<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))
[Y] 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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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.:
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(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[GENERAL DYNAMICS LOGO]
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
1999
www.generaldynamics.com
<PAGE> 3
[GENERAL DYNAMICS LOGO]
March 26, 1999
Dear Shareholder:
You are cordially invited to our 1999 Annual Meeting of Shareholders
to be held at the Ritz-Carlton Tysons Corner, 1700 Tysons Boulevard,
McLean, Virginia 22102, on Wednesday, May 5, 1999, beginning at 9:00
a.m. The principal items of business at the meeting will be the
election of directors and the selection of independent auditors for
the coming year. In addition, one shareholder proposal may be
presented. Enclosed with the Proxy Statement are your Proxy card and
General Dynamics' 1998 Annual Report.
Your vote is important. Please carefully consider the matters to be
presented. We encourage you to complete and sign the accompanying
Proxy card and return it to us promptly in the envelope provided, or
to use our new telephone or internet voting systems, to ensure that
your shares are represented at the meeting. Kindly indicate if you
plan to attend the meeting so that we can send you an admission
card.
You will note that this year General Dynamics has changed the
organization and style of the Proxy Statement. Our intention is to
make the information easier to understand. We welcome your comments.
Sincerely yours,
/s/ Nicholas D. Chabraja
Nicholas D. Chabraja
Chairman of the Board of Directors and
Chief Executive Officer
3190 Fairview Park Drive
Falls Church, VA 22042-4523
Tel 703 876 3000
Fax 703 876 3125
<PAGE> 4
[GENERAL DYNAMICS LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 5, 1999
The Annual Meeting of Shareholders of General Dynamics Corporation, a Delaware
corporation (the "Company"), will be held at the Ritz-Carlton Tysons Corner,
1700 Tysons Boulevard, McLean, Virginia 22102, on Wednesday, May 5, 1999, at
9:00 a.m., for the following purposes:
1. To elect directors to hold office for one year, until their
respective successors are elected and become qualified, except as
provided in the By-Laws of the Company, as fully described in the
Proxy Statement accompanying this Notice.
2. To consider and act upon a proposal to select Arthur Andersen LLP
as independent auditors to audit the books, records, and accounts
of the Company for 1999.
3. To consider and act upon the shareholder proposal appearing under
the caption "Shareholder Proposal" in the accompanying Proxy
Statement, if it is properly presented at the meeting.
4. To transact all other business that may properly come before the
meeting or any adjournment thereof.
We are enclosing a copy of the Company's 1998 Annual Report with this Notice and
Proxy Statement.
The Board of Directors has fixed the close of business on March 8, 1999, as the
record date for the determination of shareholders entitled to notice of and to
vote at the Annual Meeting of Shareholders. It is important that your shares be
represented and voted at the meeting. Please complete, sign, and return your
Proxy card at your earliest convenience, or use our new telephone or internet
voting systems.
By Order of the Board of Directors,
/s/ David Savner
Falls Church, Virginia, March 26, 1999 David A. Savner, Secretary
<PAGE> 5
[GENERAL DYNAMICS LOGO]
PROXY STATEMENT
March 26, 1999
The Board of Directors of GENERAL DYNAMICS CORPORATION, a Delaware corporation
(the "Company"), is soliciting your proxy (the "Proxy") for use at the Annual
Meeting of Shareholders to be held at 9:00 a.m. on Wednesday, May 5, 1999, and
at any adjournment or postponement thereof (the "Annual Meeting"). This Proxy
Statement, the accompanying Notice of Annual Meeting of Shareholders, and the
Proxy card are being forwarded to holders of the Company's Common Stock, par
value $1 per share (the "Common Stock"), on or about March 26, 1999.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Proposals Submitted for Vote................................ 2
Questions and Answers Regarding Voting...................... 4
Board of Directors of the Company........................... 6
Biographical Information............................. 6
Board Committees..................................... 8
1998 Board Meetings.................................. 9
Director Compensation................................ 9
Transactions Involving Directors and the Company..... 10
Compensation Committee Report on Executive Compensation..... 10
Executive Compensation...................................... 14
Principal Executive Officers of the Company.......... 14
Summary Compensation................................. 15
Stock Awards -- The Incentive Compensation Plan...... 16
Retirement Plans..................................... 18
Employment Agreements and Other Arrangements......... 21
Ownership of Common Stock by the Principal Shareholders
and Management............................................ 22
Shareholder Proposal........................................ 25
Other Information........................................... 27
Section 16(a) Beneficial Ownership Reporting
Compliance.......................................... 27
Shareholder Proposals for 2000 Annual Meeting of
Shareholders........................................ 27
Annual Report on Form 10-K........................... 27
</TABLE>
<PAGE> 6
PROPOSALS SUBMITTED FOR VOTE
RE-ELECTION OF DIRECTORS
NOMINEES. At the Annual Meeting, you will elect ten individuals to the Board of
Directors. Each director will hold office until the next annual meeting and
until his respective successor is elected and qualified, except as provided in
the By-Laws of the Company. Nominees for re-election this year are Julius W.
Becton, Jr., Nicholas D. Chabraja, James S. Crown, Lester Crown, Charles H.
Goodman, George A. Joulwan, Paul G. Kaminski, James R. Mellor, Carl E. Mundy,
Jr., and Carlisle A. H. Trost. See "Board of Directors of the
Company -- Biographical Information" for biographical information about each
director.
FAILURE TO SERVE. 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 (except as otherwise indicated
in your Proxy) and for any replacement nominee designated by the Executive and
Nominating Committee of the Board of Directors.
VOTE REQUIRED. You may vote for or withhold your vote from the director
nominees. Assuming a quorum is present, the affirmative vote of the holders of a
majority of the shares of Common Stock present at the Annual Meeting (in person
or by proxy) and entitled to vote will be required for the election of
directors. If you withhold your vote from one or more directors, it will have
the effect of a vote against the director or directors that you indicate. If you
do not instruct your broker how to vote your shares of Common Stock, he will be
entitled to vote your shares for the election of all of the nominees.
Your Board of Directors recommends that you vote FOR all of the nominees listed
above.
SELECTION OF INDEPENDENT AUDITORS
ARTHUR ANDERSEN LLP. 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 1999. The firm commenced auditing the books of the Company in
1949.
PRESENCE AT THE MEETING. Representatives of Arthur Andersen LLP are expected to
be present at the Annual Meeting. The Company will give them an opportunity to
make a statement, if they desire to do so, and they will be available to respond
to appropriate questions.
VOTE REQUIRED. You may vote for, vote against, or abstain from voting on this
matter. Assuming a quorum is present, we need the affirmative vote of the
holders of a majority of the shares of Common Stock present at the Annual
Meeting (in person or by proxy) and entitled to vote in order to ratify Arthur
Andersen LLP as independent auditors for 1999. If you abstain from voting for
the independent auditors, it will have the effect of a vote against the
independent auditors. If you do not instruct your broker how to vote your shares
of Common Stock, he will be entitled to vote your shares for the independent
auditors.
Your Board of Directors recommends that you vote FOR Arthur Andersen LLP.
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<PAGE> 7
SHAREHOLDER PROPOSAL
PROPOSAL AND PROPONENTS. The Company has been advised by representatives of (i)
the Loretto Literary & Benevolent Institution, Loretto Motherhouse, Nerinx,
Kentucky 40049, owners of 100 shares of Common Stock, (ii) The Glenmary Home
Missioners (The Home Missioners of America), P.O. Box 465618, Cincinnati, Ohio
45246-5618, owners of 400 shares of Common Stock, and (iii) the Retirement Plans
for Employees of the Sisters of Mercy Regional Community of Detroit, 34605
Twelve Mile Road, Farmington Hills, Michigan 48331, owners of 6,700 shares of
Common Stock, that they intend to present to the Annual Meeting a proposal
regarding the Company's participation in offset agreements with foreign
customers. See "Shareholder Proposal" for the full text of the proposal and the
Company's response.
VOTE REQUIRED. You may vote for, vote against, or abstain from voting on this
matter. Assuming a quorum is present, the proponents will need the affirmative
vote of the holders of the majority of the shares of Common Stock present at the
Annual Meeting (in person or by proxy) and entitled to vote in order to pass the
shareholder proposal. If you abstain from voting on the shareholder proposal, it
will have the effect of a vote against the shareholder proposal. Your broker is
not entitled to vote your shares of Common Stock with respect to the shareholder
proposal other than as you indicate. The failure of a broker to vote shares
because the beneficial owner has not provided voting instructions (a "broker
non-vote") will have no effect on the vote totals for this matter since shares
subject to broker non-votes are not considered "entitled to vote" at the Annual
Meeting.
Your Board of Directors recommends that you vote AGAINST the shareholder
proposal.
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<PAGE> 8
QUESTIONS AND ANSWERS REGARDING VOTING
WHO MAY VOTE AT THE ANNUAL MEETING? If you are a shareholder of Common Stock on
the Record Date (as defined below), you will have one vote for each share of
Common Stock that you hold on each matter that is presented for action at the
Annual Meeting. If you have Common Stock that is registered in the name of a
broker, your broker will forward your proxy materials and will vote your shares
as you indicate. You may receive more than one Proxy card if your shares are
registered in different names or are held in more than one account.
ON WHAT WILL I BE VOTING? You will be asked to vote on the three matters
identified under the heading "Proposals Submitted for Vote." By execution of the
Proxy card, or submission of your Proxy via the telephone or internet, you will
also grant to Nicholas D. Chabraja, James E. Turner, Jr., and David A. Savner
discretionary authority to vote your shares on any other proposals that may
properly come before the Annual Meeting.
HOW DO I VOTE? Sign and date each Proxy card you receive and return it in the
prepaid envelope or follow the enclosed instructions for telephonic or internet
voting. The telephone and internet voting procedures are designed to
authenticate votes cast by use of a personal identification number. The
procedures allow shareholders to submit their Proxies to vote their shares and
to confirm that their instructions have been properly recorded.
You have the right to revoke your Proxy at any time before the Company votes it
at the Annual Meeting, if you wish. In order to revoke the Proxy, you may give
written notice to the Secretary of the Company of the revocation, deliver a
subsequent duly executed proxy to the Company, or vote in person at the Annual
Meeting.
HOW WILL MY SHARES BE VOTED? All properly completed, unrevoked Proxies, which
are received prior to the close of voting at the Annual Meeting, will be voted
in accordance with the specifications made. If a properly executed, unrevoked
written Proxy card does not specifically direct the voting of shares covered,
the Proxy will be voted (i) FOR the election of all nominees for election as
director described in this Proxy Statement, (ii) FOR the ratification of the
appointment of Arthur Andersen LLP, (iii) AGAINST the shareholder proposal
described in this Proxy Statement, and (iv) in accordance with the judgment of
the persons named in the Proxy as to such other matters as may properly come
before the Annual Meeting.
WHAT ARE THE RECORD DATE AND QUORUM? Your Board of Directors has selected the
close of business on March 8, 1999, as the record date (the "Record Date") for
determining the shareholders of record who are entitled to vote at the Annual
Meeting. This means that all shareholders of record at the close of business on
March 8, 1999, may vote their shares of Common Stock at the Annual Meeting. On
the Record Date, the Company had issued and outstanding 127,400,863 shares of
its Common Stock. The presence at the Annual Meeting, in person or by proxy, of
holders of a majority of the issued and outstanding shares of Common Stock as of
the Record Date is considered a quorum for the transaction of business. If you
submit a properly completed Proxy or if you appear at the Annual Meeting to vote
in person, your shares of Common Stock will be considered part of the quorum.
Directions to withhold authority to vote for any director, abstentions, and
broker non-votes will be counted to determine if a quorum for the transaction of
business is present. Once a quorum is present, voting on specific proposals may
proceed.
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<PAGE> 9
HOW WILL THE VOTE BE COUNTED? The shares are counted as indicated in the
Proxies, or ballots in the case of shareholders who vote at the Annual Meeting.
Directions to withhold authority and abstentions have the effect of a vote
against the proposal being considered. Broker non-votes, because they are not
considered "entitled to vote," have no effect on the proposal being considered.
Representatives of CT Corporation System will tabulate the vote at the Annual
Meeting.
WHO IS SOLICITING MY PROXY? The Board of Directors of the Company is soliciting
your Proxy. Proxies from all of the shareholders of the Company are being
solicited by mail, telephone, telegraph, or in person, by directors, officers,
and other employees of the Company. In addition, Innisfree M&A Incorporated, 501
Madison Avenue, New York, New York, is soliciting brokerage firms, dealers,
banks, voting trustees, and their nominees.
DOES THE COMPANY PAY ANYONE TO SOLICIT PROXIES? The Company will pay Innisfree
$15,000 for soliciting proxies for the Annual Meeting and will reimburse
brokerage firms, dealers, banks, voting trustees, and their nominees, and other
record holders for their out-of-pocket expenses in forwarding proxy materials to
the beneficial owners of the Common Stock. Directors, officers, and other
employees who participate in soliciting proxies will not receive any
compensation from the Company for doing so, other than their usual compensation.
WHO MAY ATTEND THE ANNUAL MEETING? All holders of shares of Common Stock on the
Record Date may attend the Annual Meeting. Please mark the appropriate box on
your Proxy card (or, if you use our new telephone or internet voting system,
indicate your plans when prompted) to request an admission card.
5
<PAGE> 10
BOARD OF DIRECTORS OF THE COMPANY
BIOGRAPHICAL INFORMATION
Below are the members of the Board of Directors of the Company standing for
re-election at the Annual Meeting.
<TABLE>
<S> <C>
[Photo of Julius W. JULIUS W. BECTON, JR., 72, Director since 1997.
Becton, Jr.] Superintendent of the District of Columbia Public Schools
from November 1996 to May 1998. President of Prairie View
A&M University in Texas from 1989 until 1994. Director of
the Federal Emergency Management Agency from 1985 until
1989. Director of Office of Foreign Disaster Assistance
from 1984 to 1985. Retired in 1983 from the U.S. Army as
Lieutenant General. Director of The Wackenhut Corporation.
[Photo of Nicholas D. NICHOLAS D. CHABRAJA, 56, Director since 1994.
Chabraja] Chairman and Chief Executive Officer since June 1, 1997.
Vice Chairman of the Company from December 1996 to May
1997. Executive Vice President from 1994 to December 1996.
Senior Vice President and General Counsel from 1993 to
1994.
[Photo of James S. Crown] JAMES S. CROWN, 45, Director since 1987.
General Partner since 1985 of Henry Crown and Company (Not
Incorporated) (diversified investments). Director of Bank
One Corporation and Sara Lee Corporation. Mr. James Crown
is the son of Mr. Lester Crown and the cousin by marriage
of Mr. Goodman.
[Photo of Lester Crown] LESTER CROWN, 73, Director since 1974.
President of Henry Crown and Company (diversified
investments) since 1973. Chairman since 1983 of Material
Service Corporation (aggregates), a subsidiary of the
Company. Director of Maytag Corporation. Mr. Lester Crown
is the father of Mr. James Crown and the cousin by
marriage of Mr. Goodman.
</TABLE>
6
<PAGE> 11
<TABLE>
<S> <C>
[Photo of Charles H. CHARLES H. GOODMAN, 65, Director since 1991.
Goodman] 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). Director of Alltel
Corporation. Mr. Goodman is the cousin by marriage of Mr.
Lester Crown and Mr. James Crown.
[Photo of George A. GEORGE A. JOULWAN, 59, Director since 1998.
Joulwan] Retired General, U.S. Army. Supreme Allied Commander,
Europe, from 1993 to 1997. Commander-in-Chief, Southern
Command from 1992 to 1993. Olin Professor, National
Security, U.S. Military Academy at West Point since August
1998. Senior Advisor, Global USA Inc. (consulting) since
January 1998.
[Photo of Paul G. PAUL G. KAMINSKI, 56, Director since 1997.
Kaminski] Under Secretary of United States Department of Defense for
Acquisition and Technology from 1994 to 1997. Chairman and
Chief Executive Officer of Technovation, Inc. (consulting)
since 1997. Senior Partner, Global Technology Partners,
LLC (merchant banking) since 1998. Chairman and Chief
Executive Officer of Technology Strategies & Alliances
(consulting and investment banking) from 1985 to 1994.
Director of DynCorp.
[Photo of James R. JAMES R. MELLOR, 68, Director since 1981.
Mellor] Chairman and Chief Executive Officer of the Company from
1994 to June 1997. 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 and Chairman of the Board of USEC Inc. (global
energy). Director of Bergen Brunswig Corporation, Computer
Sciences Corporation, Howmet Corporation, IDT Corporation,
and Pinkerton's Inc.
</TABLE>
7
<PAGE> 12
<TABLE>
<S> <C>
[Photo of Carl E. Mundy, CARL E. MUNDY, JR., 63, Director since 1998.
Jr.] Commandant of the U.S. Marine Corps from 1991 to 1995.
President and Chief Executive Officer of the World USO
from May 1996 to present. Director of Schering-Plough
Corporation. Director or trustee of six investment
companies in the Nations Fund mutual fund complex.
Chairman of Marine Corps University Foundation.
[Photo of Carlisle A.H. CARLISLE A. H. TROST, 68, Director since 1994.
Trost] Chief of Naval Operations, U.S. Navy, from 1986 to 1990.
Director of GPU, Inc., and Lockheed Martin Corporation.
</TABLE>
The Company's By-Laws specify that if a former Chief Executive Officer of the
Company is to serve on the Board of Directors for more than one year following
retirement, the reason for continuing as a member of the Board must be stated in
the Proxy Statement. Mr. Mellor, Chief Executive Officer of the Company from
1994 to June 1997, has served as a director since his retirement and is standing
for re-election for an additional year. Because the proposed slate of directors
has four individuals with just over one year of service with the Company, the
Executive and Nominating Committee and the Board believe that Mr. Mellor, who
has 18 years of experience on the Board, will provide important continuity in
the year ahead.
BOARD COMMITTEES
The Board of Directors has five standing committees, which are described below.
AUDIT AND CORPORATE RESPONSIBILITY COMMITTEE. The committee advises the Board
of Directors on the scope of the annual audit by the independent auditors for
the Company, the Company's internal audit program, and miscellaneous auditing
matters. The committee 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 relations
with its vendors, customers, employees, shareholders, and the communities in
which the operations of the Company are located. The Audit and Corporate
Responsibility Committee held seven meetings during 1998.
BENEFIT PLANS AND INVESTMENT COMMITTEE. The committee reviews and monitors the
investment and safekeeping of the assets of all trusts established in connection
with employee benefits plans of the Company and its subsidiaries. The Benefit
Plans and Investment Committee held three meetings in 1998.
COMPENSATION COMMITTEE. The committee establishes and monitors overall
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 1998. Beginning
in 1997, a Subcommittee of the Compensation Committee, currently comprising
Messrs. Joulwan and Trost, approves compensation paid to the most highly
compensated executives that
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is subject to the deduction limitation of Section 162(m) of the Internal Revenue
Code of 1986, as amended. See "Compensation Committee Report on Executive
Compensation."
EXECUTIVE AND NOMINATING COMMITTEE. The committee is authorized to act on
behalf of the Board between meetings of the Board. The committee also recommends
the director nominees proposed for election at the annual meeting of
shareholders or to fill vacancies between annual meetings. The Executive and
Nominating Committee held two meetings in 1998. The Executive and Nominating
Committee considers 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, you may write to the Secretary of the Company, 3190
Fairview Park Drive, Falls Church, Virginia 22042-4523.
INTERNATIONAL COMMITTEE. The committee, new in May 1998, reviews the strategy
and conduct of international activities for the Company with respect to both the
operation of foreign subsidiaries and the sale for export of domestic products.
The International Committee held two meetings in 1998.
COMMITTEE MEMBERS. The committee members for each of the five standing
committees are set forth below, with the Chairman listed first:
<TABLE>
<CAPTION>
AUDIT AND BENEFIT PLANS EXECUTIVE
CORPORATE RESPONSIBILITY AND INVESTMENT COMPENSATION AND NOMINATING INTERNATIONAL
- ------------------------ --------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Julius W. Becton, Jr. Charles H. Goodman Carlisle A. H. Trost Lester Crown George A. Joulwan
James S. Crown Julius W. Becton, Jr. James S. Crown Nicholas D. Chabraja Lester Crown
Paul G. Kaminski Paul G. Kaminski Charles H. Goodman James S. Crown James R. Mellor
Carlisle A. H. Trost Carl E. Mundy, Jr. George A. Joulwan James R. Mellor Carl E. Mundy, Jr.
</TABLE>
1998 BOARD MEETINGS
During 1998, the Board of Directors of the Company held a total of seven
meetings. In 1998, each incumbent director attended all of the meetings of the
Board and of the Board committees on which he served that were held during his
period of service.
DIRECTOR COMPENSATION
The Company pays an annual retainer to its outside directors (i.e., directors
who are not also employees of the Company) of $35,000 per year. Chairmen of
committees of the Board who are outside directors receive an additional annual
retainer of $10,000. The Company 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 1998, the incumbent outside directors were paid an aggregate of
$527,750 in retainers and meeting fees. The Company reimburses directors for
their travel expenses and for certain expenses they incur when providing special
advisory services to the Company. The Company does not pay directors who are
employees of the Company to attend Board and committee meetings.
The Company's Retirement Plan for Directors provides that a director is eligible
for benefits after his retirement from the Company's Board if he has not been an
employee of the Company and either (i) has served as a director for at least
five years or (ii) has served less than five years and has retired at the
mandatory retirement age for directors. The Retirement Plan for Directors will
pay annual benefits equal to the average of a director's annual income from the
Company, including both retainer and fees, for the three years of service in
which he received the highest compensation. The Company pays benefits to an
eligible director (or to his spouse or estate) for the rest of his life, or for
ten years, whichever is longer. If a director has been an outside Board member
for more than ten years, the Company pays benefits to him (or to his spouse or
estate) for the rest of his life, or for period of years equal to the period of
years he served on the Board, whichever is longer. The Company will also make
payments in a lump sum, at the request of a director.
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<PAGE> 14
The Board of Directors has formed an ad hoc committee, comprising Messrs. Trost
(Chairman), Becton, L. Crown, and Mellor, to review and analyze the Company's
compensation programs for outside directors in light of principles of corporate
governance and industry practices. The Company expects this process to be
completed during the current year.
TRANSACTIONS INVOLVING DIRECTORS AND THE COMPANY
On August 18, 1997, prior to Mr. Kaminski joining the Board, the Company entered
into a consulting agreement with Technovation, Inc. ("Technovation"), the
principal of which is Paul G. Kaminski (the "Technovation Agreement"). Mr.
Kaminski joined the Board of Directors of the Company on December 12, 1997.
Pursuant to the Technovation Agreement, the Company has agreed to compensate
Technovation for consulting services requested by the Company from time to time,
including, among other matters, considering acquisitions or divestitures,
restructuring or reengineering initiatives, developing technology strategy, and
structuring international programs. Pursuant to the Technovation Agreement, the
Company pays Technovation an annual fee of $200,000 for up to 40 business days
of services to be provided by Mr. Kaminski. The services provided by and
compensation paid to Technovation pursuant to the Technovation Agreement are in
addition to the services Mr. Kaminski provides and the compensation he receives
as a member of the Board of Directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During 1998,
Messrs. J. Crown and Goodman (members of the Compensation Committee) and Mr. L.
Crown had indirect interests in certain transactions involving the Company.
Material Service Corporation, a subsidiary of the Company, paid $160,733 in 1998
to Exchange Building Corporation (in which Mr. J. Crown and members of the
immediate families of Messrs. J. Crown, L. Crown and Goodman have an indirect
interest) for fleeting services. The Company also paid $84,000 during 1998 for
golf course management services to Crown Golf Properties, L.P. (in which Mr. J.
Crown and Mr. L. Crown and members of the immediate families of Messrs. J.
Crown, L. Crown, and Goodman have an indirect interest). As in prior years,
Freeman United Coal Mining Company, an indirect subsidiary of the Company, paid
royalties under leases of coal lands to certain trusts (the class of potential
beneficiaries of which include Mr. J. Crown and his immediate family and the
immediate families of Messrs. L. Crown and Goodman). For 1998, these royalty
payments totaled approximately $750,000.
The following Compensation Committee Report on Executive Compensation and
five-year Historical Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement or any portion hereof into any filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall
not otherwise be deemed filed under such acts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Compensation Committee") has
furnished the following report on executive compensation.
MEMBERS OF THE COMPENSATION COMMITTEE
The Compensation Committee is composed of four board members who are not
employees of the Company. The current members of the Compensation Committee are
Carlisle A.H. Trost (Chairman), James S. Crown, Charles H. Goodman, and George
A. Joulwan. In addition, the Compensation Committee has a Subcommittee that
approves all awards made to the Chief Executive Officer and the other four most
highly compensated executive officers of the Company (collectively with the
Chief
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<PAGE> 15
Executive Officer, the "Named Executive Officers"). The Compensation Committee
supervises all compensation matters not administered by the Subcommittee.
COMPENSATION PHILOSOPHY
The Compensation Committee has designed the Company's compensation program to
reward individual and collective performance and to create incentives for both
short-term and long-term performance. The objective of the program is to provide
a substantial equity component to reward senior management for superior
performance.
COMPONENTS OF THE COMPENSATION PROGRAM
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
Compensation Committee sets the base salary for each executive at the prevailing
market rates for persons holding similar office and with similar experience. The
Compensation Committee calculates a bonus for each executive based on individual
and Company-wide performance for the prior year, as compared to annual goals
which are set at the beginning of each year. Finally, the Compensation Committee
designs a long-term stock-based incentive package for each executive in order to
strengthen the mutual interest of the executive and the Company's shareholders.
PERFORMANCE GOALS
Each executive officer approves performance goals for those managers reporting
to him. Senior management, as a group, establishes Company performance goals.
The Company performance goals are then 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 1998, the
Company exceeded all of its stated goals.
BASE SALARY AND BONUS
In awarding the annual compensation to executive officers, the Compensation
Committee reviews the base salaries, bonuses, and long-term incentives awarded
by peer companies to their executive officers. Each year, the Compensation
Committee reviews several major compensation surveys, produced by outside
consultants, which include many of the companies within the Standard & Poor's
Aerospace/Defense Index. The Compensation Committee generally sets base salaries
for executive officers at the 50th percentile of market as shown in the
compensation surveys. The Compensation Committee's goal is to place more
emphasis on an individual's bonus, thereby placing a larger amount of the total
compensation for the individual 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 below the 50th percentile of the market or
eliminated altogether.
LONG-TERM COMPENSATION
The Compensation Committee intends this component to focus executives on
achieving increased shareholder value for the Company on a long-term basis.
Long-term compensation generally consists of approximately equal components (in
value) of stock options and restricted stock. Long-term compensa-
11
<PAGE> 16
tion for each of the Company's executive officers is established based on the
executive's total cash compensation (base salary and bonus) and industry
compensation surveys of the ratio of long-term incentives to cash compensation
awarded by peer companies to their executives. In general, the ratio of
long-term compensation to cash compensation for the Company's executives is in
the middle range of such ratios for peer companies.
In March of 1999, the Compensation Committee granted stock options that are
exercisable at $59.0313 (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 3, 2000. The balance of these stock options may be exercised on or after
March 3, 2001. These stock options have a term of five years and will expire on
March 2, 2004. In March of 1999, the Compensation Committee also granted
restricted stock, with a performance feature described under the heading
"Executive Compensation -- Stock Awards -- The Incentive Compensation Plan." The
performance period for this restricted stock will end on December 31, 2000.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Based on the factors described above, in 1998 Mr. Chabraja received a base
salary of $800,000 for his services as Chairman and Chief Executive Officer of
the Company. For his individual performance, as well as that of the Company, in
1998 Mr. Chabraja earned a bonus of $1,300,000. The Subcommittee determined that
Mr. Chabraja's 1998 base salary and bonus 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.
TAX LIMITATIONS ON THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Effective January 1, 1994, publicly-held corporations are prohibited, pursuant
to Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section
162(m)"), from deducting compensation in excess of $1,000,000 to the Named
Executive Officers. This limitation does not apply to certain performance-based
compensation, which is awarded pursuant to formula and without upward adjustment
at the discretion of outside directors as defined in Section 162(m). Awards of
the Company's stock options and Performance Restricted Stock (as defined below)
are designed to qualify as performance-based compensation under Section 162(m).
The Subcommittee, which approves these awards for the Named Executive Officers,
was created to comply with Section 162(m)'s outside director requirement.
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. They 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. The Compensation Committee believes that the amount of the deduction
foregone for 1998 and in the future will be immaterial.
OTHER GOVERNMENT LIMITATIONS
The Company's compensation program is designed to increase shareholder value,
but to do so in a cost-effective manner for its U.S. Government customers.
Federal law imposes a cap on the executive compensation costs that may be
charged to certain U.S. Government contracts. With respect to the Company's U.S.
Government contracts that are covered by the cost cap, the Company only charges
compensation that is in compliance with the cap.
12
<PAGE> 17
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
[GRAPH]
CUMULATIVE TOTAL RETURN
BASED ON REINVESTMENT OF $100 BEGINNING DECEMBER 1993
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN
- ----------------------------------------------------------------------------------
S&P AEROSPACE/
GENERAL DYNAMICS S&P 500 DEFENSE INDEX
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Dec-93 $100.00 $100.00 $100.00
- ----------------------------------------------------------------------------------
Dec-94 $97.33 $101.32 $108.17
- ----------------------------------------------------------------------------------
Dec-95 $136.18 $139.40 $179.00
- ----------------------------------------------------------------------------------
Dec-96 $167.03 $171.40 $239.44
- ----------------------------------------------------------------------------------
Dec-97 $209.13 $228.59 $246.34
- ----------------------------------------------------------------------------------
Dec-98 $289.60 $293.91 $188.83
- ----------------------------------------------------------------------------------
</TABLE>
This report is submitted by the Compensation Committee, which comprises four
non-employee directors.
Mr. Trost, Chairman
Mr. J. Crown
Mr. Goodman
Mr. Joulwan
13
<PAGE> 18
EXECUTIVE COMPENSATION
PRINCIPAL EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<S> <C> <C>
[Photo of Nicholas D. Chabraja] [Photo of James E. Turner, Jr.] [Photo of Gordon R. England]
NICHOLAS D. CHABRAJA JAMES E. TURNER, JR. GORDON R. ENGLAND
Chairman and Chief President and Chief Executive Vice President
Executive Officer Operating Officer
</TABLE>
[GRAPH]
1998 COMPENSATION HIGHLIGHTS
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL COMPENSATION
- ----------------------------------------------------------------------------------------------------
RESTRICTED STOCK
STOCK OPTIONS
AWARD POTENTIAL
SALARY BONUS VALUE VALUE
<S> <C> <C> <C> <C>
N. D. Chabraja 12.40% 18.60% 38.10% 30.80%
J. E. Turner, Jr. 17.20% 22.60% 34.20% 26.00%
G. R. England 20.90% 22.30% 28.90% 27.90%
M. J. Mancuso 20.80% 20.80% 31.80% 26.70%
D. A. Savner 27.40% 20.50% 23.70% 28.40%
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
N. D. Chabraja J. E. Turner, Jr. G. R. England M. J. Mancuso D. A. Savner
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salary $ 800,000 $475,000 $375,000 $325,000 $300,000
- ----------------------------------------------------------------------------------------------------------------------------
Bonus 1,300,000 650,000 425,000 350,000 250,000
- ----------------------------------------------------------------------------------------------------------------------------
Restricted Stock
Award Value 2,453,733 943,173 518,626 497,174 270,750
- ----------------------------------------------------------------------------------------------------------------------------
Stock Option
Potential Value (a) 1,982,133 716,433 501,503 417,920 311,680
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes 5% annual stock price appreciation for option term. See "Option
Grants in Last Fiscal Year" table on page 17.
<TABLE>
<S> <C>
[Photo of Michael J. Mancuso] [Photo of David A. Savner, Jr.]
MICHAEL J. MANCUSO DAVID A. SAVNER
Senior Vice President Senior Vice President - Law
and Chief Financial Officer and Corporate Secretary
</TABLE>
14
<PAGE> 19
SUMMARY COMPENSATION
The following table sets forth a summary of the aggregate compensation paid by
the Company to each of the Named Executive Officers for services rendered in all
capacities to the Company and its subsidiaries for 1998, 1997, and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- -------------------------
--------------------------------------- RESTRICTED SECURITIES ALL OTHER
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B) AWARD(C) OPTIONS(D) Payouts (e)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NICHOLAS D. CHABRAJA 1998 $800,000 $1,300,000 $225,351 $2,453,733 166,000 $0 $55,253
Chairman of the Board and 1997 700,000 850,000 412,474 1,224,469 135,000 0 46,236
Chief Executive Officer 1996 525,000 800,000 70,589 133,102 0 0 5,607
JAMES E. TURNER, JR. 1998 $475,000 $ 650,000 $ 14,551 $ 943,173 60,000 $0 $37,374
President and Chief 1997 450,000 525,000 35,709 661,875 72,000 0 31,275
Operating Officer 1996 356,000 500,000 133,502 79,076 0 0 30,156
GORDON R. ENGLAND 1998 $375,000 $ 425,000 $ 34,163 $ 518,626 42,000 $0 $29,567
Executive Vice President 1997 350,000 375,000 32,207 180,225 50,000 0 21,558
1996 0 0 0 0 0 0 0
MICHAEL J. MANCUSO 1998 $325,000 $ 350,000 $ 14,518 $ 497,174 35,000 $0 $24,208
Senior Vice President and 1997 300,000 300,000 8,383 264,750 29,000 0 20,970
Chief Financial Officer 1996 250,000 225,000 6,315 50,159 0 0 18,283
DAVID A. SAVNER(f) 1998 $300,000 $ 250,000 $ 34,216 $ 270,750 25,000 $0 $16,076
Senior Vice President-Law 1997 0 0 0 0 0 0 0
and Corporate Secretary 1996 0 0 0 0 0 0 0
</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; executive dining;
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: (A) Perquisites for Mr. Chabraja: for 1998
of $166,208, of which $104,577 relates to personal travel; for 1997 of
$149,281, of which $80,495 relates to personal travel and $55,175 relates to
club memberships; and for 1996 of $50,608, of which $39,272 relates to
personal travel; and (B) Perquisites for Mr. Turner for 1996 of $60,170, of
which $37,007 relates to club memberships.
(c) Reflects awards, as well as performance-based increases to certain prior
awards, of Performance Restricted Stock made during the period presented
pursuant to the Incentive Compensation Plan (as defined below). The dollar
value of such awards is calculated by multiplying the price of the Company's
unrestricted Common Stock, calculated as the average between the highest and
lowest quoted selling prices, on the date of grant by the number of shares
of Performance Restricted Stock awarded. As of December 31, 1998, Mr.
Chabraja held a total of 130,802 shares of Performance Restricted Stock with
an aggregate market value of $7,709,143; Mr. Turner held a total of 61,838
shares of Performance Restricted Stock with an aggregate market value of
$3,644,577; Mr. England held a total of 17,400 shares of Performance
Restricted Stock with an aggregate market value of $1,025,513; Mr. Mancuso
held a total of 28,110 shares of Performance Restricted Stock with an
aggregate market value of $1,656,733; and Mr. Savner held a total of 6,000
shares of Performance Restricted Stock with an aggregate market value of
$353,625. Holders of the awards are entitled to vote the shares awarded and
to receive dividend equivalents on the shares from the date of grant. The
number of shares of Performance Restricted Stock awarded on March 4, 1998,
remain subject to adjustment for an increase or decrease in the price of the
Common Stock over the performance period ending December 31, 1999. For more
details on this
15
<PAGE> 20
adjustment feature, see "Executive Compensation -- Stock Awards -- The
Incentive Compensation Plan."
(d) The number reflects shares of Common Stock underlying options granted and
gives effect to an adjustment made to all outstanding options in connection
with the Company's two-for-one stock split in April 1998.
(e) "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. For 1998, (A) the amounts contributed to
the Savings and Stock Investment Plan and allocations to the Supplemental
Savings and Stock Investment Plan were $49,258, $30,219, $24,002, $20,877,
and $14,254 for Messrs. Chabraja, Turner, England, Mancuso and Savner,
respectively, and (B) payments for term life insurance were $5,995, $7,155,
$5,565, $3,331, and $1,822 for Messrs. Chabraja, Turner, England, Mancuso,
and Savner, respectively.
(f) Mr. Savner joined the Company on April 6, 1998.
STOCK AWARDS -- THE INCENTIVE COMPENSATION PLAN
Stock option and restricted stock grants for the Named Executive Officers are
governed by the General Dynamics Corporation 1997 Incentive Compensation Plan
(the "Incentive Compensation Plan").
WHO ADMINISTERS THE INCENTIVE COMPENSATION PLAN? The Subcommittee of the
Compensation Committee determines awards and administers the plan for the Named
Executive Officers. The Compensation Committee does the same for other eligible
employees.
WHAT KIND OF STOCK OPTIONS MAY BE GRANTED UNDER THE INCENTIVE COMPENSATION
PLAN? Options to purchase Common Stock are granted under the Incentive
Compensation Plan. The committees determine the size and the terms and
conditions of each award. Options may be granted as either incentive stock
options, intended to qualify for special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or as options not
qualified under Code Section 422 (referred to as "non-qualified options"). The
exercise price of each option is set at or above the fair market value of Common
Stock on the date of grant. Grants of stock appreciation rights are not
permitted under the plan.
WHAT TYPE OF OPTIONS HAVE BEEN GRANTED OVER THE PAST FIVE YEARS? Under a
program started in 1993 and continued under the Incentive Compensation Plan, the
Compensation Committee (and, for 1997 and 1998, the Subcommittee) granted stock
options having terms of five years with a per share exercise price equal to the
fair market value of a share of Common Stock on the date of grant. Fifty percent
of these stock options are exercisable after one year, and the remaining fifty
percent are exercisable after two years. These stock options are issued as
incentive stock options up to the limit permitted under the Code and the
remaining stock options, if any, are non-qualified options.
WHAT STOCK OPTION AWARDS HAS THE SUBCOMMITTEE MADE TO THE NAMED EXECUTIVE
OFFICERS IN 1999? The Subcommittee has made stock option awards to the Named
Executive Officers under the Incentive Compensation Plan for 1999 as follows:
Mr. Chabraja -- 120,000 shares; Mr. Turner -- 48,000 shares; Mr.
England -- 32,000 shares; Mr. Mancuso -- 29,000 shares; and Mr. Savner -- 23,000
shares.
16
<PAGE> 21
The following table sets forth the number of shares of Common Stock underlying
stock options granted during 1998 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
----------------------------------------------------- -----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED (A) FISCAL YEAR BASE PRICE DATE 5% 10%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas D. Chabraja 166,000 11.6 $43.2188 03/03/03 $1,982,133 $4,379,995
James E. Turner, Jr. 60,000 4.2 43.2188 03/03/03 716,433 1,583,131
Gordon R. England 42,000 2.9 43.2188 03/03/03 501,503 1,108,191
Michael J. Mancuso 35,000 2.4 43.2188 03/03/03 417,920 923,493
David A. Savner 25,000 1.7 45.1250 04/05/03 311,680 688,732
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Options granted are exercisable 50 percent on the first anniversary of the
grant date and the remaining 50 percent on the second anniversary of the
grant date and have a term of five years.
The following table sets forth information with respect to option exercises
during 1998 and options held at the end of 1998 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED (A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas D. Chabraja 200,000 $5,531,260 402,500 233,500 $ 12,755,834 $4,353,754
James E. Turner, Jr. 180,000 5,175,000 108,000 96,000 2,998,120 1,873,495
Gordon R. England 0 0 25,000 67,000 639,063 1,299,248
Michael J. Mancuso 28,000 924,000 77,500(b) 49,500 2,477,587(b) 924,888
David A. Savner 0 0 0 25,000 0 345,313
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The value realized is computed by multiplying the difference between the
exercise price of the stock option and the average between the highest and
lowest quoted selling prices 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.
(b) Includes 10,000 options issued on September 20, 1993, having a term of ten
years.
WHAT KIND OF RESTRICTED STOCK MAY BE GRANTED UNDER THE INCENTIVE COMPENSATION
PLAN? The Company may award shares of restricted stock to participants under
the Incentive Compensation Plan. Restricted stock is Common Stock held in the
name of a recipient, but subject to restrictions, including potential
forfeiture, which lapse over time. Recipients are entitled to vote the shares
awarded and to receive dividend equivalents on the shares from the date of
grant. Since 1993, the Company has awarded restricted stock pursuant to a
performance formula (such shares are referred to herein as "Performance
Restricted Stock").
HOW DOES THE PERFORMANCE RESTRICTED STOCK WORK? The Performance Restricted
Stock has a feature that increases or decreases the number of shares initially
granted based on the increase or decrease in the
17
<PAGE> 22
price of the Common Stock over a performance period. Under the formula, the
Committee (or Subcommittee) makes an initial grant of shares of restricted
stock. At the end of a specified performance period (generally 18 to 24 months),
shares are added or forfeited so that the dollar value of the award is increased
or decreased at twice the rate of the corresponding increase or decrease in the
price of the Common Stock over that performance period. The formula works as
follows:
At the end of the performance period, the average price per share of
Common Stock over the preceding 30 trading days (the "Average Price")
is compared to the price per share on the date of grant. That
difference is multiplied by the number of shares of Performance
Restricted Stock to be earned at the end of the performance period and
the resulting product is 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, as
described above, restrictions will continue to be imposed for a period of two
years. At the end of two years all restrictions lapse.
WHAT PERFORMANCE RESTRICTED STOCK AWARDS HAS THE SUBCOMMITTEE MADE TO THE NAMED
EXECUTIVE OFFICERS IN 1999? Performance Restricted Stock awards for 1999 were
made to the Named Executive Officers on March 3, 1999, as follows: Mr.
Chabraja -- 33,000 shares; Mr. Turner -- 13,500 shares; Mr. England -- 9,000
shares; Mr. Mancuso -- 8,100 shares; and Mr. Savner -- 6,300 shares. For these
awards, the performance period ends on December 31, 2000.
WHAT CHANGE-OF-CONTROL PROVISIONS APPLY TO THE INCENTIVE COMPENSATION PLAN? The
Incentive Compensation Plan allows the committees to make equitable adjustments
of stock option and restricted stock awards in the event of a change of control
of the Company. With respect to the Named Executive Officers, however, the
Subcommittee's power to make such adjustments is limited to changes permitted
under Section 162(m) of the Code.
WHAT CHANGES HAVE BEEN MADE TO THE INCENTIVE COMPENSATION PLAN SINCE SHAREHOLDER
APPROVAL IN 1997? Two changes have been made to the Incentive Compensation Plan.
The Board of Directors eliminated the plan provision that allowed the repricing
or exchange of options whose exercise price is greater than the current fair
market value of Common Stock. Also, to reflect the 1998 two-for-one split of the
Common Stock, the plan was amended to double the maximum number of options and
shares of restricted stock that the Subcommittee may grant to the Named
Executive Officers.
RETIREMENT PLANS
DO THE NAMED EXECUTIVE OFFICERS PARTICIPATE IN A PENSION PLAN? Yes, the Company
has a pension plan (referred to herein as the "Retirement Plan") that provides a
defined retirement benefit for officers and other eligible salaried employees of
the Company and certain of its subsidiaries. The Retirement Plan does not
require or permit employee contributions.
WHO IS ELIGIBLE TO PARTICIPATE IN THE RETIREMENT PLAN? Participation in the
Retirement Plan is automatic for any salaried employee (except for a salaried
employee who is represented by a union or who works for a subsidiary that does
not participate in the plan) who has completed one year of continuous service or
has reached age 40.
WHAT IS THE BENEFIT PROVIDED BY THE RETIREMENT PLAN? The Retirement Plan
provides a benefit that for most participants is based on final average monthly
pay. At the normal retirement age of 65, a participant in the Retirement Plan is
entitled to receive a monthly benefit equal to one and one-third percent of
final
18
<PAGE> 23
average monthly pay multiplied by the number of years of Retirement Plan
participation up to a maximum of 40 years. Unreduced retirement benefits are
also payable to participants who retire after age 62 (but before age 65) with
ten or more years of continuous service. If greater, a benefit based on career
average pay is payable under the Retirement Plan's career average formula. This
formula only applies to participants who were employees of the Company or its
affiliates on or before July 1, 1990, and currently does not benefit any of the
Named Executive Officers. In addition, at age 65, a retiree under the Retirement
Plan receives a $94 per month supplement (prorated downwards for less than 10
years of service) and a similar amount for an eligible spouse over age 65.
IS THERE A SUPPLEMENTAL PLAN TO ACCOUNT FOR TAX CODE LIMITS ON RETIREMENT PLAN
BENEFITS? Yes. 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
Retirement Plan exceed those limitations, the excess is paid under a separate,
non tax-qualified plan (the "Supplemental Executive Retirement Plan"). Benefits
under the Supplemental Executive Retirement Plan are considered general
unsecured obligations of the Company.
The table below sets forth projected annual benefits payable at age 65 based
upon earnings and years of plan participation. It has been assumed that each
individual will continue as a Retirement Plan participant until normal
retirement date or the actual date of retirement and that current earnings will
remain constant over this period. In addition, it has been assumed that each
individual will elect to receive the benefit in the form of a single life
annuity. The table includes aggregate benefits payable under the Retirement Plan
and the Supplemental Executive Retirement Plan (but does not include the $94
supplement described above).
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF PLAN MEMBERSHIP
- ------------------------------------------------------------------------------
ANNUAL
REMUNERATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 450,000 $ 30,000 $ 60,000 $ 90,000 $120,000 $150,000 $180,000
500,000 33,333 66,667 100,000 133,333 166,667 200,000
600,000 40,000 80,000 120,000 160,000 200,000 240,000
700,000 46,667 93,333 140,000 186,667 233,333 280,000
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
- ------------------------------------------------------------------------------
</TABLE>
As of January 1, 1999, the Named Executive Officers were credited with the
following years of plan participation under the Retirement Plan and Supplemental
Executive Retirement Plan: Mr. Chabraja, 6 years; Mr. Turner, 10 years; Mr.
England, 2 years; Mr. Mancuso, 5 years; and Mr. Savner, 1 year.
WHAT COMPENSATION IS TAKEN INTO ACCOUNT WHEN DETERMINING "FINAL AVERAGE MONTHLY
PAY?" "Final average monthly pay" takes into account a participant's base
monthly salary and any annual bonus granted under the Incentive Compensation
Plan. This amount does not include the value of any stock options or restricted
stock granted under the Incentive Compensation Plan. The average is determined
over the participant's most highly compensated 60 consecutive months of service
out of his last 120 months of employment as a Retirement Plan participant. See
the "Summary Compensation Table" under the caption "Executive
Compensation -- Summary Compensation" above for the salary and bonus amounts
earned by the Named Executive Officers for 1998. The benefits under the final
average pay formula are not subject to any reduction for social security or
other offset amounts.
19
<PAGE> 24
WHAT SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENTS DOES THE COMPANY HAVE WITH THE
NAMED EXECUTIVE OFFICERS? The Company has entered into agreements with each of
the Named Executive Officers to provide supplemental retirement benefits in
excess of benefits earned under the Retirement Plan and the Supplemental
Executive Retirement Plan. The Company's obligations under these agreements are
subject to the same level of risk as all other general unsecured obligations of
the Company. The terms of these agreements are as follows.
MR. CHABRAJA. Mr. Chabraja's agreement, dated November 12, 1996, 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 $506,656 if he continues employment through December 31, 2002. This
amount is reduced if he voluntarily leaves his employment early, but the
agreement ensures a minimum combined benefit of $280,000 per year. Further, if
Mr. Chabraja is terminated by the Company, other than for cause, the full
$506,656 is payable annually. Payment of the supplemental retirement benefits
may not start before January 1, 2003, and all such payments are subject to
forfeiture in the event that Mr. Chabraja commits certain acts not in the best
interests of the Company. Certain survivor benefits are payable to Mr.
Chabraja's spouse if he should die prior to commencement of benefits.
MR. TURNER. 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 and Supplemental Executive
Retirement Plan benefit accruals, he currently is not entitled to any
supplemental benefits under this agreement.
MR. ENGLAND. Mr. England's agreement, dated February 14, 1997, provides that,
together with benefits payable from the Retirement Plan and the Supplemental
Executive Retirement Plan, Mr. England will receive a total annual retirement
benefit of $100,000 after three years of employment. This amount increases
uniformly to $200,000 per year by the end of his fifth year of employment. In
addition, the full $100,000 annual benefit will be payable to Mr. England if,
during his first three years of employment, he becomes disabled, his
responsibilities are substantially downgraded, or he is terminated by the
Company without cause. This supplemental retirement benefit is subject to
forfeiture in the event that Mr. England commits certain acts not in the best
interests of the Company. Certain survivor benefits are payable to Mr. England's
spouse if he should die prior to commencement of benefits.
MR. MANCUSO. Mr. Mancuso's agreement, dated March 6, 1998, provides that Mr.
Mancuso will receive upon retirement on or after October 1, 2003, an annual
supplemental lifetime benefit of $100,000 in addition to his Retirement Plan and
Supplemental Executive Retirement Plan benefits. If Mr. Mancuso retires earlier,
the $100,000 supplemental benefit will be reduced by $20,000 for each year of
early retirement. The full $100,000 annual benefit is payable to Mr. Mancuso
before October 1, 2003, if he becomes disabled, his responsibilities are
substantially downgraded, or his employment is terminated other than for cause.
The supplemental retirement benefit will be reduced or eliminated if Mr. Mancuso
commits certain acts not in the best interests of the Company. Certain survivor
benefits are payable to Mr. Mancuso's spouse if he should die prior to
commencement of benefits.
MR. SAVNER. Mr. Savner's agreement, dated March 4, 1998, provides him with a
benefit equal to the amount determined under the Retirement Plan increased to
reflect an additional five years of plan participation and then reduced by any
amounts payable (determined using actual years of plan participation) under the
Retirement Plan and the Supplemental Executive Retirement Plan. This benefit is
payable to Mr. Savner if he does not voluntarily terminate employment during his
first six years of employment, or if his employment is terminated during the
first six years because he becomes disabled, his responsibilities are
substantially downgraded, or he is terminated by the Company without cause. This
20
<PAGE> 25
supplemental retirement benefit is subject to forfeiture in the event that Mr.
Savner commits certain acts not in the best interests of the Company. Certain
survivor benefits are payable to Mr. Savner's spouse if he should die prior to
commencement of benefits.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
WHAT EMPLOYMENT AGREEMENTS OR TERMINATION ARRANGEMENTS DOES THE COMPANY HAVE
WITH ANY OF THE NAMED EXECUTIVE OFFICERS? The Company has entered into
agreements governing the employment and termination of employment of certain of
its Named Executive Officers, described below.
MR. CHABRAJA. The Company has entered into an employment agreement with Mr.
Chabraja dated November 12, 1996, and first effective January 1, 1997. It
terminates on December 31, 2002. Under the agreement, Mr. Chabraja receives a
minimum annual salary of $700,000 per year and is eligible for annual incentive
compensation awards as determined by the Subcommittee of the Compensation
Committee under the Incentive Compensation Plan. If Mr. Chabraja is terminated
by the Company other than for cause before December 31, 2002, the Company will
pay him the rest of his base compensation due under the agreement.
MR. ENGLAND. The Company entered into an agreement with Mr. England dated
February 14, 1997, which provides that if Mr. England is terminated by the
Company without cause within his first three years of employment, the Company
will pay him his salary and benefits through the balance of that three-year
period.
MR. SAVNER. The Company entered into an agreement with Mr. Savner dated March
10, 1998, which provides that if Mr. Savner is terminated by the Company without
cause within his first three years of employment, the Company will pay him his
salary and benefits through the balance of that three-year period.
SEVERANCE PROTECTION AGREEMENTS. The Company has entered into Severance
Protection Agreements with each of the Named Executive Officers, each other
corporate officer, and certain other key employees. Subject to certain
exceptions, the Severance Protection Agreements provide that an executive will
be entitled to certain payments and benefits if his or her employment is
terminated in connection with or within 24 months after a change of control
(defined to include specified stock acquisition, merger, and disposition
transactions). These benefits will generally include payment of all accrued
compensation, a severance payment equal to a multiple (from 1.5 to 2.99) of the
executive's annual salary and bonus, continuation in welfare benefit programs
for 18 months, payout of certain retirement benefits, and vesting of stock
awards. In the event any excise tax is imposed on an executive as a result of
payments made under a Severance Protection Agreement, the Company will make a
compensatory payment to the executive to cover the tax. The multiple for each of
the Named Executive Officers is 2.99. The Severance Protection Agreements will
remain in effect until terminated by the Company's Board of Directors (provided
that the Board will not be able to terminate the agreements for 24 months
following a change of control). If an executive has an employment or termination
agreement in addition to a Severance Protection Agreement, the executive will be
able to elect which governs in the event of a change of control.
21
<PAGE> 26
OWNERSHIP OF COMMON STOCK BY THE
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information as of December 31, 1998, with respect
to the beneficial ownership of the Company's Common Stock by (i) each director
and nominee for director of the Company, (ii) each of the Named Executive
Officers, (iii) all directors and executive officers of the Company as a group,
and (iv) each person who, to the best of the Company's knowledge, beneficially
owned more than five percent of any class of the Company's voting securities.
Except as otherwise indicated, persons listed below have the sole voting and
investment power with respect to all shares held by them, except to the extent
such power may be shared with a spouse.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
As of December 31, 1998(a)
--------------------------
SHARES PERCENTAGE
OWNED(b) OF CLASS
- ----------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
- ---------
Julius W. Becton, Jr. ...................................... 0 *
Nicholas D. Chabraja........................................ 653,816 *
James S. Crown (c).......................................... 11,074,666 8.7
Lester Crown (d)............................................ 11,109,042 8.8
Charles H. Goodman (e)...................................... 16,534,522 13.1
George A. Joulwan........................................... 400 *
Paul G. Kaminski............................................ 0 *
James R. Mellor............................................. 295,338 *
Carl E. Mundy, Jr. ......................................... 430 *
Carlisle A. H. Trost........................................ 2,116 *
NAMED EXECUTIVE OFFICERS
- ------------------------
James E. Turner, Jr. ....................................... 471,066 *
Gordon R. England........................................... 59,276 *
Michael J. Mancuso.......................................... 126,791 *
David A. Savner............................................. 8,629 *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
- -------------------------------------------
(32 individuals) (f)...................................... 18,806,287 14.8
PRINCIPAL SHAREHOLDERS
- ----------------------
Longview Management Group, LLC (g)
c/o Gerald Ratner, as Attorney and
Agent, 222 North LaSalle Street
Chicago, Illinois 60601................................... 16,534,522 13.1
FMR Corp., Edward C. Johnson 3d and
Abigail P. Johnson (h)
82 Devonshire Street
Boston, Massachusetts 02109............................... 16,473,290 13.0
Warren E. Buffett,
Berkshire Hathaway Inc.,
and subsidiaries (i)...................................... 7,693,637 6.1
The Northern Trust Company (j)
50 S. LaSalle Street
Chicago, Illinois 60675................................... 13,005,175 10.3
- ----------------------------------------------------------------------------------------
</TABLE>
* Less than one percent
22
<PAGE> 27
(a) Except as noted in the footnotes below, based on information furnished to
the Company as to shares of stock beneficially owned by each director and
executive officer on December 31, 1998. Includes shares as of December 31,
1998, 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 shares subject to options exercisable within 60 days following
December 31, 1998, as follows: (i) Mr. Chabraja -- 402,500 shares; (ii) Mr.
Turner -- 108,000 shares; (iii) Mr. England -- 25,000 shares; (iv) Mr.
Mancuso -- 77,500 shares; and (v) other executive officers of the Company --
305,082 shares.
(c) Of the aggregate 16,534,522 shares of Common Stock held by the Crown and
Goodman families as of December 31, 1998, Mr. James Crown is deemed to be
the beneficial owner of 11,074,666 shares. Mr. James Crown has shared
investment and voting power with respect to such 11,074,066 shares. Of the
11,074,666 shares of Common Stock deemed to be beneficially owned by Mr.
James Crown, he disclaims beneficial ownership as to 11,069,874 shares,
except to the extent of his beneficial interest in the entities that own
these shares.
(d) Of the aggregate 16,534,522 shares of Common Stock held by the Crown and
Goodman families as of December 31, 1998, Mr. Lester Crown is deemed to be
the beneficial owner of 11,104,947 shares. Mr. Lester Crown has shared
investment and voting power with respect to such 11,104,947 shares. Of the
11,104,947 shares of Common Stock deemed to be beneficially owned by Mr.
Lester Crown, he disclaims beneficial ownership as to 7,891,298 shares
except to the extent of his beneficial interest in the entities that own
these shares, and as to 2,758,216 shares except to the extent of his term
interest in those shares. Mr. Lester Crown also has sole investment and
voting power over 4,095 shares held in the Company savings plan (which are
not included in the aggregate for the Crown and Goodman families).
(e) Mr. Goodman is deemed to be the beneficial owner of the aggregate 16,534,522
shares of Common Stock held by the Crown and Goodman families as of December
31, 1998. Mr. Goodman is president of a registered investment advisor which
provides investment advisory services to the Crown and Goodman families and,
as a result, has shared investment and voting power with respect to all of
these shares. Mr. Goodman disclaims beneficial ownership as to all such
shares except to the extent of his beneficial interest in the entities that
own such shares.
(f) The shares shown as beneficially owned by Mr. Lester Crown, Mr. James Crown,
and Mr. Goodman have been consolidated for purposes of this total in order
to eliminate duplications.
(g) Based on information provided on behalf of Mr. Lester Crown, Mr. James
Crown, and Mr. Goodman, Longview Management Group, LLC is an investment
advisor which manages the Common Stock held by a number of persons,
including Mr. Lester Crown, and his son, Mr. James Crown, and Mr. Goodman,
members of their families, relatives, certain family partnerships, trusts
associated with the Crown and Goodman families, and other entities (the
"Crown Group"). Longview Management Group, LLC has shared voting and
investment power with respect to the shares indicated. The Crown Group
disclaim that they are a group for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended, and disclaim that anyone of
them is the beneficial owner of shares owned by any other person or entity.
(h) Based solely on information contained in a Schedule 13G/A filed with the
Commission on February 12, 1999, by FMR Corp. ("FMR"), Edward C. Johnson 3d
(Chairman and owner of 12.0% of the voting power of FMR), and Abigail P.
Johnson (a director and owner of 24.5% of the voting power of FMR). Based on
the Schedule 13G/A, FMR has sole voting power as to 461,080 shares of Common
Stock, shared voting power as to no shares of Common Stock, sole investment
power as to 16,473,290 shares of Common Stock, and shared investment power
as to no shares of Common Stock.
(i) Based solely on information included in a Schedule 13G/A filed on March 17,
1999, by Berkshire Hathaway Inc. ("Berkshire"), Warren E. Buffett
("Buffett"), OBH Inc. ("OBH"), National Indemnity Company ("NIC"), and
National Fire and Marine Insurance Company ("NFMIC"). Based on the Schedule
13G/A, Berkshire, Buffett, and OBH each were the beneficial owners of
7,693,637 shares of Common Stock with "shared voting power" and "shared
dispositive power." Of the 7,693,637 shares of Common Stock held by Buffett,
Berkshire, and OBH, the Schedule 13G/A disclosed that NIC held 6,182,437
shares with "shared voting power" and "shared dispositive power" and NFMIC
held
23
<PAGE> 28
1,511,200 shares with "shared voting power" and "shared dispositive power."
The address of Buffett, Berkshire, and OBH is 1440 Kiewitt Plaza, Omaha,
Nebraska 68131. The address of NIC and NFMIC is 3024 Harney Street, Omaha,
Nebraska 68131.
(j) The Northern Trust Company ("Northern Trust") is the trustee of the General
Dynamics Corporation Savings and Stock Investment Plan and the General
Dynamics Corporation Hourly Employees' Savings and Stock Investment Plan.
Plan participants have the right to instruct Northern Trust on how to vote
the shares of Common Stock allocated to their plan accounts. Northern Trust,
as plan trustee, has the right to vote shares for which it does not receive
voting instructions.
24
<PAGE> 29
SHAREHOLDER PROPOSAL
The Company has been advised by representatives of (i) the Loretto Literary &
Benevolent Institution, Loretto Motherhouse, Nerinx, Kentucky 40049, owners of
100 shares of Common Stock, (ii) The Glenmary Home Missioners (The Home
Missioners of America), P. O. Box 465618, Cincinnati, Ohio 45246-5618, owners of
400 shares of Common Stock, and (iii) the Retirement Plans for Employees of the
Sisters of Mercy Regional Community of Detroit, 34605 Twelve Mile Road,
Farmington Hills, Michigan 48331, owners of 6,700 shares of Common Stock, that
they intend to present to the Annual Meeting the following shareholder proposal.
The Company is not responsible for the accuracy or content of the proposal and
supporting statement, which is presented below (between quotation marks) as
received from the proponents. The Company's reasons for opposing the proposal
are also presented below.
PROPOSAL AND SUPPORTING STATEMENT
"RESOLVED: shareholders request company disclosure of all current promises made
to foreign governments and foreign firms to offset the cost of weapons purchases
with US dollars, exported jobs, foreign plant construction, and marketing
opportunities in the US.
WHAT ARE OFFSETS?
Agreements by US weapons manufacturers and the US government to direct some
benefits -- usually jobs or technology -- back to the purchasers as a condition
of sale. The value of offsets frequently exceeds the value of the weapons sold.
Direct offsets transfer purchasing dollars and/or work and military technology
(often through licensing or joint production) to the recipient country to
produce a US weapon system, its components or subcomponents.
Indirect offsets may involve investments in the purchasing country, countertrade
agreements to market foreign goods, or transfers of commercial technology.
US taxes finance offsets, directly or indirectly, by paying for the research and
development of weapons and by providing grants, loans, and loan guarantees for
the sale while the weapons producers ship US jobs overseas.
ARE OFFSET AGREEMENTS PROPRIETARY?
While the US arms industry guards information on offsets closely, claiming that
it is "proprietary," purchasing countries often disclose such information for
their own political purposes (to convince their citizenry that they are gaining
some tangible benefits from the millions or billions of dollars they are
spending on arms).
The proponents believe that insofar as companies engage in foreign policy by
negotiating private offset agreements with foreign governments and because they
export jobs while claiming that foreign military sales create jobs, they forfeit
their claim to this proprietary information. Sound public policy demands
transparency and public debate on these matters.
OFFSET EXAMPLES
In 1987 (the last year for which data is publicly available) U.S. arms
manufacturers included a total of $2.987 billion worth of offsets on $3.037
billion worth of weapons sales. The $5.2 billion Korean Fighter Sale (12 F-16C/D
fighters and 36 kits for Korean assembly) of 1991 included the right to
manufacture an additional 72 F-16s under license and 30 percent of the contract
value -- more than $1.5 billion -- in undisclosed indirect offsets. The $1.8
billion sale of F/A-18 fighters to Spain in 1982, included
25
<PAGE> 30
$1.5 billion in offsets such as agreements to market Spanish-made steel coils,
chemicals, sunflower seed oil, sailboats, paper products, zinc, and marble in
the United States.
The $2.3 billion sale of F/A-18 fighters to Canada in 1982 included offsets that
could total 150 percent of the contract value, according to the OMB.
ARMS EXPORTS DON'T CREATE JOBS
The faith-based proponents submit this resolution for board consideration
because arms exports do not create jobs. Yet offsets have become a powerful
negotiating tool. Current weapons proliferation and the export of jobs and
technology through offsets raise profound moral and ethical, as well as fiscal,
questions that shareholders should address. As shareholders, we ask for the
opportunity to debate the long term costs of job and technology export."
STATEMENT BY THE BOARD OF DIRECTORS AGAINST THE SHAREHOLDER PROPOSAL
The sponsors of this proposal are members of a group of organizations that have
submitted to your Company's shareholders 13 proposals over the last 19 years.
Not one of these proposals has gained ten percent of the vote. Some proposals
have asked your Company to withdraw bids from, or refrain from bidding on,
advanced weapons programs. Others have sought extensive reports on retraining
workers and converting Company facilities for production of non-military
products. In recent years, these proposals have asked for reports on military
exports and/or offset arrangements associated with such exports. Last year's
proposal garnered less than three percent of the shareholder vote.
Insofar as the current proposal is concerned, contractual agreements for offset
transactions, technology licensing, and co-production are commonplace in
international sales for both commercial and military products. Your Company
engages in such transactions when they are required by the customer. Failure to
comply would result in losing the contract to a competitor, usually one based
outside the United States. Your Board of Directors is not aware of any
co-production or offset contracts involving your Company that have created a net
loss of jobs in the United States. In our view, robust and bilateral trading
activity creates jobs for parties at both ends of the transaction, and is
beneficial to international economic stability and growth. In fact, General
Dynamics employees in the United States currently manufacture under license
and/or co-produce several products which were initially developed by overseas
firms.
Your Company does not engage in foreign policy as it negotiates these kinds of
agreements. Historically, the majority of your Company's military exports have
been Foreign Military Sales executed through the U.S. Department of Defense.
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.
RECOMMENDATION
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE SHAREHOLDER PROPOSAL.
SHARES REPRESENTED BY A PROPERLY COMPLETED, UNREVOKED PROXY WILL BE VOTED
AGAINST THE SHAREHOLDER PROPOSAL UNLESS SHAREHOLDERS DIRECT OTHERWISE IN THE
PROXY.
26
<PAGE> 31
OTHER INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "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. 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 of the Company complied with all filing
requirements imposed by Section 16(a) of the Exchange Act during 1998, other
than Mr. Mellor. Mr. Mellor did not report a gift of Common Stock he made during
1997 on his Form 5 filed in February 1998. The Form 5 was subsequently amended
to report this gift.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
HOW CAN I HAVE MY PROPOSAL CONSIDERED FOR INCLUSION IN NEXT YEAR'S PROXY
STATEMENT? If you intend to present a proposal at the Company's 2000 annual
meeting of shareholders, you must provide us with the proposal no later than
November 28, 1999, in order for it to be considered for inclusion in the proxy
materials for that meeting.
FOR NEXT YEAR'S MEETING, WHEN WILL THE COMPANY BE ABLE TO USE DISCRETIONARY
AUTHORITY TO VOTE MY PROXY? The Company may utilize discretionary authority
conferred by proxy in voting on any matter submitted by a shareholder without
including a discussion of the matter in the proxy materials if, among other
situations, the shareholder does not give timely and proper notice of the matter
to the Company by the deadline determined under the Company's By-Laws for the
submission of proposals by a shareholder to a shareholder meeting. This notice
requirement and deadline are independent of the notice requirement and deadline
described above for a shareholder proposal to be considered for inclusion in the
Company's proxy statement. The Company's By-Laws state that a shareholder may
bring a proposal before a shareholders meeting only if notice of the matter is
received at the Company's principal executive offices not less than 60 and no
more than 90 days prior to the date of the meeting; provided, however, that if
less than 70 days' notice or prior public disclosure of the meeting date is
given or made to shareholders, notice of the matter must be received not later
than the close of business on the 10th day following the date of notice or
public disclosure of the meeting date. It is currently expected that the 2000
annual meeting of shareholders will be held on May 3, 2000. Therefore, the
deadline for timely submission of a shareholder proposal for consideration at
the annual meeting is currently expected to be March 4, 2000.
ANNUAL REPORT ON FORM 10-K
General Dynamics Corporation will furnish, without charge to any shareholder, a
copy of its Annual Report on Form 10-K for the year ended December 31, 1998, as
filed with the Securities and Exchange Commission. A copy of this report may be
obtained upon written request to David A. Savner, Secretary, General Dynamics
Corporation, 3190 Fairview Park Drive, Falls Church, Virginia 22042-4523.
Falls Church, Virginia, March 26, 1999
27
<PAGE> 32
P GENERAL DYNAMICS CORPORATION
R PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 5, 1999
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF THE CORPORATION.
X
Y The undersigned hereby appoints NICHOLAS D. CHABRAJA, JAMES E.
TURNER, JR., and DAVID A. SAVNER, and each of them, as proxy or proxies,
with the power of substitution, to vote all shares of Common Stock par
value $1.00 per share, of GENERAL DYNAMICS CORPORATION, a Delaware
corporation, that the undersigned is entitled to vote at the 1999 Annual
Meeting of Shareholders, and at any adjournment or postponement 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.
Director Nominees: (1) J.W. Becton, Jr., (2) N.D. Chabraja, (3) J.S.
Crown,
(4) L. Crown, (5) C.H. Goodman, (6) G.A. Joulwan, (7)
P.G. Kaminski,
(8) J.R. Mellor, (9) C.E. Mundy, Jr., (10) C.A.H.
Trost
-----------
SEE REVERSE
SIDE
-----------
- FOLD AND DETACH HERE -
[GENERAL DYNAMICS LOGO]
DIRECT DEPOSIT NOTICE
General Dynamics Corporation and First Chicago Trust Company remind you
of 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 TOLL-FREE TELEPHONE NUMBER FOR
SHAREHOLDERS OF GENERAL DYNAMICS CORPORATION
Telephone inquiries regarding your stock should be made to
First Chicago Trust Company's automated Toll-Free Telephone Response
Center at:
1-800-519-3111
<PAGE> 33
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE 3515
This proxy when properly executed will be voted in the manner directed
herein. On any other matters that may come before the meeting, this proxy will
be voted at the discretion of the proxies named on the face of this card. If no
direction is made, this proxy will be voted FOR Election of Directors, FOR Item
2, and AGAINST Item 3.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
- -----------------------------------------------------------
FOR WITHHELD
1. Election of / / / /
Directors
(See reverse)
FOR AGAINST ABSTAIN
2. Selection of Arthur / / / / / /
Andersen LLP as
independent auditors
for 1999.
For all nominees listed on reverse, except vote withheld for the following
nominee(s):
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 3.
- --------------------------------------------------------
FOR AGAINST ABSTAIN
3. The Shareholder Proposal with / / / / / /
regard to offset agreements.
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SIGNATURE(S) DATE
- FOLD AND DETACH HERE -
[GENERAL DYNAMICS LOGO]
Dear Shareholder,
General Dynamics Corporation encourages you to take advantage of new and
convenient ways by which you can vote your shares. You can vote your shares
electronically through the internet or the telephone. This eliminates the need
to return to the proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear in
the box above must be used to access the system.
1. To vote over the internet:
- Log on to the internet and go to the web site
HTTP://WWW.VOTE-BY-NET.COM
2. To vote over the telephone:
- On a touch-tone telephone call 1-800-OK2-VOTE (1-800-652-8683) 24 hours
a day, 7 days a week
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated, and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
