This plan was approved by the Board of Directors of the Corporation on February
5, 1997. The plan is subject to the approval at the 1997 Annual Meeting of
Shareholders.
GENERAL DYNAMICS CORPORATION
1997 INCENTIVE COMPENSATION PLAN
1. Purpose. This plan is an amendment and restatement of the 1988 Incentive
Compensation Plan; it is renamed the 1997 Incentive Compensation Plan and is
referred to hereinafter as the 'Plan.' The purpose of the Plan is to provide
General Dynamics Corporation and its subsidiaries (the 'Corporation') with an
effective means of attracting, retaining, and motivating officers and other key
employees and to provide them with incentives to enhance the growth and
profitability of the Corporation.
2. Eligibility. Any officer or key employee of the Corporation in an
executive, administrative, professional, scientific, engineering, technical, or
advisory capacity is eligible for an award under the Plan.
3. Committee. The Plan shall be administered by the Compensation Committee
(the 'Committee') of the Board of Directors of the Corporation comprised of two
or more members of the Board of Directors, all of whom shall be 'non-employee
directors'. Except as otherwise expressly provided in the Plan, the Committee
shall have full power and authority to interpret and administer the Plan, to
determine the officers and key employees to receive awards and the amounts and
types of the awards, to adopt, amend, and rescind rules and regulations, and to
establish terms and conditions, not inconsistent with the provisions of the
Plan, for the administration and implementation of the Plan, provided, however,
that the Committee may not, after the date of any award, make any changes that
would adversely affect the rights of a recipient under any award without the
consent of the recipient. The determination of the Committee on these matters
shall be final and conclusive and binding on the Corporation and all
participants.
Code Section 162(m) Subcommittee. Notwithstanding the foregoing paragraph, the
Plan shall be administered by a subcommittee of the Committee (the
'Subcommittee') with respect to persons covered by the deduction limitation of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the 'Code').
The Subcommittee shall comprise two or more members of the Committee, all of
whom shall be 'outside directors' as that term is used in Code Section 162(m).
With respect to such persons subject to Code Section 162(m), the Subcommittee
shall have all of the powers, rights, and duties granted to the Committee under
this Plan and each reference to the 'Committee' herein shall be deemed to be a
reference to the ' Subcommittee. '
4. Awards. Awards may be made by the Committee in such amounts as it shall
determine in cash, in common stock of the Corporation ('Common Stock'), in
options to purchase Common Stock of the Corporation ('Stock Options'), or in
shares of Common Stock subject to certain restrictions ('Restricted Stock'),
or any combination thereof. Awards of Stock Options shall be limited to awards
for such number of shares as shall be allocated for that purpose by the Board
of Directors and approved by the shareholders.
5. Code Section 162(m) Awards. Awards to persons covered by the deduction
limitation of Code Section 162(m), as described by Code Section 162(m)(3),
shall be subject to the following additional limitations:
a. Adjustments. The Subcommittee shall have no discretion to increase an
award of Stock Options and/or Restricted Stock once granted; except that
adjustments are permitted under Sections 11 and 12 of this Plan to the
extent permissible under regulations interpreting Code Section 162(m).
b. Maximum Awards. Awards of Stock Options and/or Restricted Stock under the
Plan shall be limited as follows:
(l) Awards of Stock Options shall be limited to 250,000 shares awarded to any
one individual in any calendar year and shall be issued at Fair Market
Value.
(2) Awards of Restricted Stock shall be limited to 50,000 shares awarded to
any one individual in any calendar year. Notwithstanding the foregoing,
Restricted Stock granted under the Restricted Stock Performance Formula,
described below, shall be limited to an initial grant of 50,000 shares,
but shall be adjusted upwards or downwards in accordance with that
formula.
c. Performance Goals. The Subcommittee, in its sole discretion, shall
establish performance goals applicable to awards of Restricted Stock in
such a manner as shall permit payments with respect thereto to qualify as
'performance-based compensation' as described in Code Section
162(m)(4)(C). Such awards shall be based on attainment of, over a
specified period of individual performance, specified targets or other
parameters relating to one or more of the following business criteria:
market price of Common Stock, earnings per share, net profits, total
shareholder return, return of shareholders' equity, cash flow, and
cumulative return on net assets employed. In addition, awards of
Restricted Stock may be based on the Restricted Stock Performance Formula,
described below.
6. Restricted Stock Performance Formula. Awards of Restricted Stock may be
granted pursuant to the formula described in this section, referred to herein
as the 'Restricted Stock Performance Formula.' The Committee shall make an
initial grant of shares of Restricted Stock (the 'Initial Grant'). At the end
of a specified performance period (determined by the Committee), the number of
shares in the Initial Grant shall be increased or decreased based on the
increase or decrease in the value of the Common Stock over the performance
period.
The increase or decrease described in the preceding paragraph shall be
determined in the following manner:
At the end of each performance period, the Fair Market Value (as defined in
Section 7 below) of the Common Stock is compared to the Fair Market Value per
share on the grant date. That difference is multiplied by the number of shares
of Restricted Stock to be earned at the end of each performance period and the
resulting product is divided by the Fair Market Value at the end of the
performance period. The number of shares of Common Stock so determined is added
to (in the case of a higher Fair Market Value) or subtracted from (in the case
of a lower Fair Market Value) the number of shares of Restricted Stock to be
earned at that time. Once the number of shares of Restricted Stock has been
adjusted, restrictions will continue to be imposed for a period of time.
7. Common Stock. In the case of awards in Common Stock, the number of
shares shall be determined by dividing the amount of the award by the average
between the highest and lowest quoted selling prices of the Corporation's
Common Stock on the New York Stock Exchange on the date of the award. The
average is referred to throughout this Plan as the 'Fair Market Value.'
8. Dividend Equivalents and Interest.
a. Dividends. If any award in Common Stock or Restricted Stock is to be paid
on a deferred basis, the recipient may be entitled, on terms and
conditions to be established, to receive a payment of, or credit
equivalent to, any dividend payable with respect to the number of shares
of Common Stock or Restricted Stock which, as of the record date for the
dividend, has been awarded or made payable to the recipient but not
delivered.
b. Interest. If any award in cash is to be paid on a deferred basis, the
recipient may be entitled, on terms and conditions to be established, to
be paid interest on the unpaid amount.
9. Restricted Stock Awards. Restricted Stock represents awards made in
Common Stock in which the shares granted may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated except upon passage of time,
or upon satisfaction of other conditions, or both, in every case as provided by
the Committee in its sole discretion. The recipient of an award of Restricted
Stock shall be entitled to vote the shares awarded and to the payment of
dividend equivalents on the shares from the date the award of shares is made;
and, in addition, all Special Distributions (as defined in Section 11 hereof)
thereon shall be credited to an account similar to the Account described in
Section 11. The recipient of an award of Restricted Stock shall have a
nonforfeitable interest in amounts credited to such account in proportion to
the lapse of restrictions on the Restricted Stock to which such amounts relate.
For example, when restrictions lapse on fifty percent (50%) of the Restricted
Stock granted in an award, the holder of such Restricted Stock shall have a
nonforfeitable interest in fifty percent (50%) of the amount credited to his
account which is attributable to such Restricted Stock. The holder of
Restricted Stock shall receive a payment in cash of any amount in his account
as soon as practicable after the lapse of restrictions relating thereto.
10. Stock Option Awards
a. Available Shares. Shares available for awards of Stock Options under the
Plan at the Effective Date of the restatement of the Plan shall be
available for awards of Stock Options under the Plan. Shares available for
awards of Stock Options may be authorized but unissued shares or may be
treasury shares. If any option awarded under the Plan or any predecessor
plan shall expire, terminate, or be canceled for any reason without having
been exercised in full, the corresponding number of unpurchased shares
which were reserved for issuance upon exercise thereof shall again be
available for the purposes of the Plan.
b. Type of Options. Options shall be in the form of incentive stock options,
non-statutory stock options, or both, as the Committee may determine. The
term 'incentive stock option' means any option, or portion thereof,
awarded under the Plan which meets the applicable requirements of Section
422 of the Internal Revenue Code, as it may be amended from time to time.
The term 'non-statutory stock option' means any option, or portion
thereof, awarded under the Plan which does not qualify as an incentive
stock option.
c. Incentive Stock Option Limitation. For incentive stock options granted
under the Plan, the aggregate fair market value (determined as of the date
the option is awarded) of the number of whole shares with
respect to which incentive stock options are exercisable for the first time by
any employee during any calendar year under all plans of the Corporation shall
not exceed $100,000.
d. Purchase Price. The purchase price of the Common Stock under each option
shall be determined by the Committee, but shall not be less than 100% of
the Fair Market Value of the Common Stock on the date of the award of the
option.
e. Terms and Conditions. The Committee shall, in its discretion, establish
(i) the term of each option, which in the case of incentive stock options
shall not be more than ten years, (ii) the terms and conditions upon which
and the times when each option shall be exercised, and (iii) the terms and
conditions under which options may be exercised after termination of
employment for any reason for periods not to exceed three years after
termination of employment but not beyond the term established above.
f. Purchase by Cash or Stock. The purchase price of shares purchased upon the
exercise of any stock option shall be paid (i) in full in cash, or (ii) in
whole or in part (in combination with cash) in full shares of Common Stock
owned by the optionee and valued at its Fair Market Value on the date of
exercise, all pursuant to procedures approved by the Committee.
g. Transferability. Options shall not be transferable. During the lifetime of
the person to whom an option has been awarded, it may be exercisable only
by such person or one acting in his stead or in a representative capacity.
Upon or after the death of the person to whom an option is awarded, an
option may be exercised by the optionee's legatee or legatees under his
last will, or by the option holder's personal representative or
distributee's executive, administrator, or personal representative or
designee in accordance with the terms of the option.
h. Option Exchange. Subject to the restrictions of Section 5, the Committee,
in its sole discretion, shall have the authority at any time, and from
time to time, to enter into option exchanges with one or more or all
holders of options awarded under the Plan, upon such terms and conditions
as it deems appropriate and advisable. Such terms and conditions need not
be uniform among all holders of outstanding options.
11. Adjustments for Special Distributions. The Committee shall have the
authority to change all Stock Options granted under this Plan to adjust
equitably the purchase price thereof to reflect a special distribution to
shareholders or other extraordinary corporate action involving distributions or
payments to shareholders (collectively referred to as 'Special Distributions').
In the event of any Special Distribution, the Committee may, to the extent that
it determines in its judgment that the adjustment of the purchase price of Stock
Options does not fully reflect such Special Distribution, increase the number of
shares of Common Stock covered by such Stock Options or cause to be created a
Special Distribution account (the 'Account') in the name of each individual to
whom Stock Options have been granted hereunder (sometimes herein referred to as
a 'Grantee') to which shall be credited an amount determined by the Committee,
or, in the case of noncash Special Distributions, make appropriate comparable
adjustments for or payments to or for the benefit of the Grantee. Amounts
credited to the Account in accordance with the preceding rules shall be
credited with interest, accrued monthly, at an annual rate equal to the higher
of Moody's Corporate Bond Yield Average or the
prime rate in effect from time to time, and such interest shall be credited in
accordance with rules to be established by the Committee. Notwithstanding the
foregoing, at no time shall the Committee permit the amount credited to the
Grantee's Account to exceed ninety percent (90%) of the purchase price of the
Grantee's outstanding Stock Options to which such amount relates. To the extent
that any credit would cause the Account to exceed that limitation, such excess
shall be distributed to the Grantee in cash.
Amounts credited to the Grantee's Account shall be paid to the Grantee or, if
the Grantee is deceased, his or her beneficiary at the time that the options to
which it relates are exercised or expire, whichever occurs first.
The Account shall for all purposes be deemed to be an unfunded promise to pay
money in the future in certain specified circumstances. As to amounts credited
to the Account, a Grantee shall have no rights greater than the rights of a
general unsecured creditor of the Corporation, and amounts credited to the
Grantee's Account shall not be assignable or transferrable other than by will or
the laws of descent and distribution, and such amounts shall not be subject to
the claims of the Grantee's creditors.
12. Adjustments and Reorganizations. The Committee may make such adjustments
to awards granted under the Plan (including the terms, exercise price,
and otherwise) as it deems appropriate in the event of changes that
impact the Corporation, the Corporation's share price, or share status.
In the event of any merger, reorganization, consolidation, change of control,
recapitalization, separation, liquidation, stock dividend, stock split,
extraordinary dividend, spin-off, split-up, rights offering, share combination,
or other change in the corporate structure of the Corporation affecting the
Common Stock, the number and kind of shares that may be delivered under the Plan
shall be subject to such equitable adjustment as the Committee, in its sole
discretion, may deem appropriate. The determination of the Committee on these
matters shall be final and conclusive and binding on the Corporation and all
participants.
In the preceding paragraph, 'change of control' means any of the following
events:
a. An acquisition (other than directly from the Corporation) of any voting
securities of the Corporation by any person who previously was the
beneficial owner of less than 10% of the combined voting power of the
Corporation's outstanding voting securities and who immediately after such
acquisition is the beneficial owner of 30% or more of the combined voting
power of the Corporation's then outstanding voting securities; provided
that, in determining whether a change of control has occurred, voting
securities which are acquired by (i) an employee benefit plan (or a trust
forming a part thereof) maintained by the Corporation or any subsidiary of
the Corporation, (ii) the Corporation or any subsidiary of the
Corporation, or (iii) any person in connection with a Non-Control
Transaction (as hereinafter defined), will not constitute an acquisition
which results in a change of control;
b. Approval by stockholders of the Corporation of:
(1) a merger, consolidation, or reorganization involving the Corporation,
unless:
(A) the stockholders of the Corporation immediately before such merger,
consolidation, or reorganization will own, directly or indirectly,
immediately following such merger, consolidation, or reorgaruzation, at
least 51% of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger,
consolidation, or reorganization (the 'Surviving Corporation') in substantially
the same proportion as their ownership of the voting securities of the
Corporation immediately before such merger, consolidation, or reorganization;
and
(B) the individuals who were members of the Board immediately prior to the
execution of the agreement providing for such merger, consolidation or
reorganization constitute a majority of the members of the Board of
Directors of the Surviving Corporation; and
(C) no person (other than the Corporation, any subsidiary of the Corporation,
any employee benefit plan (or any trust forming a part thereof)
maintained by the Corporation, the Surviving Corporation, any subsidiary
of the Surviving Corporation, or any person who, immediately prior to
such merger, consolidation, or reorganization, was the beneficial owner
of 20% or more of the then outstanding voting securities of the
Corporation) is the beneficial owner of 20% or more of the combined
voting power of the Surviving Corporation's then outstanding voting
securities;
(D) a transaction described in clauses (A) through (C) above is referred to
herein as a 'Non-Control Transaction;'
(2) the complete liquidation or dissolution of the Corporation; or
(3) an agreement for sale or other disposition of all or substantially all of
the assets of the Corporation to any person (other than a transfer to a
subsidiary of the Corporation).
c. Notwithstanding the foregoing, a change of control will not be deemed to
occur solely because any person (a 'Subject Person') acquires beneficial
ownership of more than the permitted amount of the outstanding voting
securities of the Corporation as a result of the acquisition of voting
securities by the Corporation which, by reducing the number of voting
securities outstanding, increases the proportional number of shares
beneficially owned by the Subject Person, provided that if a change of
control would occur (but for the operation of this sentence) as a result
of the acquisition of voting securities by the Corporation, and after
such share acquisition by the Corporation, the Subject Person becomes the
beneficial owner of any additional voting securities which increases the
percentage of the then outstanding voting securities beneficially owned
by the Subject Person, then a change of control will be deemed to have
occurred.
13. Tax Withholding. The Corporation shall have the right to (i) make
deductions from any settlement of an award under the Plan, including the
delivery or vesting of shares, or require shares or cash or both be
withheld from any award, in each case in an amount sufficient to satisfy
withholding of any federal, state, or local taxes required by law, or (ii)
take such other action as may be necessary or appropriate to satisfy any
such withholding obligations. The Committee may determine the manner in
which such tax withholding may be satisfied, and may permit shares of
Common Stock (rounded up to the next whole number) to be used to satisfy
required tax withholding based on the Fair Market Value of any such shares
of Common Stock, as of the appropriate time of each award.
14. Expenses. The expenses of administering the Plan shall be borne by the
Corporation.
15. Amendments. The Board of Directors of the Corporation shall have
complete power and authority to amend the Plan, provided that the Board
of Directors shall not, without shareholder approval, adopt any
amendment which would (a) increase the number of shares for which
options may be awarded under the Plan, (b) modify the class of employees
eligible to receive awards, (c) extend the period during which incentive
stock options may be awarded, or (d) materially increase the benefits of
employees receiving awards under the Plan. No amendment to the Plan may,
without the consent of the individual to whom the award shall
theretofore have been awarded, adversely affect the rights of an
individual under the award.
16. Effective Date of the Plan. The Plan shall become effective on its
adoption by the Board of Directors of the Corporation on February 5,
1997, subject to approval at the 1997 Annual Meeting of Shareholders.
17. Termination. The Board of Directors of the Corporation may terminate the
Plan or any part thereof at any time, provided that no termination may,
without the consent of the individual to whom any award shall
theretofore have been made, adversely affect the rights of an individual
under the award.
18. Other Actions. Nothing contained in the Plan shall be deemed to preclude
other compensation plans which may be in effect from time to time or be
construed to limit the authority of the Corporation to exercise its
corporate rights and powers, including, but not by way of limitation,
the right of the Corporation (a) to award options for proper corporate
purposes otherwise than under the Plan to an employee or other person,
firm, corporation, or association, or (b) to award options to, or assume
the option of, any person in connection with the acquisition, by
purchase, lease, merger, consolidation, or otherwise, of the business
and assets (in whole or in part) of any person, firm, corporation, or
association.