<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GENERAL DYNAMICS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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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:
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(4) Date filed:
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<PAGE> 2
[GENERAL DYNAMICS LOGO]
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
2000
www.generaldynamics.com
<PAGE> 3
[GENERAL DYNAMICS LOGO]
March 31, 2000
Dear Shareholder:
You are cordially invited to our 2000 Annual Meeting of Shareholders
to be held at the Fairview Park Marriott, 3111 Fairview Park Drive,
Falls Church, Virginia 22042, on Wednesday, May 3, 2000, beginning
at 9:00 a.m. The principal items of business at the meeting will be
the election of directors and the selection of independent auditors
for the coming year. In addition, two shareholders may bring matters
before the meeting, as described in the accompanying Proxy
Statement. Enclosed with the Proxy Statement are your Proxy card and
General Dynamics' 1999 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 the 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.
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 3, 2000
The Annual Meeting of Shareholders of General Dynamics Corporation, a Delaware
corporation (the "Company"), will be held at the Fairview Park Marriott, 3111
Fairview Park Drive, Falls Church, Virginia 22042, on Wednesday, May 3, 2000, 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 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 2000.
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, including, without limitation,
the matter described under the caption "Other Information -- Other
Matters" in the accompanying Proxy Statement, if it is properly
presented at the meeting and subject to the limitations described
therein.
We are enclosing a copy of the Company's 1999 Annual Report with this Notice and
Proxy Statement.
The Board of Directors has fixed the close of business on March 6, 2000, 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 telephone or internet voting
systems.
By Order of the Board of Directors,
/s/ David Savner
Falls Church, Virginia, March 31, 2000 David A. Savner, Secretary
<PAGE> 5
[GENERAL DYNAMICS LOGO]
PROXY STATEMENT
March 31, 2000
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 3, 2000, 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 $1.00 per share (the "Common Stock"), on or about March 31, 2000.
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
1999 Board Meetings.................................. 9
Director Compensation................................ 9
Transactions Involving Directors and the Company..... 10
Compensation Committee Report on Executive Compensation..... 11
Executive Compensation...................................... 15
Principal Executive Officers of the Company.......... 15
Summary Compensation................................. 16
Stock Awards -- The Incentive Compensation Plan...... 17
Retirement Plans..................................... 19
Employment Agreements and Other Arrangements......... 22
Ownership of Common Stock by the Principal Shareholders and
Management................................................ 23
Shareholder Proposal........................................ 26
Other Information........................................... 28
Other Matters........................................ 28
Section 16(a) Beneficial Ownership Reporting
Compliance.......................................... 28
Shareholder Proposals for 2001 Annual Meeting of
Shareholders........................................ 28
Annual Report on Form 10-K........................... 29
</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 2000. 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 2000. 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 selection of
independent auditors.
Your Board of Directors recommends that you vote FOR Arthur Andersen LLP.
2
<PAGE> 7
SHAREHOLDER PROPOSAL
PROPOSAL AND PROPONENTS. The Company has been advised by representatives of the
Loretto Literary & Benevolent Institution, Loretto Motherhouse, Nerinx, Kentucky
40049, owners of 100 shares of Common Stock, that they intend to present to the
Annual Meeting a proposal regarding the Company's development of ethical
criteria for foreign military transfers. 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.
OTHER MATTERS
Please see "Other Information -- Other Matters" for information regarding one
other matter that may be presented at the Annual Meeting but which is not being
submitted to a vote in this Proxy Statement.
3
<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, Michael J. Mancuso, and David A. Savner
discretionary authority to vote your shares (i) as described under the caption
"Other Information -- Other Matters" as to the matter described therein and (ii)
on a discretionary basis 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 and 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, (iv) as described under
the caption "Other Information -- Other Matters" as to the matter described
therein, and (v) 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 6, 2000, 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 6, 2000, may vote their shares of Common Stock at the Annual Meeting. On
the Record Date, the Company had issued and outstanding 201,281,676 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.
4
<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 shareholder 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, 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 (if you use the 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., 73, 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 to 1994. Director of the
Federal Emergency Management Agency from 1985 to 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, 57, 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. Director of Ceridian Corporation.
[Photo of James S. Crown] JAMES S. CROWN, 46, 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.
[Photo of Lester Crown] LESTER CROWN, 74, 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.
</TABLE>
6
<PAGE> 11
<TABLE>
<S> <C>
[Photo of Charles H. CHARLES H. GOODMAN, 66, 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.
[Photo of George A. GEORGE A. JOULWAN, 60, 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) from
January 1998 to October 1998. Director of Adaptive
Broadband Corporation.
[Photo of Paul G. PAUL G. KAMINSKI, 57, Director since 1997.
Kaminski] Under Secretary of U.S. Department of Defense for
Acquisition and Technology from 1994 to 1997. Chairman and
Chief Executive Officer of Technovation, Inc. (consulting
and investment banking) since 1997. Senior Partner, Global
Technology Partners, LLC (merchant banking) since 1998.
Director of DynCorp, Condor Systems, Inc., Veridien
Corporation, and DeCrane Aircraft Holdings, Inc.
[Photo of James R. JAMES R. MELLOR, 69, 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, and Net2Phone
Inc.
</TABLE>
7
<PAGE> 12
<TABLE>
<S> <C>
[Photo of Carl E. Mundy, CARL E. MUNDY, JR., 64, 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 March 2000. Director of Schering-Plough
Corporation. Director or trustee of six investment
companies in the Nations Funds mutual fund complex.
Chairman of Marine Corps University Foundation.
[Photo of Carlisle A.H. CARLISLE A. H. TROST, 69, 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. The Board believes Mr. Mellor continues
to provide valuable service in his role as director.
Mr. Lester Crown is the father of Mr. James Crown and the cousin by marriage of
Mr. Goodman.
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 1999.
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 benefit plans of the Company and its subsidiaries. The Benefit
Plans and Investment Committee held four meetings in 1999.
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 three meetings in 1999.
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 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."
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<PAGE> 13
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 one meeting in 1999. 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 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 1999.
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
Julius W. Becton,
James S. Crown 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>
1999 BOARD MEETINGS
During 1999, the Board of Directors of the Company held a total of nine
meetings. In 1999, each incumbent director attended at least 75 percent of the
meetings of the Board and of the Board committees on which he served. As a
group, incumbent directors attended 97 percent of all Board and committee
meetings held in 1999.
DIRECTOR COMPENSATION
During 1999, the Board of Directors formed an ad hoc committee comprising Mr.
Trost, as Chairman, and Messrs. Becton, L. Crown, and Mellor to evaluate the
Company's director compensation program for outside directors (directors who are
not employees of the Company) in light of current principles of corporate
governance and the desire to align the interests of the Company's directors with
those of the shareholders. The Committee evaluated the Company's annual
retainer, meeting fees, and retirement program, as well as director compensation
programs at comparable corporations. As a result of this analysis, and the work
of independent compensation consultants retained by the Committee, the Committee
recommended to the entire Board the termination of the Retirement Plan for
Directors, adjustments to the Board retainer and meeting fees, and the grant of
annual equity awards to directors. These recommendations were unanimously
adopted by the Board on December 1, 1999. The Company believes that the new
compensation program for outside directors more closely aligns the interests of
directors with those of the shareholders. The new outside director compensation
program was implemented for service in 2000. None of the fees or awards
discussed below apply to directors who are also employees of the Company.
For 1999, the Company paid an annual retainer of $35,000 per year. Chairmen of
committees of the Board received an additional annual retainer of $10,000. The
Company paid 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 1999, the
incumbent directors were paid an aggregate of $593,000 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.
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<PAGE> 14
Under the new director compensation program, the Company will pay its directors
an annual retainer of $40,000. This retainer will be payable, at the director's
election, in cash, Common Stock, or a combination thereof. Chairmen of
committees of the Board will receive an additional annual retainer of $5,000.
The Company will also pay a fee of $2,000 per Board meeting attended and $1,500
per committee meeting attended. The Company will continue to reimburse directors
for travel and special advisory services, as described above.
Also under the new program, each director will receive an annual equity award of
options to purchase Common Stock, with an exercise price equal to the fair
market value of the Common Stock at the date of grant, and shares of performance
restricted Common Stock. The annual equity award is calculated to have a value
of approximately $35,000 on the date of award, and will be allocated between
non-qualified options and performance restricted stock. For 2000, the allocation
was two-thirds in the form of options and one-third in the form of performance
restricted stock. Accordingly, on December 1, 1999, each director received (i)
an option to purchase 1,820 shares of Common Stock and (ii) 225 shares of
performance restricted Common Stock. The performance feature of the restricted
stock increases or decreases the number of shares awarded based on the increase
or decrease in the price of Common Stock over a performance period which, for
the December 1999 awards, will end December 31, 2001. This performance feature
is more fully described under "Executive Compensation -- Stock Awards -- The
Incentive Compensation Plan."
Until December 1, 1999, the Company maintained a Retirement Plan for Directors
which provided that a director would be eligible for benefits after his
retirement from the Company's Board if he had not been an employee of the
Company and either (i) had served as a director for at least five years or (ii)
had served less than five years and had retired at the mandatory retirement age
for directors. The Retirement Plan for Directors paid 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.
In connection with the restructuring of the Company's director compensation
program, described above, the Retirement Plan for Directors was terminated
effective December 1, 1999. Each participating director was given the option to
convert his then-vested benefit in the Retirement Plan into a cash account
bearing interest at the prime rate or into "phantom shares" of the Company based
on the average of the high and low market price on the New York Stock Exchange
at December 1, 1999, in either case payable when the director retires from the
Board. A director electing the phantom share option will be at risk for market
fluctuations upward or downward from December 1, 1999, to the date of his
retirement. All directors elected the phantom share option.
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.
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<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During 1999,
Messrs. J. Crown and Goodman (members of the Compensation Committee) and Mr. L.
Crown had indirect interests in certain transactions involving the Company.
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) provides barge transportation services to Material Service
Corporation, a subsidiary of the Company. Material Service Corporation paid
$156,668 in 1999 and the first quarter of 2000 for these services. 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) provides golf course management services to the Company. The Company
paid $188,197 during 1999 for these services. Prior to the acquisition of
Gulfstream Aerospace Corporation by the Company in July 1999, Gulfstream entered
into a sponsorship agreement with Aspen Skiing Company, L.L.C. ("Aspen") for an
event which was subsequently cancelled. Aspen received $250,000 from Gulfstream
and refunded $187,500; the remaining $62,500 was a cancellation fee. Certain
members of Messrs. J. Crown's, L. Crown's, and C. Goodman's immediate families
have indirect interests in Aspen. 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 1999, these royalty payments totaled
approximately $810,000.
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 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
short-term performance and for the long-term benefit of the Company's business
so as to align the interests of management with the interests of the
shareholders.
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
11
<PAGE> 16
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 professional experience. The Compensation Committee calculates a
bonus for each executive based on individual, business unit, and Company-wide
performance for the prior year, as compared to performance 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 the managers reporting to
him. Senior management, as a group, establishes Company and business unit
performance goals. These performance goals are then reviewed and adjusted, if
appropriate, by the Board of Directors. Designed to contribute to shareholder
value, these goals include orders, revenue, net earnings, free cash flow, return
on equity, and re-engineering accomplishments. For 1999, the Company met or
exceeded all of its stated financial and operating goals.
BASE SALARY AND BONUS
In awarding 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 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 philosophy is to predicate an individual's total
cash compensation on the achievement of annual performance goals. Accordingly,
an executive's bonus will reflect the achievement of goals established for the
individual, his or her business unit, and the Company as a whole. Where all of
these goals are exceeded, an executive's bonus will be set so that the
executive's aggregate cash compensation will generally be at the 75th percentile
for positions at the same level at comparable companies.
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 stock options and performance
restricted stock. Long-term compensation for each of the Company's executive
officers is a multiple (greater or less than one) of the executive's total base
salary and bonus based on 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 2000, the Compensation Committee granted stock options that are
exercisable at $42.7188 (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 1, 2001. The balance of these stock options may be exercised on or after
March 1, 2002. These stock options have a term of five years and will expire on
February 28, 2005. In March of 2000, 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, 2001.
12
<PAGE> 17
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Based on the factors described above, in 1999 Mr. Chabraja received a base
salary of $837,000 for his services as Chairman and Chief Executive Officer of
the Company. In 1999 Mr. Chabraja earned a bonus of $1,550,000 based on his
individual performance and the Company exceeding its financial and operating
goals. The Subcommittee determined that Mr. Chabraja's 1999 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 Internal
Revenue Service regulations. They have concluded that discretion and sound
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 1999 and in the future will be immaterial.
OTHER GOVERNMENT LIMITATIONS
The Company's compensation program is designed to increase shareholder value,
but the Company must 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.
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.
13
<PAGE> 18
FIVE-YEAR HISTORICAL PERFORMANCE
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION> CUMULATIVE TOTAL RETURN
---------------------------------------------------------------------------
S&P AEROSPACE/DEFENSE
GENERAL DYNAMICS S&P 500 INDEX
---------------- ------- ---------------------
<S> <C> <C> <C>
Dec-94 $100.00 $100.00 $100.00
Dec-95 $139.91 $137.58 $165.49
Dec-96 $171.61 $169.17 $221.36
Dec-97 $214.86 $225.60 $227.73
Dec-98 $297.54 $290.08 $174.57
Dec-99 $270.11 $351.12 $170.07
</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
14
<PAGE> 19
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>
1999 COMPENSATION HIGHLIGHTS
[COMPENSATION CHART]
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL COMPENSATION
-----------------------------------------------------------------------
RESTRICTED STOCK OPTION
STOCK AWARD POTENTIAL
SALARY BONUS VALUE VALUE
------ ----- ----------- -----------
<S> <C> <C> <C> <C>
N. D. Chabraja 12.00% 24.00% 30.00% 30.00%
J. E. Turner, Jr.(b) 17.00% 27.00% 28.00% 28.00%
G. R. England 21.00% 23.00% 28.00% 27.00%
M. J. Mancuso 21.00% 23.00% 28.00% 27.00%
D. A. Savner 22.00% 24.00% 26.00% 26.00%
</TABLE>
<TABLE>
<CAPTION>
N.D. Chabraja J.E. Turner G.R. England M. J. Mancuso D.A. Savner
--------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <S> <C>
Salary $ 837,000 $ 510,000 $ 400,000 $ 350,000 $ 300,000
Bonus 1,550,000 650,000 460,000 400,000 340,000
Retricted Stock Value 1,948,033 796,923 531,282 478,154 371,897
Stock Option Potential Value 1,957,111 782,844 521,896 472,969 375,113
</TABLE>
(a) Assumes 5% annual stock price appreciation for option term. "Optional Grants
in Last Fiscal Year" table on page 18.
(b) Mr. Turner retired from the Company effective January 15, 2000.
<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 and
and Chief Financial Officer General Counsel, Secretary
</TABLE>
15
<PAGE> 20
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 1999, 1998, and 1997.
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 1999 $837,000 $1,550,000 $324,163 $2,889,708 120,000 $0 $58,899
Chairman of the Board and 1998 800,000 1,300,000 225,351 2,453,733 166,000 0 55,253
Chief Executive Officer 1997 700,000 850,000 412,474 1,224,469 135,000 0 46,236
JAMES E. TURNER, JR.(f) 1999 $510,000 $ 650,000 $ 20,891 $1,305,910 48,000 $0 $42,541
President and Chief 1998 475,000 650,000 14,551 943,173 60,000 0 37,374
Operating Officer 1997 450,000 525,000 35,709 661,875 72,000 0 31,275
GORDON R. ENGLAND 1999 $400,000 $ 460,000 $ 12,149 $ 667,119 32,000 $0 $30,916
Executive Vice President 1998 375,000 425,000 34,163 518,626 42,000 0 29,567
1997 350,000 375,000 32,207 180,225 50,000 0 21,558
MICHAEL J. MANCUSO 1999 $350,000 $ 400,000 $ 13,967 $ 681,760 29,000 $0 $25,054
Senior Vice President and 1998 325,000 350,000 14,518 497,174 35,000 0 24,208
Chief Financial Officer 1997 300,000 300,000 8,383 264,750 29,000 0 20,970
DAVID A. SAVNER(g) 1999 $300,000 $ 340,000 $245,591 $ 371,897 23,000 $0 $21,971
Senior Vice President and 1998 300,000 250,000 34,216 270,750 25,000 0 16,076
General Counsel, Secretary 1997 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 1999
of $255,638, of which $129,600 relates to personal travel and $87,800
relates to club memberships; 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 (B) Perquisites
for Mr. Savner for 1999 of $108,854, of which $57,500 relates to relocation.
(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, 1999, Mr.
Chabraja held a total of 179,587 shares of Performance Restricted Stock with
an aggregate market value of $9,456,387; Mr. Turner held a total of 83,870
shares of Performance Restricted Stock with an aggregate market value of
$4,416,284; Mr. England held a total of 28,677 shares of Performance
Restricted Stock with an aggregate market value of $1,510,025; Mr. Mancuso
held a total of 39,623 shares of Performance Restricted Stock with an
aggregate market value of $2,086,401; and Mr. Savner held a total of 12,300
shares of Performance Restricted Stock with an aggregate market value of
$647,672. 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 in March 3, 1999,
remains subject to adjustment for an increase or decrease in the price of
the Common Stock over the performance period ending December 31, 2000. For
more details on this
16
<PAGE> 21
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 1999, (A) the amounts contributed to
the Savings and Stock Investment Plan and allocations to the Supplemental
Savings and Stock Investment Plan were $50,704, $31,112, $24,655, $21,654,
and $19,001 for Messrs. Chabraja, Turner, England, Mancuso, and Savner,
respectively, and (B) payments for term life insurance were $8,195, $11,429,
$6,261, $3,403, and $2,970 for Messrs. Chabraja, Turner, England, Mancuso,
and Savner, respectively.
(f) Mr. Turner retired from the Company effective January 15, 2000.
(g) 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 through 1999, 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 2000? The Subcommittee has made stock option awards to the Named
Executive Officers under the Incentive Compensation Plan for 2000 as follows:
Mr. Chabraja - 320,000; Mr. England - 77,000; Mr. Mancuso - 70,000; and Mr.
Savner - 52,000.
17
<PAGE> 22
The following table sets forth the number of shares of Common Stock underlying
stock options granted during 1999 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 120,000 8.2 $59.0313 03/02/04 $1,957,111 $4,324,704
James E. Turner, Jr. 48,000 3.3 59.0313 03/02/04 782,844 1,729,882
Gordon R. England 32,000 2.2 59.0313 03/02/04 521,896 1,153,254
Michael J. Mancuso 29,000 2.0 59.0313 03/02/04 472,969 1,045,137
David A. Savner 23,000 1.6 59.0313 03/02/04 375,113 828,902
- -----------------------------------------------------------------------------------------------------------
</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.
The following table sets forth information with respect to option exercises
during 1999 and options held at the end of 1999 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 $7,259,360 353,000 203,000 $6,453,295 $783,308
James E. Turner, Jr. 0 0 174,000 78,000 3,307,116 283,124
Gordon R. England 0 0 71,000 53,000 1,162,249 198,186
Michael J. Mancuso 22,000 958,936 87,500 46,500 1,734,352(b) 165,155
David A. Savner 0 0 12,500 35,500 94,141 94,141
- ---------------------------------------------------------------------------------------------------------------
</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
(these 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
18
<PAGE> 23
price of the Common Stock over a performance period. Under the formula, the
Compensation 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 2000? Performance Restricted Stock awards for 2000 were
made to the Named Executive Officers on March 1, 2000, as follows: Mr.
Chabraja - 40,000; Mr. England - 9,500; Mr. Mancuso - 8,800 shares; and Mr.
Savner - 6,500 shares. For these awards, the performance period ends on December
31, 2001.
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, the maximum number of shares available for
award under the plan was adjusted to give effect to the 1998 two-for-one split
of the Common Stock.
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 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
19
<PAGE> 24
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 who was an employee before January
1, 1999, receives a $94 per month supplement (prorated downwards for less than
ten 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>
$ 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
2,500,000 166,666 333,333 500,000 666,666 833,333 1,000,000
- --------------------------------------------------------------------------------
</TABLE>
As of January 1, 2000, the Named Executive Officers were credited with the
following years of plan participation under the Retirement Plan and Supplemental
Executive Retirement Plan: Mr. Chabraja, 7 years; Mr. Turner, 11 years; Mr.
England, 3 years; Mr. Mancuso, 6 years; and Mr. Savner, 2 years.
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 1999. The benefits under the final
average pay formula are not subject to any reduction for social security or
other offset amounts.
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<PAGE> 25
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 was not entitled to any supplemental
benefits under this agreement at his retirement from the Company on January 15,
2000. In connection with his retirement, Mr. Turner and the Company entered into
a consulting agreement. Under this agreement, Mr. Turner has agreed to provide
specified consulting services to the Company through March 12, 2001. The Company
will pay Mr. Turner $3,250 per day for these services, with a minimum guaranteed
payment of $100,000 for the term of the 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. 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
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<PAGE> 26
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 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. On March 3, 2000, Mr. England completed three years employment with the
Company.
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
from 18 to 36 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. For each of the Named
Executive Officers, the multiple is 2.99 and welfare benefits will continue for
36 months. 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.
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<PAGE> 27
OWNERSHIP OF COMMON STOCK BY THE
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information as of December 31, 1999, 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.
The following table also shows Common Stock equivalents held by these
individuals through Company-sponsored benefits programs. 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 COMMON STOCK
AS OF DECEMBER 31, 1999(a) EQUIVALENTS
------------------------------------- BENEFICIALLY TOTAL SHARES AND
SHARES OWNED(b) PERCENTAGE OF CLASS OWNED(c) EQUIVALENTS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DIRECTORS
Julius W. Becton, Jr.............. 425 * 9,407 9,832
Nicholas D. Chabraja.............. 719,472 * 0 719,472
James S. Crown (d)................ 11,074,666 5.5% 1,051 11,075,717
Lester Crown (e).................. 11,106,104 5.5% 0 11,106,104
Charles H. Goodman (f)............ 16,542,209 8.2% 4,917 16,547,126
George A. Joulwan................. 1,725 * 2,513 4,238
Paul G. Kaminski.................. 3,225 * 1,853 5,078
James R. Mellor................... 290,253 * 0 290,253
Carl E. Mundy, Jr................. 1,385 * 3,268 4,653
Carlisle A. H. Trost.............. 2,374 * 6,516 8,890
NAMED EXECUTIVE OFFICERS
James E. Turner, Jr............... 553,298 * 0 553,298
Gordon R. England................. 116,892 * 0 116,892
Michael J. Mancuso................ 156,171 * 0 156,171
David A. Savner................... 27,754 * 0 27,754
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP
(35 individuals) (g)............ 20,150,288 10.0% 29,525 20,179,813
PRINCIPAL SHAREHOLDERS
FMR Corp., Edward C. Johnson 3d
and Abigail P. Johnson (h)
82 Devonshire Street
Boston, Massachusetts 02109..... 26,316,919 13.1% 0 26,316,919
Forstmann Little Group (i)
c/o Forstmann Little & Co.
767 Fifth Avenue
New York, NY 10153.............. 16,554,375 8.2% 0 16,554,375
Longview Management Group LLC (j)
c/o Gerald Ratner, as Attorney
and Agent, 222 North LaSalle
Street
Chicago, Illinois 60601......... 16,542,209 8.2% 0 16,542,209
The Northern Trust Company (k)
50 S. LaSalle Street
Chicago, Illinois 60675......... 14,791,061 7.3% 0 14,791,061
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent
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<PAGE> 28
(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, 1999. Includes shares as of December 31,
1999, 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, 1999, as follows: (i) Mr. Chabraja - 353,000 shares; Mr.
Turner - 174,000 shares; Mr. England - 71,000 shares; Mr. Mancuso - 87,500
shares; and Mr. Savner - 12,500 shares; and (ii) other executive officers of
the Company - 958,199 shares.
(c) Reflects phantom stock units held by the directors indicated, which phantom
stock was received by the directors upon termination of the Company's
Retirement Plan for Directors.
(d) Of the aggregate 16,542,209 shares of Common Stock held by the Crown and
Goodman families, 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 11,074,666 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.
(e) Of the aggregate 16,542,209 shares of Common Stock held by the Crown and
Goodman families, Mr. Lester Crown is deemed to be the beneficial owner of
11,102,293 shares. Mr. Lester Crown has shared investment and voting power
with respect to such 11,102,293 shares. Of the 11,102,293 shares of Common
Stock deemed to be beneficially owned by Mr. Lester Crown, he disclaims
beneficial ownership as to 7,892,392 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 these shares.
Mr. Lester Crown also has sole investment and voting power over 3,811 shares
held in the Company savings plan (which are not included in the aggregate
for the Crown and Goodman families).
(f) Mr. Goodman is deemed to be the beneficial owner of all of the aggregate
16,542,209 shares of Common Stock held by the Crown and Goodman families.
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.
(g) 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.
(h) Based solely on information contained in a Schedule 13G/A filed with the
Commission on February 14, 2000, 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). Members
of the Johnson family collectively control approximately 49% of the voting
power of FMR. Based on the Schedule 13G/A, FMR has sole voting power as to
2,659,139 shares of Common Stock, shared voting power as to no shares of
Common Stock, sole investment power as to 26,316,919 shares of Common Stock,
and shared investment power as to no shares of Common Stock. Fidelity
Management & Research Company, a wholly owned subsidiary of FMR, is the
beneficial owner of 23,073,180 shares, or 11.5%, of the Common Stock as a
result of acting as investment advisor to various investment companies.
(i) Based solely on information included in a Schedule 13G dated July 30, 1999,
filed by Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-IV ("MBO-IV"), Gulfstream Partners and Gulfstream
Partners II, L.P. MBO-IV beneficially owns 10,265,915 shares, or 5.1%,
Gulfstream Partners beneficially owns 2,674,325 shares, or 1.3%, and
Gulfstream Partners II, L.P. beneficially owns 3,614,135 shares, or 1.8%.
These entities were shareholders of Gulfstream Aerospace Corporation prior
to the Company's acquisition of Gulfstream. Pursuant to a registration
rights agreement entered into by the Company in connection with the
Gulfstream acquisition, in June of 1999 the Company filed a Registration
Statement on Form S-3 covering the sale of these shares. This Registration
Statement has not been declared effective by the Securities and Exchange
Commission. The Company is not aware of whether or when these entities
intend to utilize this Registration Statement in order to sell these shares.
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<PAGE> 29
(j) Based on information provided on behalf of Mr. Lester Crown, Mr. James
Crown, and Mr. Goodman, Longview Management Group, LLC ("Longview"), is an
investment advisor which manages the Common Stock held by a number of
persons, including Mr. Lester Crown, 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 has shared voting and investment power with
respect to the shares indicated. Geoffrey F. Grossman, as sole trustee of
The Edward Trust, is the sole equity owner of Longview and, accordingly, is
the beneficial owner of all shares beneficially owned by Longview. Mr.
Grossman disclaims beneficial ownership of all such shares. Mr. Grossman's
address is 30 N. LaSalle Street, Suite 2900, Chicago, Illinois 60602. 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 any one
of them is the beneficial owner of shares owned by any other person or
entity.
(k) 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.
At December 31, 1999, certain partnerships (the "Forstmann Little Partnerships")
formed by Forstmann Little & Co. ("Forstmann Little") owned approximately 8.2%
of the Company's common stock. The Forstmann Little Partnerships had been
stockholders of Gulfstream Aerospace Corporation ("Gulfstream") and became
stockholders of the Company when the Company acquired Gulfstream in July 1999.
In 1996, Gulfstream entered into a 10-year agreement with an affiliate of
Forstmann Little to manage the operations of the Gulfstream IV and Gulfstream V
aircraft discussed below. Gulfstream paid this entity $2.3 million for 1999. In
1996, Gulfstream entered into agreements with Theodore J. Forstmann,
Gulfstream's Chairman, pursuant to which Gulfstream will provide him with the
use of a Gulfstream V aircraft for a period of ten years. Mr. Forstmann
continues as a director of Gulfstream since its acquisition by the Company and
indirectly controls the Forstmann Little Partnerships. During 1999, until this
Gulfstream V became available, Gulfstream made a Gulfstream IV available to Mr.
Forstmann. Mr. Forstmann has agreed to pay Gulfstream up to $1.0 million
annually for non-Gulfstream use of the aircraft and in 1999 paid $0.8 million
for such use. If Mr. Forstmann ceases to serve as a director or official of
Gulfstream, he has agreed to reimburse Gulfstream $1,800 per hour for all use of
the aircraft, or such other rate required so as to not exceed Federal Aviation
Administration regulatory limitations.
25
<PAGE> 30
SHAREHOLDER PROPOSAL
The Company has been advised by representatives of the Loretto Literary &
Benevolent Institution, Loretto Motherhouse, Nerinx, Kentucky 40049, owners of
100 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: that shareholders request the Board of Directors to develop ethical
criteria for General Dynamics' foreign military transfers. A report of the
criteria, prepared at reasonable cost, should be available to all shareholders
by December 2000 and may omit classified and proprietary information.
SUPPORTING STATEMENT
Our Company's 1998 Annual Report states that "General Dynamics Combat Systems is
becoming the world's preferred supplier of land and amphibious combat system
development, production, and support. Its product line includes a full spectrum
of armored vehicles, light wheeled reconnaissance vehicles, suspensions,
engines, transmissions, guns and ammunition handling systems, turret and turret
drive systems, and reactive armor and ordnance" (P. 7).
Where are these weapons, these intellectual properties, and this support going?
Then, on pages 18 and 19, the Report describes information system deliveries and
services by Computing Devices Canada and Computing Devices Company, Ltd. (UK) to
Canada, the UK, Sweden, Belgium, 15 NATO countries and 27 partner nations in
Eastern and Central Europe and Asia. "The interaction with these nations
provides an excellent base for expanding sales of other General Dynamics'
products" (p. 19).
Does our Company track this technology and take appropriate measures to prevent
its illegal transfer to unstable and hostile nations?
Global security is security of people. The faith communities who propose this
resolution are disturbed by the arms industry's claims that these exports create
domestic jobs and maintain peace abroad.
Therefore we urge all General Dynamics shareholders to vote YES for development
of ethical criteria on foreign military transfers.
The ethical criteria could establish guidelines regarding:
1. Procedures used to negotiate direct sales to foreign governments, firms,
and individuals (including offset, licensing, and other non-monetary
elements).
2. Procedures used to negotiate sales, loans, and grants through the U.S.
government (including offset, licensing, and other non-monetary
elements).
3. Methods of identifying new customers.
4. Methods of tracking third party transfers.
5. Whether the planned and actual use of these arms by our customers and
the ideas that drive that use is in accord with the ethical standards of
democracy.
The religiously-affiliated proponents of this resolution trust that the Board of
Directors and shareholders share with us an ethic of peace-making. It is
incumbent on us to develop products and markets that
26
<PAGE> 31
enhance peace and genuinely deter war. Otherwise we run the risk that our
soldiers will again face adversaries supplied by U.S. markets as happened in
Somalia, Iraq, and Panama. Even worse, we risk bearing responsibility for global
chaos and dimming hopes for global democratic development. General Dynamics is a
player in this global scene. A simple report on our Company's ethical commitment
based on established criteria will assist us all in making further investments
and advising Congress on strategic arms trade and transfer decisions.
A YES vote recommends that the Board of Directors develop criteria for the
Company's foreign military transfers and make that criteria available to the
shareholders."
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 14 proposals over the last 20 years.
None 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, and have asserted that military
exports do not create jobs in the United States, a proposition with which your
Board strongly disagrees. For the past two years, these proposals have garnered
less than three percent of the shareholder vote.
Insofar as this year's proposal is concerned, your Board is confident that all
of your Company's military exports are contracted for and executed under the
highest possible ethical standards, in keeping with longstanding Company policy.
In fact, since May 1998, your Board has had in place a special committee whose
primary task is to review your Company's international activities. That
committee includes Board members who have directly commanded U.S. troops engaged
in overseas actions. Your Board does not believe the suggestions made by the
proponents would in any way enhance oversight of your Company's international
activities.
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.
27
<PAGE> 32
OTHER INFORMATION
OTHER MATTERS
In January 2000, the Company received a letter from an individual who indicated
that he was a shareholder and requested that the Company include at its next
shareholders meeting "a discussion that I will introduce of General Dynamics
corporate governance practices compared to the standard of the Council of
Institutional Investors Shareholder Bill of Rights . . ."
The Company contacted this individual in February and March to determine his
shareholder status and to clarify whether the individual's intent was to submit
a proposal for consideration at the Annual Meeting. The Company believed that
the original letter, by referencing only a "discussion" that the individual
intended to introduce, did not constitute a specific proposal that the Company
could bring before the Annual Meeting. The requested information was not
obtained.
Based on this, if the purported shareholder attends the Annual Meeting and
presents the "discussion" above as a specific proposal for consideration, the
Company intends to utilize the discretionary authority conferred by the Proxies
submitted pursuant to this solicitation to vote against any such proposal. The
Company believes its corporate governance record to be excellent.
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 1999, except
Mr. Mundy who inadvertently missed filing a report on the Company's acquisition
of Gulfstream Aerospace Corporation.
SHAREHOLDER PROPOSALS FOR 2001 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 2001 annual
meeting of shareholders, you must provide us with the proposal no later than
November 30, 2000, 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
28
<PAGE> 33
shareholders, notice of the matter must be received not later than the close of
business on the tenth day following the date of notice or public disclosure of
the meeting date. It is currently expected that the 2001 annual meeting of
shareholders will be held on May 2, 2001. Therefore, the deadline for timely
submission of a shareholder proposal for consideration at the annual meeting is
currently expected to be March 3, 2001.
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, 1999, 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 31, 2000
29
<PAGE> 34
GENERAL DYNAMICS CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 3, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION.
P The undersigned hereby appoints NICHOLAS D. CHABRAJA, MICHAEL
J. MANCUSO, and DAVID A. SAVNER, and each of them, as proxy or
R proxies, with the power of substitution, to vote all shares of Common
Stock, par value $1.00 per share, of GENERAL DYNAMICS CORPORATION, a
O Delaware corporation, that the undersigned is entitled to vote at the
2000 Annual Meeting of Shareholders, and at any adjournment or
X postponement thereof, upon the matters set forth on the reverse side
and upon such other matters as may properly come before the meeting,
Y all as more fully described in the Proxy Statement for said Annual
Meeting.
Director Nominees: (01) J.W. Becton, Jr., (02) N.D. Chabraja, (03) J.S. Crown,
(04) L. Crown, (05) C.H. Goodman, (06) G.A. Joulwan,
(07) P.G. Kaminski (08) J.R. Mellor, (09) C.E. Mundy, Jr.,
(10) C.A.H. Trost
SEE REVERSE
SIDE
/\ FOLD AND DETACH HERE /\
GENERAL DYNAMICS
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> 35
<TABLE>
<S> <C>
PLEASE MARK YOUR 3515
[X] VOTES AS IN THIS
EXAMPLE
This proxy when properly executed will be voted in the manner directed
herein. On any other matters that may properly come~before the meeting, this
proxy will be voted at the discretion of the proxies named on the face of this
card as described in the accompanying Proxy Statement. 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.
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FOR WITHHELD FOR AGAINST ABSTAIN THE BOARD OF DIRECTORS RECOMMENDS A
VOTE AGAINST ITEM 3.
1. Election of [ ] [ ] 2. Selection of [ ] [ ] [ ] -----------------------------------------------------
Directors Arthur Andersen FOR AGAINST ABSTAIN
(See reverse) LLP as 3. The Shareholder [ ] [ ] [ ]
independent Proposal with
auditors for regard to foreign
2000. military transfers.
For all nominees listed on reverse, except vote withheld for the following
nominee(s): I WILL ATTEND THE MEETING AND [ ]
REQUEST AN ADMISSION CARD.
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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
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GENERAL DYNAMICS
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.EPROXYVOTE.COM/GD
2. To vote over the telephone:
- On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683) 24
hours a day, 7 days a week Toll 1-201-536-8073
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.
