pursuant to an amendment to his
employment agreement in connection with extending his employment through May 31,
1997, were appropriate in relation to the market data and the base salaries of
other chief executive officers within Standard & Poor's Aerospace/Defense
Industry and Fortune 500 companies of similar size.
7
<PAGE> 12
Mr. Mellor received, as part of the 1993 Grants, 240,000 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. Mr. Mellor
did not participate in the 1997 Grants.
Effective January 1, 1994, publicly held corporations are prohibited,
pursuant to Section 162(m), from deducting compensation in excess of $1,000,000
to the Chief Executive Officer and the 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 Subcommittee. Awards of the
Company's stock options and Performance Restricted Stock are designed to qualify
as performance-based compensation under Section 162(m).
The Compensation Committee and one of its compensation consultants have
considered the implications of the tax law and of the associated final 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 Compensation Committee believes it is in the
best interest of the shareholders to maintain discretionary control over the
annual cash portion of executive compensation in the future. The creation of the
Subcommittee is intended to allow the long-term awards to be deductible under
Section 162(m), but because of the importance of judgment and discretion,
certain portions of salary and bonus will not qualify for deductibility under
the law. To further comply with recent revisions to Rule 16b-3 under the
Securities and Exchange Act of 1934 ("Rule 16b-3") and Section 162(m), the
Compensation Committee has amended the 1988 Incentive Compensation Plan and
submitted it herewith to the shareholders for approval as the 1997 Incentive
Compensation Plan. As a result of these changes to the Compensation Committee's
structure and the Plan, the Compensation Committee believes that the amount of
the deduction foregone for 1996 and in the future 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 15 percent of the estimated value of executive
compensation to the named corporate officers during 1994, 1995, and 1996, 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 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, 1991
This report is submitted by the Compensation Committee, which comprises four
non-employee 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 received by the
Chief Executive Officer and the next four most highly compensated executive
officers of the Company at the end of 1996 for all services rendered to the
Company and its subsidiaries for 1996, 1995, and 1994.
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 1996 $670,000 $1,750,000 $ 196,916 $ 197,659 0 $ 0 $103,778(e)
Chairman of the Board and 1995 670,000 1,750,000 220,651 2,326,844 139,000 0 62,129(e)
Chief Executive Officer 1994 670,000 1,600,000 264,970 0 0 0 55,181(e)
NICHOLAS D. CHABRAJA 1996 $525,000 $ 800,000 $ 70,589 $ 133,102 0 $ 0 $ 5,607
Vice Chairman 1995 500,000 700,000 106,720 1,118,094 67,500 0 5,551
1994 500,000 600,000 76,016 279,188 100,000 0 5,550
JAMES E. TURNER, JR. 1996 $356,000 $ 500,000 $ 133,502 $ 79,076 0 $ 0 $ 30,156
Executive Vice President, 1995 356,000 500,000 1,652 604,375 36,000 0 29,726
Marine Group 1994 356,000 475,000 0 0 0 0 30,156
ROGER E. TETRAULT 1996 $300,000 $ 300,000 $ 176,482 $ 65,867 0 $ 0 $ 23,596
Senior Vice President and 1995 300,000 300,000 8,840 423,063 25,000 0 22,107
President, Land Systems 1994 276,000 275,000 19,532 0 0 0 20,614
MICHAEL J. MANCUSO 1996 $250,000 $ 225,000 $ 6,315 $ 50,159 0 $ 0 $ 18,283
Vice President and Chief 1995 220,000 175,000 5,953 260,533 15,500 0 16,638
Financial Officer 1994 220,000 130,000 35,301 115,050 11,000 0 5,178
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Bonus payments are reported with respect to the fiscal year for which the
related services were rendered, although the actual awards were made in the
succeeding year.
(b) "Other Annual Compensation" includes 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"); and (ii) amounts reimbursed for payment of taxes. The
amounts shown include the following: for Mr. Mellor, Perquisites of
$147,032, of which $116,256 relates to personal travel; for Mr. Chabraja,
Perquisites of $50,608, of which $39,272 relates to personal travel; and for
Mr. Turner, Perquisites of $60,170, of which $37,007 relates to club
memberships.
(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, 1996,
Mr. Mellor held a total of 69,787 shares of Restricted Stock with an
aggregate market value of $4,906,898; Mr. Chabraja held a total of 39,414
shares of Restricted Stock with an aggregate market value of $2,771,297; Mr.
Turner held a total of 22,515 shares of Restricted Stock with an aggregate
market value of $1,583,086; Mr. Tetrault held a total of 17,429 shares of
Restricted Stock with an aggregate market value of $1,225,477; and Mr.
Mancuso held a total of 10,009 shares of Restricted Stock with an aggregate
market value of $703,758. Holders of the awards are entitled to vote the
shares awarded and to receive dividend equivalents on the shares from the
date of grant.
10
<PAGE> 15
(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, and (ii) payments by the
Company for term life insurance.
(e) Reflects premium payments made by the Company in connection with a
split-dollar life insurance policy on Mr. Mellor and his wife. See
"Executive Compensation -- Retirement Plans." During 1996, the Company paid
a premium of $535,806 and an additional $1,071,612 had already accumulated
in that policy as a result of contributions made by the Company in 1994 and
1995. 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 1996
includes $3,880, representing the cost of the term life insurance component
of the policy, and $77,298, representing the cost to the Company associated
with the non-term component of the split-dollar policy.
STOCK OPTION AWARDS
Under the 1997 General Dynamics Corporation Incentive Compensation Plan, as
submitted herein for approval (the "Incentive Compensation Plan"), the Company
is authorized to award incentive stock options, meeting the applicable
requirements of Section 422 of The Internal Revenue Code, 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 percent 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 may be exercised, and (iii) the terms and conditions under which
stock options may be exercised after termination of employment. The Compensation
Committee cannot award stock appreciation rights.
On October 25, 1993, the Compensation Committee began a new program under
the Incentive Compensation Plan. Stock options granted under this program have
terms of five years. Fifty percent of the stock options may be exercised on or
after the one year anniversary of their grant, and the remaining fifty percent
may be exercised on or after the two year anniversary of their grant.
Pursuant to this program, the Compensation Committee made awards in October
1993 for 1994 and 1995, and in December 1995 for 1996. No awards were made to
the named executives in the calendar year 1996, but awards were made on March 5,
1997, for 1997. Stock option awards were made on March 5, 1997, as follows: Mr.
Chabraja-67,500 shares; Mr. Turner-36,000 shares; and Mr. Mancuso-14,500 shares.
Mr. Mellor, who will retire in May 1997, and Mr. Tetrault, who left the Company
in February 1997, did not receive awards for 1997.
11
<PAGE> 16
As noted above and shown in the table below, no awards were made to the
named executives in 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENTAGE POTENTIAL
OF REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS/SARS RATES OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION
UNDERLYING EMPLOYEES OR FOR OPTION TERM
OPTIONS/SARS IN BASE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JAMES R. MELLOR 0 0.0% -- -- $0 $0
NICHOLAS D. CHABRAJA 0 0.0 -- -- 0 0
JAMES E. TURNER, JR. 0 0.0 -- -- 0 0
ROGER E. TETRAULT 0 0.0 -- -- 0 0
MICHAEL J. MANCUSO 0 0.0 -- -- 0 0
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth information with respect to option exercises
and year-end values during 1996 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 0 $ 0 309,500(e) $6,281,313(e)
69,500(u) 686,313(u)
NICHOLAS D. CHABRAJA 0 0 233,750(e) 5,042,651(e)
33,750(u) 333,281(u)
JAMES E. TURNER, JR. 0 0 108,000(e) 2,275,875(e)
18,000(u) 177,750(u)
ROGER E. TETRAULT 0 0 81,436(e) 1,730,508(e)
12,500(u) 123,438(u)
MICHAEL J. MANCUSO 0 0 37,750(e) 854,481(e)
7,750(u) 76,531(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.
12
<PAGE> 17
RESTRICTED STOCK AWARDS
The Company can award shares of Restricted Stock to participants in the
Incentive Compensation Plan. Awards of Restricted Stock generally provide for
restrictions to lapse over time. Recipients are entitled to vote the shares
awarded and to receive dividend equivalents on the shares from the date of
grant.
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 March 5,
1997, the performance period ends on December 31, 1998.
The Compensation Committee made awards in October 1993 for 1994 and 1995,
and in December 1995 for 1996. Other than adjustments for performance to the
1993 Grants, no awards were made to the named executives in the calendar year
1996. Performance Restricted Stock awards were made on March 5, 1997, for 1997,
as follows: Mr. Chabraja-18,500; Mr. Turner-10,000; and Mr. Mancuso-4,000. Mr.
Mellor and Mr. Tetrault did not receive awards for 1997.
RETIREMENT PLANS
The Chief Executive Officer and the next four most highly compensated
executives participate in a defined benefit pension plan (the "Retirement Plan")
maintained by the Company and its subsidiaries for officers and other salaried
employees. Membership in the Retirement Plan 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 Plan provides a benefit structure primarily based upon final
average pay. At the normal retirement age of 65, a member of the Retirement Plan
is entitled to the full normal monthly retirement benefit earned through the
date of retirement. The monthly benefit will equal one and one-third percent of
final average monthly pay per year of Retirement Plan membership up to a maximum
of 40 years of membership. Unreduced retirement benefits are also payable to
those who retire at or after age 62 with ten or more years of continuous
service. 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 or attained age 65.
"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 percent of the original value of any bonus awards
under the Incentive Compensation Plan (excluding the value of any stock options,
restricted stock, or any previously granted long-term compensation awards). See
the "Summary Compensation Table" under the
13
<PAGE> 18
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 for 1996.
Retirement benefits are also payable upon early retirement if a member
eligible for retirement under the career average pay retirement formula retires
between the ages of 55 and 65; a reduction in the benefit will occur if the
member does not have sufficient points based on age and years of service.
Retirement benefits are fully vested under the career average pay retirement
formula when a member has attained five years of continuous service or attained
age 55.
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 then-existing 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
continuous 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.
The Retirement Plan does not require or permit employee contributions. 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 Plan is limited by the Code.
To the extent that any benefits accrued under the formulas in the Retirement
Plan for salaried employees exceed those limitations, the excess is paid under a
separate, non tax-qualified plan (the "Supplemental Executive Retirement Plan").
The table below sets forth projected annual benefits payable at age 65 based
upon earnings and years of plan membership. 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
14
<PAGE> 19
of a single life annuity. The table includes aggregate benefits payable under
the Retirement Plan and the Supplemental Executive Retirement Plan.
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
1,250,000 83,333 166,667 250,000 333,333 416,667 500,000
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 benefits under the
Supplemental Executive Retirement Plan, his pension benefits are estimated
to be approximately $85,302 per year pursuant to the tax-qualified
Retirement Plan, assuming he continues to be employed until May 31, 1997.
As of January 1, 1997, 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 and Supplemental
Executive Retirement Plans: James R. Mellor, 15 years; Nicholas D. Chabraja, 4
years; James E. Turner, Jr., 8 years; Roger E. Tetrault, 5 years; and Michael J.
Mancuso, 3 years.
Mr. Mellor and the Company have agreed that he would forego certain
Supplemental Executive Retirement Plan 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 Executive Retirement Plan, the
Company's Supplemental Savings and Stock Investment Plan (the "Supplemental
SSIP"), and previous employment agreements.
On November 5, 1996, Mr. Mellor entered into an agreement with the Company
extending his employment until May 31, 1997 (the "Extension Agreement"). In
consideration for his remaining an employee of the Company until that time, Mr.
Mellor will receive, pursuant to the Extension Agreement, an annual supplemental
retirement benefit equal to $147,064 upon his retirement. As part of the
Extension Agreement, he will also receive, upon his retirement, a cash payment
of $100,957, which represents the difference between the amount of benefit under
the Supplemental SSIP that he relinquished in 1994 as part of the Insurance
Agreement and the estimated value of the Company contributions plus investment
earnings
15
<PAGE> 20
that would have accrued on behalf of Mr. Mellor under the provisions of the
Supplemental SSIP as of May 31, 1997. These benefits payable under the Extension
Agreement are in addition to the benefits payable under the Insurance Agreement.
Mr. Chabraja entered into an agreement, dated November 12, 1996, that
provides for the payment of certain supplementary retirement benefits (the
"Chabraja Agreement"). This agreement became effective January 1, 1997, and
provides that, together with benefits payable from the Retirement Plan and the
Supplemental Executive Retirement Plan, Mr. Chabraja will receive a total annual
retirement benefit of $280,000, if he terminates employment during the first
three years of the Chabraja Agreement, increasing by $6,296 for each full month
of service during the period between January 1, 2000, and December 31, 2002.
Payment of retirement benefits may not commence prior to January 1, 2003.
Certain survivor benefits are payable to Mr. Chabraja's spouse if he should die
prior to commencement of benefits.
Mr. Turner entered into an agreement with the Company, dated September 1,
1988, providing him with an enhancement to his retirement benefit. However,
because Mr. Turner has received increases in his compensation and commensurate
increases in his Retirement Plan benefit accruals, he 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,
which remained in effect until his retirement on February 28, 1997, and provided
him with an enhancement to his retirement benefit that was intended to ensure he
received 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 was based on the formula in that plan, as reduced by benefits
actually payable under the Babcock and Wilcox retirement plan and the Retirement
Plan. Taking into account his termination of employment on February 28, 1997,
the Company has determined that Mr. Tetrault is entitled to a benefit under his
employment agreement of $8,164 per month, beginning March 1, 1997, payable until
his attainment of age 65. Upon attainment of age 65, Mr. Tetrault will be
eligible to receive regular benefits under the Retirement Plan and the
Supplemental Executive Retirement Plan.
The foregoing benefits for Messrs. Mellor, Chabraja, and Tetrault, as well
as Supplemental Executive Retirement Plan benefits, are subject to the same
level of risk as all other general unsecured obligations of the Company.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
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 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, which was subsequently amended on November 5, 1996
(the "Amended Agreement"). In this last
16
<PAGE> 21
amendment to the Amended Agreement, Mr. Mellor agreed to extend his employment
until May 31, 1997. In consideration therefor, the Company agreed to (i)
continue his base salary at $670,000; (ii) pay him a bonus for 1996 performance
which is equivalent to his bonus for 1995 performance; (iii) pay him a bonus of
$730,000 for the period from January 1, 1997, through May 31, 1997, which is
equal to a pro rata share of his prior year's annual bonus; and (iv) in lieu of
Mr. Mellor's receipt of 1997 long-term grants pursuant to the Incentive
Compensation Plan, a cash payment of $840,000. (This cash payment is equivalent
to the present value of five-twelfths of what he would have received for 1997
pursuant to the Incentive Compensation Plan.) In addition, the $3,100,000, which
was to have been paid on December 31, 1996, will be disbursed at the time of his
retirement. Mr. Mellor has also agreed to provide the Company with consulting
services for a period of one year following his retirement from the Company. In
consideration therefore, the Company will pay Mr. Mellor the sum of $580,000.
Mr. Mellor will also receive certain supplemental retirement benefits described
under "Executive Compensation -- Retirement Plans."
Pursuant to the Chabraja Agreement discussed above, Mr. Chabraja will serve
as Vice Chairman from January 1, 1997, until he becomes Chairman and Chief
Executive Officer of the Company on June 1, 1997. In accordance with the
Chabraja Agreement, he withdrew from the partnership of Jenner & Block, Chicago,
Illinois, effective January 1, 1997. Effective January 1, 1997, Mr. Chabraja
will be paid base compensation at the rate of $600,000 per year and, effective
June 1, 1997, at the rate of $700,000 per year. In addition, Mr. Chabraja will
receive annual incentive compensation awards as determined by the Subcommittee
and certain supplemental retirement benefits described under "Executive
Compensation -- Retirement Plans."
SEPARATION AGREEMENTS
The Company has entered into Severance Protection Agreements with 24 of its
key executives which become effective upon change of control of the Company. A
"change of 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 ten percent of the outstanding shares of Common
Stock, and who after such acquisition owns 30 percent 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, the employee benefit plans of the
Company, or the Crown family or entities related to them are excepted.
The Severance Protection Agreements provide that, during a period of two
years following the change of 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 30-day
period commencing on the first anniversary of the change of 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 Agreements may be subject to
deductibility restrictions under Section 280G of the Internal Revenue Code and
recipients may be subject to an 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.
17
<PAGE> 22
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 $7,800,000 for Mr. Mellor; $6,900,000 for Mr. Chabraja; $1,800,000 for
Mr. Turner; and $2,200,000 for Mr. Mancuso.
TRANSACTIONS INVOLVING DIRECTORS AND OTHERS
Material Service Corporation, an indirect subsidiary of the Company, paid an
indirect subsidiary of CC Industries, Inc. ("CCI") $158,134 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 1996, the Company paid Crown Golf Properties $150,000 for
management services and reimbursed it for certain expenses.
Mr. James Crown has an equity interest in the general partner 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 1996 for the direct or indirect benefit of those
associates was $642,826.
Mr. Chabraja, Vice Chairman of the Company, was during 1996 a Senior Partner
of the law firm of Jenner & Block which has, since 1960, provided legal services
to the Company. While Mr. Chabraja was a partner of Jenner & Block, he was not
permitted to participate in any revenues that Jenner & Block derived from its
representation of the Company nor was Jenner & Block permitted to bill the
Company for any time that Mr. Chabraja devoted to the Company's affairs. During
1996, Mr. Chabraja devoted substantially all of his business time and attention
to the affairs of the Company. In 1996, the Company paid Jenner & Block
$17,014,839 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.
PROPOSAL TO AMEND AND RESTATE THE 1988 INCENTIVE COMPENSATION PLAN AND SET ASIDE
ADDITIONAL SHARES FOR AWARDS OF STOCK OPTIONS
As part of the Company's overall effort to increase shareholder value, your
Board of Directors, subject to shareholder approval, has adopted an amended and
restated version of the 1988 Incentive Compensation Plan and has reserved an
additional 3,000,000 treasury shares for awards of stock options.
18
<PAGE> 23
INCENTIVE COMPENSATION PLAN AMENDMENT AND RESTATEMENT
The 1988 Incentive Compensation Plan has been renamed the "1997 Incentive
Compensation Plan" and has been amended, in part, to account for the recent
changes to Rule 16b-3 and to permit continued compliance with Section 162(m)
with respect to certain forms of compensation available under the Incentive
Compensation Plan. Significant changes to the Incentive Compensation Plan
include:
- The creation of a subcommittee of the Compensation Committee to approve
all awards to the Chief Executive Officer and next four most highly
compensated executives. See Section 3 of the Incentive Compensation Plan.
- The addition of adjustment limitations needed to comply with Section
162(m). See Section 5.a of the Incentive Compensation Plan.
- The enhancement of the Compensation Committee's power to adjust and modify
awards in reaction to significant corporate events. See Section 12 of the
Incentive Compensation Plan.
- The section describing stock options was amended to delete a requirement
that no option could be issued that was exercisable within twelve months
of the grant date.
- The section describing Performance Shares was deleted. Effective December
31, 1987, the Company decided that Performance Shares would no longer be
awarded.
- The description of permissible performance criteria to be used by the
Subcommittee for grants of restricted stock as performance compensation
under Section 162(m). See the description below as well as Sections 5 and
6 of the Incentive Compensation Plan.
- The provision of maximum awards of stock options and restricted stock for
the Chief Executive Officer and the next four most highly compensated
executives as required for compliance with Section 162(m). See Section 5
of the Incentive Compensation Plan.
SECTION 162(m) DISCLOSURES
Any officer or key employee of the Company and its subsidiaries in an
executive, administrative, professional, scientific, engineering, technical, or
advisory capacity is eligible for an award under the Plan. Incentive
Compensation Plan awards to the Chief Executive Officer and the next four most
highly compensated officers are subject to the following Incentive Compensation
Plan provisions:
1. Awards of stock options are limited to 250,000 shares awarded to any one
individual for any calendar year and shall be issued at fair market value
(as defined in the Incentive Compensation Plan).
2. Awards of restricted stock are limited to 50,000 shares awarded to any
one individual for any calendar year. However, restricted stock granted
under the Restricted Stock Performance Formula, defined in the Incentive
Compensation Plan and described below, is limited to an initial grant of
50,000 shares, but will be adjusted upwards or downwards in accordance
with that formula.
3. The Subcommittee, in its sole discretion, shall establish restricted
stock performance goals based on attainment of, over a specified period
of individual performance, specified targets or other parameters relating
to one or more of the following business criteria: market price of Common
Stock, earnings per share, net profits, total shareholder return, return
of shareholders' equity, cash flow, and
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<PAGE> 24
cumulative return on net assets employed. In addition, awards of
restricted stock may be based on the Restricted Stock Performance
Formula, described as follows:
The Subcommittee shall make an initial grant of shares of restricted
stock (the "Initial Grant"). At the end of a specified performance period
(determined by the Subcommittee), the number of shares in the Initial
Grant shall be increased or decreased based on the increase or decrease
in the value of the Common Stock over the performance period.
The increase or decrease described in the preceding paragraph is determined
as follows:
At the end of each performance period, the fair market value (as defined
in Section 7 of the Incentive Compensation Plan) of the Common Stock is
compared to the fair market value per share on the grant date. This
difference is multiplied by the number of shares of restricted stock to
be earned at the end of each performance period and the resulting product
is divided by the fair market value at the end of the performance period.
The number of shares of Common Stock so determined is added to (in the
case of a higher fair market value) or subtracted from (in the case of a
lower fair market value) the number of shares of restricted stock to be
earned at that time. Once the number of shares of restricted stock has
been adjusted, restrictions will continue to be imposed for a period of
time.
SUMMARY OF 1997 INCENTIVE COMPENSATION PLAN
The 1997 Incentive Compensation Plan is administered by the Compensation
Committee, except that the Subcommittee administers the Incentive Compensation
Plan as it relates to the Company's Chief Executive Officer and the four next
most highly compensated executives. The Compensation Committee or the
Subcommittee, as the case may be, determines the type and amount of award given
to each eligible participant. All salaried employees of the Company and its
subsidiaries (approximately 8,000) are eligible for participation; however,
participation is usually limited to one to two percent of all Company employees
(approximately 320 employees).
Awards may be granted in cash, Common Stock, options to purchase Common
Stock, restricted shares of Common Stock, or any combination of these. Terms and
conditions thereof are at the discretion of the Compensation Committee (or
Subcommittee). Stock options may be granted as either incentive stock options,
intended to qualify under Section 422 of the Internal Revenue Code, or as
nonqualified stock options. All options are issued at 100 percent of the fair
market value of the Common Stock. As described under the caption "Section 162(m)
Disclosures," the stock options and restricted stock awards to the Chief
Executive Officer and the four next most highly compensated executives are
subject to limitations designed to permit those awards to be exempt from the
Section 162(m) deduction limitation. The Compensation Committee (or
Subcommittee) may equitably adjust awards previously granted to account for
special distributions and for extraordinary corporate events that impact the
Company or the Company's share price or share status. The Board of Directors of
the Company may amend the Incentive Compensation Plan, except that certain
actions may be taken only if approved by the Company shareholders.
The proposed changes to the Incentive Compensation Plan (described above)
are designed to permit the Company to comply with Rule 16b-3 and Section 162(m)
and do not add any new benefits to the plan and do not change eligibility
requirements for participation in the Incentive Compensation Plan.
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<PAGE> 25
On March 5, 1997, the Compensation Committee and the Subcommittee made
certain awards under the Incentive Compensation Plan. Please note that the bonus
and long-term compensation awards granted to the Chief Executive Officer and the
four next most highly compensated executives under the proposed 1997 Incentive
Compensation Plan that are described below are also described under the caption
"Executive Compensation -- Summary Compensation Table" and the related
footnotes. The March 5, 1997, awards are reflected below:
1997 AWARDS UNDER THE INCENTIVE COMPENSATION PLAN (a)(b)
<TABLE>
<CAPTION>
PERFORMANCE
RESTRICTED STOCK
-----------------------
STOCK NUMBER OF AWARD
NAME BONUS OPTIONS SHARES VALUE
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JAMES R. MELLOR $1,750,000 0 0 $ 0
NICHOLAS D. CHABRAJA 800,000 67,500 18,500 1,224,469
JAMES E. TURNER, JR. 500,000 36,000 10,000 661,875
ROGER E. TETRAULT 300,000 0 0 0
MICHAEL J. MANCUSO 225,000 14,500 4,000 264,750
ALL EXECUTIVE OFFICERS 5,002,000 196,100 54,300 3,593,981
EMPLOYEES WHO ARE NOT EXECUTIVE OFFICERS 7,549,500 392,395 108,655 7,191,603
- - ---------------------------------------------------------------------------------------------
</TABLE>
(a) The bonus, option award, and Performance Restricted Stock information also
appears under the caption "Executive Compensation."
(b) Directors who are not executive officers do not participate in the Incentive
Compensation Plan.
The text of the 1997 Incentive Compensation Plan is contained in Exhibit A.
Please read it in its entirety.
RESERVATION OF ADDITIONAL TREASURY SHARES FOR AWARDS OF STOCK OPTIONS
Your Board of Directors is also seeking shareholder approval to set aside an
additional 3,000,000 treasury shares for the granting of stock options under the
Incentive Compensation Plan. There are presently 1,327,483 shares available. In
1991, shareholders approved reserving an additional 5,000,000 treasury shares
for granting of options. Since then, options covering 8,968,752 shares have been
granted and options for 1,112,191 shares have lapsed. Under the Incentive
Compensation Plan, the exercise price of a stock option cannot be less than the
fair market value of the Common Stock on the date of the award. As of March 5,
1997, the fair market value of the Company's Common Stock on the New York Stock
Exchange was $66.1875 per share.
Information pertaining to stock option awards is contained under "Executive
Compensation -- Stock Option Awards."
The proposed amendment and restatement of the Incentive Compensation Plan
and the approval of reserving additional treasury shares for awards of stock
options will be voted upon as a single proposal. If the proposal is not
approved, the Incentive Compensation Plan will continue in effect in its present
form (which will not be qualified for Section 162(m) purposes) and no additional
shares will be set aside for
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<PAGE> 26
granting of options. Furthermore, awards made under the Incentive Compensation
Plan to the Chief Executive Officer and the next four most highly compensated
executive officers of the Company will not be deductible unless the 1997
Incentive Compensation Plan is approved by shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
Incentive compensation awards in cash and Common Stock will be taxable as
additional compensation to the recipient at the time of payment. Awards of
restricted stock do not constitute taxable income until such time as
restrictions lapse with regard to any installment, unless the employee elects to
realize taxable ordinary income in the year of award in an amount equal to the
fair market value of the restricted stock awarded at the time of the award,
determined without regard to the restrictions. The Company will be entitled to a
deduction when income is taxable to a participant. The amount of taxable income
to the participant and corresponding deduction will be equal to the total amount
of the cash and/or fair market value of the shares of Common Stock received. Any
interest and/or dividend equivalents earned on awards will also be taxable as
compensation to the participant and deductible by the Company at the time of
payment.
An employee who is awarded an incentive stock option (intended to be
qualified under Section 422 of the Internal Revenue Code) does not recognize
taxable income at the time of award or at the time of exercise of the option,
but the excess of the fair market value of the shares acquired over the option
price will be an item of tax preference for purposes of the alternative minimum
tax. If the employee makes no disposition of the shares acquired within a
one-year period after the shares are transferred to him (and within two years
after the option was granted), any gain or loss realized on the sale of the
shares will be treated as long-term capital gain or loss. Capital losses may be
deducted in full against capital gains but to only a limited extent against
ordinary income. The Company is not entitled to any deduction in connection with
the award or exercise of an incentive stock option or a disposition of the
shares in the above circumstances. If the employee fails to hold the shares for
the required length of time, the employee will be treated as having received
compensation in the year of disposition in an amount equal to the lesser of (i)
the excess of the fair market value of the shares on the date of exercise over
their option price, or (ii) the gain realized on the sale of the shares. The
compensation recognized is taxable as ordinary income. The Company will be
entitled to a tax deduction for the amount of the compensation. Excess gain over
the amount treated as compensation is capital gain.
An employee who is awarded a stock option that is not intended to be an
incentive stock option does not recognize taxable income at the time of award,
but will recognize compensation income upon exercise of the option. The income
recognized in this event is equal to the excess of the fair market value of the
share upon the exercise date over the exercise price. Upon disposition of the
purchased shares, the employee will recognize a capital gain or loss, equal to
the difference in the sale price of the shares and the employee's tax basis in
those shares. The tax basis is equal to the exercise price plus the compensation
income recognized with respect to those shares. The Company is not entitled to a
deduction upon grant of such stock options, but is entitled to a deduction upon
the exercise of these options for the amount of compensation income recognized
by the employee.
Incentive Compensation Plan awards of stock options and restricted stock are
intended to qualify as deductible, performance-based compensation under Section
162(m). Incentive Compensation Plan awards of cash and stock (unrestricted) are
not designed to be deductible to the Company under Section 162(m). As
22
<PAGE> 27
discussed in the "Compensation Committee Report on Executive Compensation,"
Section 162(m) only applies to the Chief Executive Officer and the next four
most highly compensated executives.
VOTING AND RECOMMENDATION
The affirmative vote of the holders of the majority of the shares present in
person or represented by Proxy and entitled to vote at the meeting (a quorum
being present) is required to adopt the 1997 Incentive Compensation Plan and
reserve additional treasury shares for granting of stock options.
The proposed amended and restated version of the Incentive Compensation
Plan, which is a key part of the overall compensation plan to provide incentives
for managing for increased shareholder value, is in the best interest of the
shareholders. The proposed Incentive Compensation Plan will assist the Company
in establishing an effective means of gaining key executives' commitment to
increase shareholder value and is a means of recruiting, retaining, and
rewarding this critical group.
RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE 1997
INCENTIVE COMPENSATION PLAN AND THE SETTING ASIDE OF 3,000,000 ADDITIONAL
TREASURY SHARES AVAILABLE FOR GRANTING OF STOCK OPTIONS. SHARES REPRESENTED BY
PROXY WILL BE VOTED FOR UNLESS SHAREHOLDERS DIRECT OTHERWISE.
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 1997. 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.
RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE SELECTION OF ARTHUR
ANDERSEN LLP. SHARES REPRESENTED BY PROXY WILL BE VOTED FOR UNLESS SHAREHOLDERS
DIRECT OTHERWISE.
SHAREHOLDER PROPOSAL
The Company has been advised by representatives of (i) the Glenmary Home
Missioners, P. O. Box 465618, Cincinnati, Ohio 45246-5618, owners of 200 shares
of Common Stock, (ii) the Loretto Literary and Benevolent Institution, Loretto
Motherhouse, Nerinx, Kentucky 40049, owners of 100 shares of Common Stock, and
(iii) the Retirement Plans for the Employees of the Sisters of Mercy Regional
Community of
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<PAGE> 28
Detroit, 34605 Twelve Mile Road, Farmington Hills, Michigan 48331-3221, owners
of 3,100 shares of Common Stock, that they intend to present to the Annual
Meeting the following:
THE PROPOSAL
Whereas US troops in Panama, Iraq, Somalia, and Haiti lost their lives
facing weapons made in the United States or weapons from technology this country
furnished others (Congressional Record, July 25, 1996);
Whereas US government subsidies for arms exports totaled more than $7.6
billion in 1995, covering loans, grants, giveaways, and promotional activities
administered by the Pentagon and Departments of Commerce and State (Hartung,
Arms Trade Resource Institute, 1995);
Whereas over the last decade the US has sold $42 billion worth of weapons to
45 of the 50 countries involved in ethnic and territorial conflicts (Hartung,
Arms Trade Resource Institute, 1995);
Resolved: the shareholders request the Board of Directors to provide a
comprehensive report on General Dynamic's [sic] foreign military sales. The
report, prepared at reasonable cost and available to all shareholders by
December, 1997, may omit classified and proprietary information.
SUPPORTING STATEMENT
Global security is security of people. The cold-war notion of using arms
sales to maintain balances of power or to support allies has been discredited by
1990's experience, when alliances, governments, and boundaries in large parts of
the world are in flux.
The arms industry claims that foreign military sales protect jobs. But
co-production agreements and transfers of technology to foreign companies export
jobs. Offset arrangements on major sales often give not only a share of the arms
production to foreign companies but also include private side agreements
granting commercial concessions. These private offsets, not subject to the
scrutiny of Congress, often result in a net loss of US jobs tied to foreign arms
sales. We believe such contracts with foreign companies and governments have
harsh repercussions on US workers during this time of accelerated downsizing of
our workforce, as well as placing US soldiers abroad at greater risk.
Therefore it is reasonable for shareholders to ask:
1. That all offset, licensing, and co-production agreements be reported.
2. The percentage of total sales that is military. The percentage of
military sales to the US Armed Forces. The percentage of military sales
through the Pentagon to foreign governments. The percentage of military
sales to domestic commercial markets and to foreign commercial markets.
3. Disclosure of Company criteria for military sales for use by others than
the U.S. Armed Forces.
4. Categories of military equipment exported for the past three years.
5. Detailed reporting of Company position and lobbying efforts for or
against legislation establishing a Code of Conduct for US arms transfers
(e.g., no sales to governments that violate human rights of their own
citizens, engage in aggression against neighbors, come to power through
undemocratic means, or ignore international arms-control agreements).
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<PAGE> 29
Corporate lobbying plays a large role in the formation and execution of
public policy. It is only prudent for General Dynamics shareholders to seek to
understand our Company's economic dependence on foreign military sales as well
as its marketing rationale.
If you agree, please vote FOR this resolution.
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE SHAREHOLDER PROPOSAL
Your Board of Directors believes that this shareholder proposal is contrary
to the interests of your Company, its employees, its shareholders, and our
country, and recommends that all shareholders vote AGAINST.
The sponsors of this proposal are members of a group of organizations that
has submitted to your Company's shareholders no less than 11 proposals over the
last 17 years. Among other things, these proposals included asking your Company
to withdraw its bid on the cruise missile and refrain from bidding on any new
military systems for three years, a recommendation that your Company exit the
nuclear submarine business, a proposal that your Company abandon its military
markets by converting facilities to serve unspecified commercial markets, and
today's request for extensive reports on military exports. Never has one of
their proposals gained ten percent of the vote.
Insofar as this most recent proposal is concerned, your Board believes that
information regarding your Company's military exports is already adequately
disclosed in various reports from the Company, the U.S. Defense Department, and
the U.S. State Department. In addition, in order to ensure that they are in
accordance with, and in furtherance of, our government's foreign policy and our
national security, your Company's military exports are typically negotiated with
extensive participation of the U.S. Defense Department and are reviewed and
approved by the U.S. State Department. It is the belief of our government that
the judicious military support of this country's friends and allies has
contributed to peace and stability around the world. Finally, we agree to offset
and coproduction contract conditions when your Company would otherwise lose
business, most often to an overseas competitor. In that regard, your Board is
not aware of any coproduction or offset contracts involving your Company which
have created a net loss of jobs in the United States.
RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE SHAREHOLDER PROPOSAL.
SHARES REPRESENTED BY PROXY WILL BE VOTED AGAINST UNLESS SHAREHOLDERS DIRECT
OTHERWISE.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's officers
and directors, and persons who are holders of more than ten percent 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.
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<PAGE> 30
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 ten percent of the Common Stock complied with all filing
requirements, except for Messrs. Mellor and Trost. Mr. Mellor inadvertently did
not file Form 4s with respect to contributions, from the Mellor Family
Foundation to charities, which were not reported by the trustee of the
Foundation. Mr. Trost inadvertently did not report re-investment of dividends in
his account by his broker in 1995.
SHAREHOLDER PROPOSALS - 1998
MEETING OF SHAREHOLDERS
Any proposal of a shareholder intended to be presented at the Company's 1998
Annual Meeting of Shareholders must be received by the Company no later than
November 21, 1997, 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 approval of the 1997
Incentive Compensation Plan, the selection of auditors, and the adoption of the
shareholder proposal.
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.
26
<PAGE> 31
SOLICITATION OF PROXIES AND COST THEREOF
The Company will bear the cost of soliciting Proxies. 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 21, 1997
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 1996 MAY BE
OBTAINED UPON WRITTEN REQUEST TO PAUL A. HESSE, SECRETARY, GENERAL DYNAMICS
CORPORATION, 3190 FAIRVIEW PARK DRIVE, FALLS CHURCH, VIRGINIA 22042-4523.
27
<PAGE> 32
EXHIBIT A
GENERAL DYNAMICS CORPORATION
1997 INCENTIVE COMPENSATION PLAN
1. Purpose. This plan is an amendment and restatement of the 1988 Incentive
Compensation Plan; it is renamed the "1997 Incentive Compensation Plan" and is
referred to hereinafter as the "Plan." The purpose of the Plan is to provide
General Dynamics Corporation and its subsidiaries (the "Company") with an
effective means of attracting, retaining, and motivating officers and other key
employees and to provide them with incentives to enhance the growth and
profitability of the Company.
2. Eligibility. Any officer or key employee of the Company in an executive,
administrative, professional, scientific, engineering, technical, or advisory
capacity is eligible for an award under the Plan.
3. Committee. The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company comprised of two or
more members of the Board of Directors, all of whom shall be "non-employee
directors." Except as otherwise expressly provided in the Plan, the Committee
shall have full power and authority to interpret and administer the Plan, to
determine the officers and key employees to receive awards and the amounts and
types of the awards, to adopt, amend, and rescind rules and regulations, and to
establish terms and conditions, not inconsistent with the provisions of the
Plan, for the administration and implementation of the Plan, provided, however,
that the Committee may not, after the date of any award, make any changes that
would adversely affect the rights of a recipient under any award without the
consent of the recipient. The determination of the Committee on these matters
shall be final and conclusive and binding on the Company and all participants.
Code Section 162(m) Subcommittee. Notwithstanding the foregoing paragraph,
the Plan shall be administered by a subcommittee of the Committee (the
"Subcommittee") with respect to persons covered by the deduction limitation of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Subcommittee shall comprise two or more members of the Committee, all of
whom shall be "outside directors" as that term is used in Code Section 162(m).
With respect to such persons subject to Code Section 162(m), the Subcommittee
shall have all of the powers, rights, and duties granted to the Committee under
this Plan and each reference to the "Committee" herein shall be deemed to be a
reference to the "Subcommittee."
4. Awards. Awards may be made by the Committee in such amounts as it shall
determine in cash, in common stock of the Company ("Common Stock"), in options
to purchase Common Stock of the Corporation ("Stock Options"), or in shares of
Common Stock subject to certain restrictions ("Restricted Stock"), or any
combination thereof. Awards of Stock Options shall be limited to awards for such
number of shares as shall be allocated for that purpose by the Board of
Directors and approved by the shareholders.
A-1
<PAGE> 33
5. Code Section 162(m) Awards. Awards to persons covered by the deduction
limitation of Code Section 162(m), as described by Code Section 162(m)(3), shall
be subject to the following additional limitations:
a. Adjustments. The Subcommittee shall have no discretion to increase
an award of Stock Options and/or Restricted Stock once granted, except that
adjustments are permitted under Sections 11 and 12 of this Plan to the
extent permissible under regulations interpreting Code Section 162(m).
b. Maximum Awards. Awards of Stock Options and/or Restricted Stock
under the Plan shall be limited as follows:
(1) Awards of Stock Options shall be limited to 250,000 shares
awarded to any one individual for any calendar year and shall be issued
at fair market value.
(2) Awards of Restricted Stock shall be limited to 50,000 shares
awarded to any one individual for any calendar year. Notwithstanding the
foregoing, Restricted Stock granted under the Restricted Stock
Performance Formula, described below, shall be limited to an initial
grant of 50,000 shares, but shall be adjusted upwards or downwards in
accordance with that formula.
c. Performance Goals. The Subcommittee, in its sole discretion, shall
establish performance goals applicable to awards of Restricted Stock in such
a manner as shall permit payments with respect thereto to qualify as
"performance-based compensation" as described in Code Section 162(m)(4)(C).
Such awards shall be based on attainment of, over a specified period of
individual performance, specified targets or other parameters relating to
one or more of the following business criteria: market price of Common
Stock, earnings per share, net profits, total shareholder return, return of
shareholders' equity, cash flow, and cumulative return on net assets
employed. In addition, awards of Restricted Stock may be based on the
Restricted Stock Performance Formula, described below.
6. Restricted Stock Performance Formula. Awards of Restricted Stock may be
granted pursuant to the formula described in this section, referred to herein as
the "Restricted Stock Performance Formula." The Committee shall make an initial
grant of shares of Restricted Stock (the "Initial Grant"). At the end of a
specified performance period (determined by the Committee), the number of shares
in the Initial Grant shall be increased or decreased based on the increase or
decrease in the value of the Common Stock over the performance period.
The increase or decrease described in the preceding paragraph shall be
determined in the following manner:
At the end of each performance period, the fair market value (as defined
in Section 7 below) of the Common Stock is compared to the fair market
value per share on the grant date. That difference is multiplied by the
number of shares of Restricted Stock to be earned at the end of each
performance period and the resulting product is divided by the fair
market value at the end of the performance period. The number of shares
of Common Stock so determined is added to (in the case of a higher fair
market value) or subtracted from (in the case of a lower fair market
value) the number of shares of Restricted Stock to be earned at that
time. Once the number of shares of Restricted Stock has been adjusted,
restrictions will continue to be imposed for a period of time.
7. Common Stock. In the case of awards in Common Stock, the number of
shares shall be determined by dividing the amount of the award by the average
between the highest and lowest quoted selling prices of
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<PAGE> 34
the Company's Common Stock on the New York Stock Exchange on the date of the
award. The average is referred to throughout this Plan as the "fair market
value."
8. Dividend Equivalents and Interest.
a. Dividends. If any award in Common Stock or Restricted Stock is to be
paid on a deferred basis, the recipient may be entitled, on terms and
conditions to be established, to receive a payment of, or credit equivalent
to, any dividend payable with respect to the number of shares of Common
Stock or Restricted Stock which, as of the record date for the dividend, has
been awarded or made payable to the recipient but not delivered.
b. Interest. If any award in cash is to be paid on a deferred basis,
the recipient may be entitled, on terms and conditions to be established, to
be paid interest on the unpaid amount.
9. Restricted Stock Awards. Restricted Stock represents awards made in
Common Stock in which the shares granted may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated except upon passage of time, or
upon satisfaction of other conditions, or both, in every case as provided by the
Committee in its sole discretion. The recipient of an award of Restricted Stock
shall be entitled to vote the shares awarded and to the payment of dividend
equivalents on the shares from the date the award of shares is made; and, in
addition, all Special Distributions (as defined in Section 11 hereof) thereon
shall be credited to an account similar to the Account described in Section 11.
The recipient of an award of Restricted Stock shall have a nonforfeitable
interest in amounts credited to such account in proportion to the lapse of
restrictions on the Restricted Stock to which such amounts relate. For example,
when restrictions lapse on fifty percent (50%) of the Restricted Stock granted
in an award, the holder of such Restricted Stock shall have a nonforfeitable
interest in fifty percent (50%) of the amount credited to his account which is
attributable to such Restricted Stock. The holder of Restricted Stock shall
receive a payment in cash of any amount in his account as soon as practicable
after the lapse of restrictions relating thereto.
10. Stock Option Awards.
a. Available Shares. Shares available for awards of Stock Options under
the Plan at the effective date of the restatement of the Plan shall be
available for awards of Stock Options under the Plan. Shares available for
awards of Stock Options may be authorized but unissued shares or may be
treasury shares. If any option awarded under the Plan or any predecessor
plan shall expire, terminate, or be canceled for any reason without having
been exercised in full, the corresponding number of unpurchased shares which
were reserved for issuance upon exercise thereof shall again be available
for the purposes of the Plan.
b. Type of Options. Options shall be in the form of incentive stock
options, non-statutory stock options, or both, as the Committee may
determine. The term "incentive stock option" means any option, or portion
thereof, awarded under the Plan which meets the applicable requirements of
Section 422 of the Internal Revenue Code, as it may be amended from time to
time. The term "non-statutory stock option" means any option, or portion
thereof, awarded under the Plan which does not qualify as an incentive stock
option.
c. Incentive Stock Option Limitation. For incentive stock options
granted under the Plan, the aggregate fair market value (determined as of
the date the option is awarded) of the number of whole
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shares with respect to which incentive stock options are exercisable for the
first time by any employee during any calendar year under all plans of the
Company shall not exceed $100,000.
d. Purchase Price. The purchase price of the Common Stock under each
option shall be determined by the Committee, but shall not be less than 100
percent of the fair market value of the Common Stock on the date of the
award of the option.
e. Terms and Conditions. The Committee shall, in its discretion,
establish (i) the term of each 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 option shall be exercised, and (iii) the terms
and conditions under which options may be exercised after termination of
employment for any reason for periods not to exceed three years after
termination of employment but not beyond the term established above.
f. Purchase by Cash or Stock. The purchase price of shares purchased
upon the exercise of any stock option shall be paid (i) in full in cash, or
(ii) in whole or in part (in combination with cash) in full shares of Common
Stock owned by the optionee and valued at its fair market value on the date
of exercise, all pursuant to procedures approved by the Committee.
g. Transferability. Options shall not be transferable. During the
lifetime of the person to whom an option has been awarded, it may be
exercisable only by such person or one acting in his stead or in a
representative capacity. Upon or after the death of the person to whom an
option is awarded, an option may be exercised by the optionee's legatee or
legatees under his last will, or by the option holder's personal
representative or distributee's executive, administrator, or personal
representative or designee in accordance with the terms of the option.
h. Option Exchange. Subject to the restrictions of Section 5, the
Committee, in its sole discretion, shall have the authority at any time, and
from time to time, to enter into option exchanges with one or more or all
holders of options awarded under the Plan, upon such terms and conditions as
it deems appropriate and advisable. Such terms and conditions need not be
uniform among all holders of outstanding options.
11. Adjustments for Special Distributions. The Committee shall have the
authority to change all Stock Options granted under this Plan to adjust
equitably the purchase price thereof to reflect a special distribution to
shareholders or other extraordinary corporate action involving distributions or
payments to shareholders (collectively referred to as "Special Distributions").
In the event of any Special Distribution, the Committee may, to the extent that
it determines in its judgment that the adjustment of the purchase price of Stock
Options does not fully reflect such Special Distribution, increase the number of
shares of Common Stock covered by such Stock Options or cause to be created a
Special Distribution account (the "Account") in the name of each individual to
whom Stock Options have been granted hereunder (sometimes herein referred to as
a "Grantee") to which shall be credited an amount determined by the Committee,
or, in the case of non-cash Special Distributions, make appropriate comparable
adjustments for or payments to or for the benefit of the Grantee. Amounts
credited to the Account in accordance with the preceding rules shall be credited
with interest, accrued monthly, at an annual rate equal to the higher of Moody's
Corporate Bond Yield Average or the prime rate in effect from time to time, and
such interest shall be credited in accordance with rules to be established by
the Committee. Notwithstanding the foregoing, at no time shall the Committee
permit the amount credited to the Grantee's Account to exceed ninety percent
(90%) of the purchase price of the
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<PAGE> 36
Grantee's outstanding Stock Options to which such amount relates. To the extent
that any credit would cause the Account to exceed that limitation, such excess
shall be distributed to the Grantee in cash.
Amounts credited to the Grantee's Account shall be paid to the Grantee or,
if the Grantee is deceased, his or her beneficiary at the time that the options
to which it relates are exercised or expire, whichever occurs first.
The Account shall for all purposes be deemed to be an unfunded promise to
pay money in the future in certain specified circumstances. As to amounts
credited to the Account, a Grantee shall have no rights greater than the rights
of a general unsecured creditor of the Company, and amounts credited to the
Grantee's Account shall not be assignable or transferable other than by will or
the laws of descent and distribution, and such amounts shall not be subject to
the claims of the Grantee's creditors.
12. Adjustments and Reorganizations. The Committee may make such
adjustments to awards granted under the Plan (including the terms, exercise
price, and otherwise) as it deems appropriate in the event of changes that
impact the Company, the Company's share price, or share status.
In the event of any merger, reorganization, consolidation, change of
control, recapitalization, separation, liquidation, stock dividend, stock split,
extraordinary dividend, spin-off, split-up, rights offering, share combination,
or other change in the corporate structure of the Company affecting the Common
Stock, the number and kind of shares that may be delivered under the Plan shall
be subject to such equitable adjustment as the Committee, in its sole
discretion, may deem appropriate. The determination of the Committee on these
matters shall be final and conclusive and binding on the Company and all
participants.
In the preceding paragraph, "change of control" means any of the following
events:
a. An acquisition (other than directly from the Company) of any voting
securities of the Company by any person who previously was the beneficial
owner of less than ten percent of the combined voting power of the Company's
outstanding voting securities and who immediately after such acquisition is
the beneficial owner of 30 percent or more of the combined voting power of
the Company's then outstanding voting securities; provided that, in
determining whether a change of control has occurred, voting securities
which are acquired by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by the Company or any subsidiary of the Company,
(ii) the Company or any subsidiary of the Company, or (iii) any person in
connection with a Non-Control Transaction (as hereinafter defined), will not
constitute an acquisition which results in a change of control;
b. Approval by stockholders of the Company of:
(1) a merger, consolidation, or reorganization involving the Company,
unless:
(A) the stockholders of the Company immediately before such
merger, consolidation, or reorganization will own, directly or
indirectly, immediately following such merger, consolidation, or
reorganization, at least 51 percent of the combined voting power of
the outstanding voting securities of the corporation resulting from
such merger, consolidation, or reorganization (the "Surviving
Company") in substantially the same proportion as their ownership of
the voting securities of the Company immediately before such merger,
consolidation, or reorganization; and
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<PAGE> 37
(B) the individuals who were members of the Board immediately
prior to the execution of the agreement providing for such merger,
consolidation, or reorganization constitute a majority of the members
of the Board of Directors of the Surviving Company; and
(C) no person (other than the Company, any subsidiary of the
Company, any employee benefit plan (or any trust forming a part
thereof) maintained by the Company, the Surviving Company, any
subsidiary of the Surviving Company, or any person who, immediately
prior to such merger, consolidation, or reorganization, was the
beneficial owner of 20 percent or more of the then outstanding voting
securities of the Company) is the beneficial owner of 20 percent or
more of the combined voting power of the Surviving Company's then
outstanding voting securities;
(D) a transaction described in clauses (A) through (C) above is
referred to herein as a "Non-Control Transaction;"
(2) the complete liquidation or dissolution of the Company; or
(3) an agreement for sale or other disposition of all or
substantially all of the assets of the Company to any person (other than
a transfer to a subsidiary of the Company).
c. Notwithstanding the foregoing, a change of control will not be deemed
to occur solely because any person (a "Subject Person") acquires beneficial
ownership of more than the permitted amount of the outstanding voting
securities of the Company as a result of the acquisition of voting
securities by the Company which, by reducing the number of voting securities
outstanding, increases the proportional number of shares beneficially owned
by the Subject Person, provided that if a change of control would occur (but
for the operation of this sentence) as a result of the acquisition of voting
securities by the Company, and after such share acquisition by the Company,
the Subject Person becomes the beneficial owner of any additional voting
securities which increases the percentage of the then outstanding voting
securities beneficially owned by the Subject Person, then a change of
control will be deemed to have occurred.
13. Tax Withholding. The Company shall have the right to (i) make
deductions from any settlement of an award under the Plan, including the
delivery or vesting of shares, or require shares or cash or both be withheld
from any award, in each case in an amount sufficient to satisfy withholding of
any federal, state, or local taxes required by law, or (ii) take such other
action as may be necessary or appropriate to satisfy any such withholding
obligations. The Committee may determine the manner in which such tax
withholding may be satisfied, and may permit shares of Common Stock (rounded up
to the next whole number) to be used to satisfy required tax withholding based
on the fair market value of any such shares of Common Stock, as of the
appropriate time of each award.
14. Expenses. The expenses of administering the Plan shall be borne by the
Company.
15. Amendments. The Board of Directors of the Company shall have complete
power and authority to amend the Plan, provided that the Board of Directors
shall not, without shareholder approval, adopt any amendment which would (a)
increase the number of shares for which options may be awarded under the Plan,
(b) modify the class of employees eligible to receive awards, (c) extend the
period during which incentive stock options may be awarded, or (d) materially
increase the benefits of employees receiving
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<PAGE> 38
awards under the Plan. No amendment to the Plan may, without the consent of the
individual to whom the award shall theretofore have been awarded, adversely
affect the rights of an individual under the award.
16. Effective Date of the Plan. The Plan shall become effective on its
adoption by the Board of Directors of the Company on February 5, 1997, subject
to approval at the 1997 Annual Meeting of Shareholders.
17. Termination. The Board of Directors of the Company may terminate the
Plan or any part thereof at any time, provided that no termination may, without
the consent of the individual to whom any award shall theretofore have been
made, adversely affect the rights of an individual under the award.
18. Other Actions. Nothing contained in the Plan shall be deemed to
preclude other compensation plans which may be in effect from time to time or be
construed to limit the authority of the Company to exercise its corporate rights
and powers, including, but not by way of limitation, the right of the Company
(a) to award options for proper corporate purposes otherwise than under the Plan
to an employee or other person, firm, corporation, or association, or (b) to
award options to, or assume the option of, any person in connection with the
acquisition, by purchase, lease, merger, consolidation, or otherwise, of the
business and assets (in whole or in part) of any person, firm, corporation, or
association.
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<PAGE> 39
P GENERAL DYNAMICS CORPORATION
R PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 7, 1997
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 1997 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
--------------
SEE REVERSE
SIDE
--------------
- - --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[GENERAL DYNAMICS LOGO]
<PAGE> 40
/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 Item 3, and AGAINST Item 4.
The Board of Directors Recommends a Vote FOR Items 1, 2, and 3.
- - --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of
Directors / / / /
(See reverse)
For all nominees listed on reverse except:
- - ------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to approve
the Corporation's / / / / / /
1997 Incentive
Compensation Plan
and set aside additional treasury shares
for the granting of options.
FOR AGAINST ABSTAIN
3. Selection of Arthur Andersen LLP
as independent auditors. / / / / / /
The Board of Directors Recommends a Vote AGAINST Item. 4.
- - ---------------------------------------------------------
FOR AGAINST ABSTAIN
4. The Shareholder Proposal with
regard to foreign military sales. / / / / / /
SIGNATURE(S) DATE
---------------------------------------------- --------------
I WILL ATTEND THE MEETING AND / /
REQUEST AN ADMISSION CARD.
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee, or guardian,
please give full title as such.
- - --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[GENERAL DYNAMICS LOGO]
DIRECT DEPOSIT NOTICE
General Dynamics Corporation and First Chicago Trust Company of New York are
pleased to offer you the opportunity to have your quarterly dividends
electronically deposited into your checking or savings account. Direct
Deposit's main benefit to you is knowing that your dividends are in your
account on the payable date.
A NEW TOLL-FREE TELEPHONE NUMBER FOR
SHAREHOLDERS OF GENERAL DYDNAMICIS CORPORATION
Telephone inquiries regarding your stock should be made to
First Chicago Trust Company's new automated Toll-Free
Telephone Response Center at:
1-800-519-3111
