| (b) | | | | | | | | | | | | | PENSION BENEFITSFOR FISCAL YEAR 2016 | | NAME | | PLAN NAME | | NUMBER OF
YEARS CREDITED
SERVICE | | PRESENT VALUE OF
ACCUMULATED
BENEFIT (a) | | | PAYMENTS DURING
LAST FISCAL YEAR | Ms. Novakovic (b) | | Salaried Retirement Plan | | 13 | | $ | 367,073 | | | None | | | Supplemental Retirement Plan | | 13 | | $ | 1,860,581 | | | | Mr. Aiken (c) | | Salaried Retirement Plan | | 11 | | $ | 176,619 | | | None | | | Supplemental Retirement Plan | | 11 | | $ | 184,277 | | | | Mr. Casey (d) | | Salaried Retirement Plan | | 32 | | $ | 1,149,375 | | | None | | | Supplemental Retirement Plan | | 32 | | $ | 2,720,850 | | | | Mr. Roualet (e) | | Salaried Retirement Plan | | 29 | | $ | 866,300 | | | None | | | Supplemental Retirement Plan | | 29 | | $ | 1,438,835 | | | | Mr. Johnson | | — | | — | | | — | | | — |
(a) | The Present Value of Accumulated Benefit under each plan has been calculated as of December 31, 2016, using the company’s FASB ASC Topic 715,Compensation – Retirement Benefits, assumptions as ofyear-end 2016. For a discussion of this calculation, see Note P to our consolidated financial statements contained in our Annual Report on Form10-K for the year ended December 31, 2016, filed with the SEC on February 6, 2017.
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(b) | Ms. Novakovic’s total service is 16Ms. Novakovic’s total service is 17 years and credited service is 13 years.
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| (c) | Mr. Aiken’s total service is 16 years and credited service is 11 years. |
| (d) | Mr. Casey’s total service is 39 years and credited service is 32 years. |
| (e) | Mr. Roualet’s total service is 36 years and credited service is 29 years. |
(c) | Mr. Aiken’s total service is 15 years and credited service is 11 years.
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(d) | Mr. Casey’s total service is 38 years and credited service is 32 years.
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(e) | Mr. Roualet’s total service is 35 years and credited service is 29 years.
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Salaried Retirement Plan.The General Dynamics Salaried Retirement Plan is atax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the Salaried Retirement Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. All the named executive officers, other than Mr. Johnson, participate in the Salaried Retirement Plan.
Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the Salaried Retirement Plan does not take into account any earnings over a predetermined compensation limit, which was $265,000 for 2016, and does not pay annual benefits beyond a predetermined benefit limit, which for 2016 was $210,000.
Salaried Retirement Plan. The General Dynamics Salaried Retirement Plan is atax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the Salaried Retirement Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. All the named executive officers, other than Mr. Johnson, participate in the Salaried Retirement Plan. Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the Salaried Retirement Plan does not take into account any earnings over a predetermined compensation limit, which was $270,000 for 2017, and does not pay annual benefits beyond a predetermined benefit limit, which was $215,000 for 2017. Beginning January 1, 2014, pension accruals stopped for employees at our corporate headquarters, including the participating named executive officers. The Salaried Retirement Plan pays a monthly benefit equal to the product of (1) the benefit percentage times (2) the final average monthly pay times (3) the years of credited service. For credited service earned prior to January 1, 2007, the benefit percentage equals 1.333 percent. For credited service earned on or after January 1, 2007, the benefit percentage equals 1.0 percent. Final average monthly pay is equal to the average of the participant’s highest 60 consecutive months of pensionable earnings out of the participant’s last 120 months of employment. For credited service earned prior to January 1, 2007, the final average monthly pay used in the benefit calculation froze as of December 31, 2010. The normal retirement age under the Salaried Retirement Plan is age 65. The Salaried Retirement Plan benefit is calculated as a single-life monthly annuity beginning at age 65 and has multiple actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s accrued benefit is less than $5,000. None of the eligible named executive officers had reached the normal retirement age as of December 31, 2017. 48 General Dynamics 2018 Proxy Statement
Executive Compensation A participant with at least 10 years of service qualifies for early retirement at age 55. Ms. Novakovic and Messrs. Casey and Roualet qualified for early retirement as of December 31, 2017. A participant who is eligible for early retirement is entitled to receive the following: | (1) | for benefits based on credited service earned prior to January 1, 2007, if a participant retires between age 55 and 62, his or her age 65 benefit is reduced by 2.5 percent for each full year that he or she retires prior to age 62. If the participant retires between age 62 and 65, he or she will receive 100 percent of his or her age 65 benefit. |
| (2) | for benefits based on credited service earned on or after January 1, 2007, the benefit percentage equals 1.0 percent. Final average monthly pay is equal to the average of the participant’s highest 60 consecutive months of pensionable earnings out of the participant’s last 120 months of employment. For credited service earned prior to January 1, 2007, the final average monthly pay used in the benefit calculation froze as of December 31, 2010. The normal retirement age under the Salaried Retirement Plan is age 65. The Salaried Retirement Plan benefit is calculated as a single-life monthly annuity beginning at age 65 and has multiple actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s accrued benefit is less than $5,000. None of the eligible named executive officers had reached the normal retirement age as of December 31, 2016. General Dynamics 2017 Proxy Statement 55
A participant with at least 10 years of service qualifies for early retirement at age 55. Ms. Novakovic and Messrs. Casey and Roualet qualified for early retirement as of December 31, 2016. A participant who is eligible for early retirement is entitled to receive the following:
| (1) | for benefits based on credited service earned prior to January 1, 2007, if a participant retires between age 55 and 62, his or her age 65 benefit is reduced by 2.5 percent for each full year that he or she retires prior to age 62. If the participant retires between age 62 and 65, he or she will receive 100 percent of his or her age 65 benefit.
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| (2) | for benefits based on credited service earned on or after January 1, 2007, a participant who is eligible for early retirement and subsequently retires between age 55 and 65 will have his or her age 65 benefit reduced by 4.8 percent for each full year that he or she retires prior to age 65.
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Supplemental Retirement Plan.The General Dynamics Corporation Supplemental Retirement Plan is a nonqualified defined-benefit plan that provides retirement benefits to eligible employees whose salaries exceed the Internal Revenue Code compensation limit or whose annual benefits would exceed the Internal Revenue Code benefit limit. All the named executive officers other than Mr. Johnson participate in the Supplemental Retirement Plan. Beginning January 1, 2014, Supplemental Retirement Plan pension accruals stopped for employees at our corporate headquarters, including the named executive officers who participate in the plan. The Supplemental Retirement Plan provides benefits equal to the difference between (1) the amount that would have been provided under the Salaried Retirement Plan if the annual compensation limit and annual benefit limit did not apply, and (2) the benefit actually paid under the Salaried Retirement Plan. A participant’s pensionable earnings and forms of payment are the same under the Supplemental Retirement Plan as the Salaried Retirement Plan. NONQUALIFIED DEFINED-CONTRIBUTION DEFERRED COMPENSATION As part of General Dynamics’ overall retirement program, the named executive officers and other key employees are eligible to participate in a nonqualified defined-contribution plan. The following table illustrates the amounts due each executive as of December 31, 2017. In addition, the table shows contributions made by both the named executive officers and General Dynamics in 2017 along with the earnings on each executive’s total account. | | | | | | | | | | | | | | | | | | | | NONQUALIFIED DEFERRED COMPENSATIONFOR FISCAL YEAR 2017 | | | NAME | | EXECUTIVE CONTRIBUTIONS IN LAST FISCAL YEAR | | | REGISTRANT
CONTRIBUTIONS
IN LAST FISCAL YEAR (a) | | | AGGREGATE
EARNINGS IN LAST
FISCAL YEAR (b) | | | AGGREGATE
WITHDRAWALS/ DISTRIBUTIONS | | AGGREGATE
BALANCEAT
LAST FISCAL
YEAR END (c) | | Ms. Novakovic | | | $158,500 | | | | $31,700 | | | | $136,145 | | | — | | | $1,820,918 | | Mr. Aiken | | | $ 14,200 | | | | $14,200 | | | | $ 28,913 | | | — | | | $ 169,760 | | Mr. Casey | | | $ 75,500 | | | | $15,100 | | | | $ 37,800 | | | — | | | $ 882,640 | | Mr. Roualet | | | $ 75,500 | | | | $15,100 | | | | $169,073 | | | — | | | $1,092,055 | | Mr. Johnson | | | $ 72,500 | | | | $14,500 | | | | $629,927 | | | — | | | $3,527,534 | |
| (a) | The registrant contributions of $31,700, $14,200, $15,100, $15,100 and $14,500, for Ms. Novakovic and Messrs. Aiken, Casey, Roualet and Johnson, respectively, are included in the All Other Compensation column of the Summary Compensation Table. |
| (b) | No amounts shown in the Aggregate Earnings in Last Fiscal Year column are reported as compensation in the Summary Compensation Table. |
| (c) | Certain amounts in the Aggregate Balance at Last Fiscal Year End column were previously reported in the Summary Compensation Table in the Salary column (in the case of executive contributions) or in the All Other Compensation column (in the case of registrant contributions) for the named executive officers other thanofficers. The amounts previously reported as executive and registrant contributions were as follows: (i) Ms. Novakovic, $647,500 and $163,950; (ii) Mr. Aiken, $33,200 and $33,200; (iii) Mr. Casey, $251,000 and $57,225; (iv) Mr. Roualet, $165,500 and $36,600; and (v) Mr. Johnson, participate in the Supplemental Retirement Plan. Beginning January 1, 2014, Supplemental Retirement Plan pension accruals stopped for employees at our corporate headquarters, including the named executive officers who participate in the plan. The Supplemental Retirement Plan provides benefits equal to the difference between (1) the amount that would have been provided under the Salaried Retirement Plan if the annual compensation limit$110,519 and annual benefit limit did not apply, and (2) the benefit actually paid under the Salaried Retirement Plan. A participant’s pensionable earnings and forms of payment are the same under the Supplemental Retirement Plan as the Salaried Retirement Plan.
NONQUALIFIED DEFINED-CONTRIBUTION DEFERRED COMPENSATION
As part of General Dynamics’ overall retirement program, the named executive officers and other key employees are eligible to participate in a nonqualified defined-contribution plan. The following table illustrates the amounts due each executive as of December 31, 2016. In addition, the table shows contributions made by both the named executive officers and General Dynamics in 2016 along with the earnings on each executive’s total account.
| | | | | | | | | | | | | | | | | | | | NONQUALIFIED DEFERRED COMPENSATIONFOR FISCAL YEAR 2016 | | | NAME | | EXECUTIVE CONTRIBUTIONS IN LAST FISCAL YEAR | | | REGISTRANT CONTRIBUTIONS IN LAST FISCAL YEAR (a) | | | AGGREGATE EARNINGS IN LAST
FISCAL YEAR (b) | | | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS | | AGGREGATE BALANCE AT LAST FISCAL YEAR END (c) | | Ms. Novakovic | | $ | 158,500 | | | $ | 31,700 | | | $ | 143,111 | | | — | | $ | 1,494,573 | | Mr. Aiken | | $ | 13,500 | | | $ | 13,500 | | | $ | 9,825 | | | — | | $ | 112,447 | | Mr. Casey | | $ | 72,500 | | | $ | 14,500 | | | $ | 29,100 | | | — | | $ | 754,240 | | Mr. Roualet | | $ | 72,500 | | | $ | 14,500 | | | $ | 177,558 | | | — | | $ | 832,381 | | Mr. Johnson | | $ | 69,577 | | | $ | 13,915 | | | $ | 132,499 | | | — | | $ | 2,810,607 | |
(a) | The registrant contributions of $31,700, $13,500, $14,500, $14,500 and $13,915, for Ms. Novakovic and Messrs. Aiken, Casey, Roualet and Johnson, respectively, are included in the All Other Compensation column of the Summary Compensation Table.
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(b) | No amounts shown in the Aggregate Earnings in Last Fiscal Year column are reported as compensation in the Summary Compensation Table.
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(c) | Certain amounts in the Aggregate Balance at Last Fiscal Year End column were previously reported in the Summary Compensation Table in the Salary column (in the case of executive contributions) or in the All Other Compensation column (in the case of company contributions) for the named executive officers. The amounts previously reported as executive and registrant contributions were as follows: (i) Ms. Novakovic, $489,000 and $132,250; (ii) Mr. Aiken, $19,700 and $19,700; (iii) Mr. Casey, $178,500 and $42,725; (iv) Mr. Roualet, $93,000 and $22,100; and (v) Mr. Johnson, $40,942 and $8,188.$22,103.
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General Dynamics Corporation Supplemental Savings Plan.The Supplemental Savings Plan is a nonqualified defined-contribution plan that provides key employees, including the named executive officers, the opportunity to defer a portion of their salary without regard to the limitations imposed by the Internal Revenue Code on the 401(k) Plan and receive employer matching contributions on a portion of the contributions. Effective January 1, 2014, for those who elect to participate in the Supplemental Savings Plan, a participant may contribute between 1 percent and 10 percent of the participant’s base salary to the plan. The company will match the participant’s contributions for the first 2 percent of the participant’s base salary on adollar-for-dollar basis. Investment performance mirrors the performance of the funds that are available to participants under the 401(k) Plan. 56 General Dynamics 20172018 Proxy Statement 49
Supplemental Savings Plan participants, including the named executive officers, do not receive any earnings on their Supplemental Savings Plan accounts that are not otherwise paid to all other 401(k) Plan participants with a balance in the same investment fund. Participants receivelump-sum payments six months after their separation from service for balances (including earnings) accumulated on or after January 1, 2005. For balances accumulated prior to January 1, 2005, payment is made as soon as possible after termination and participants will receive alump-sum payment unless they have previously elected to receive a deferredlump-sum payment or annual installment payments. Anteon International Corporation Supplemental Retirement Savings Plan.Mr. Johnson has an account balance under the frozen Anteon International Corporation Supplemental Retirement Savings Plan. Under the plan, certain eligible employees of Anteon could defer receipt of all or a portion of their annual cash compensation prior to the plan being frozen in 2007. Upon his retirement or other separation from the company, Mr. Johnson may elect to receive the deferred compensation in either a lump sum or in annual installments over a period of up to ten years. POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL The following are estimated payments and benefits that would be provided to the named executive officers in the event of termination of the executive’s employment assuming a termination date of December 31, 2016.As discussed below, in 2016 we amended our severance protection agreements to eliminate excise tax gross-up provisions.2017. We have calculated these amounts for different termination scenarios based on our existing benefit plans and the General Dynamics Corporation equity compensation plan currently in effect (the Equity Compensation Plan). The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics and, depending on the payment or benefit, may extend over several years. For each termination and change in control scenario discussed below, the named executive officer would also be entitled to: | | (1) | the pension benefits described in the Pension Benefits for Fiscal Year 20162017 table, on page 55 of this Proxy Statement, for those named executive officers who are eligible to receive benefits; and |
| | (2) | the amounts listed in the Nonqualified Deferred Compensation for Fiscal Year 2016 table on page 56 of this Proxy Statement.2017 table. |
The estimated totals presented in the table on the next page do not include these pension benefit and nonqualified deferred compensation amounts, nor do the totals include items that are provided to all employees, such as payment of accrued vacation. Change in Control Agreements – Double Trigger.For a change in control situation, we have change in control agreements (also referred to as severance protection agreements) with key employees, including each of the named executive officers. We have estimated the payments and benefits the named executive officers could receive under our existing benefit plans, change in control agreements and the equity compensation plans. Our calculations assume the executive was terminated on December 31, 2016,2017, and that this date was within 24 months following a change in control, thereby satisfying the “double-trigger” requirement under the change in control agreements. The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics and depending on the payment or benefit may extend over several years. As discussed on page 41 of this Proxy Statement under “Compensation Discussion and Analysis – Potential Severance and Change in Control Benefits” the change in control agreements contain a “double-trigger” mechanism that is triggered only under certain circumstances. In 2016, we amended any severance protections agreements that contained a provision for the reimbursement of taxes that may be imposed under the change in control excise tax provisions of Section 280G and Section 4999 of the Internal Revenue Code, including the Our severance protection agreement with Ms. Novakovic. The amended severance protectionagreements do not provide for excise taxgross-ups. Rather, the agreements provide that, in the event change in control benefits would trigger an excise tax under Section 280G and Section 4999, then the value of the benefits will be either (1) delivered in full or (2) subject to a cutback, whichever provides the executive officer the greatest benefit on anafter-tax basis (with the excise tax being the responsibility of the executive to pay).
50 General Dynamics 20172018 Proxy Statement 57
| | POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL | POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL | | POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL | | | SCENARIOAND PAYMENT TYPE | | MS. NOVAKOVIC | | | MR. AIKEN | | | MR. CASEY | | | MR. ROUALET | | | MR. JOHNSON | | | MS. NOVAKOVIC | | | MR. AIKEN | | | MR. CASEY | | | MR. ROUALET | | | MR. JOHNSON | | | | Termination For Cause or Voluntary Resignation | Termination For Cause or Voluntary Resignation | | | | | | | | | | Termination For Cause or Voluntary Resignation | | | | | | | | | | Retiree Life Insurance Benefit (a) | | $ | 433,328 | | | $ | — | | | $ | 245,145 | | | $ | 244,154 | | | $ | — | | | | $ 475,732 | | | | $ — | | | | $ 269,040 | | | | $ 272,216 | | | | $ 310,831 | | Retiree Medical and Dental Benefit (b) | | | 67,740 | | | | — | | | | 81,899 | | | | 130,024 | | | | — | | | | 52,457 | | | | — | | | | 66,097 | | | | 118,170 | | | | — | | Stock Options | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Restricted Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | PRSUs | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Total | | $ | 501,068 | | | $ | — | | | $ | 327,044 | | | $ | 374,178 | | | $ | — | | | | $ 528,189 | | | | $ — | | | | $ 335,137 | | | | $ 390,386 | | | | $ 310,831 | | | | Death (c) | | | | | | | | | | | | | | | | | | | | | Life Insurance Benefit | | $ | 3,170,000 | | | $ | 1,420,000 | | | $ | 1,510,000 | | | $ | 1,510,000 | | | $ | 1,450,000 | | | | $ 3,170,000 | | | | $ 1,540,000 | | | | $ 1,560,000 | | | | $ 1,560,000 | | | | $ 1,560,000 | | Stock Options (d) (e) | | | 20,709,859 | | | | 4,231,654 | | | | 4,427,940 | | | | 4,391,498 | | | | 4,034,861 | | | | 32,428,743 | | | | 6,760,422 | | | | 7,168,595 | | | | 7,101,671 | | | | 6,505,709 | | Restricted Stock (d) (f) | | | 22,007,312 | | | | 3,071,696 | | | | 4,391,571 | | | | 3,316,497 | | | | 2,637,532 | | | | 19,960,970 | | | | 4,109,588 | | | | 4,181,813 | | | | 3,981,431 | | | | 3,270,420 | | PRSUs (d) (g) | | | 14,566,517 | | | | 2,851,842 | | | | 2,864,900 | | | | 2,544,972 | | | | 1,593,914 | | | | 22,104,708 | | | | 4,392,683 | | | | 4,433,619 | | | | 4,044,249 | | | | 2,838,992 | | Total | | $ | 60,453,688 | | | $ | 11,575,192 | | | $ | 13,194,411 | | | $ | 11,762,967 | | | $ | 9,716,307 | | | | $ 77,664,421 | | | | $16,802,693 | | | | $17,344,027 | | | | $16,687,351 | | | | $14,175,121 | | | | Retirement, Termination without Cause or Disability (c) | Retirement, Termination without Cause or Disability (c) | | | | | | | | | | Retirement, Termination without Cause or Disability (c) | | | | | | | | | | Retiree Life Insurance Benefit (a) | | $ | 433,328 | | | $ | — | | | $ | 245,145 | | | $ | 244,154 | | | $ | — | | | | $ 475,732 | | | | $ — | | | | $ 269,040 | | | | $ 272,216 | | | | $ 310,831 | | Retiree Medical and Dental Benefit (b) | | | 67,740 | | | | — | | | | 81,899 | | | | 130,024 | | | | — | | | | 52,457 | | | | — | | | | 66,097 | | | | 118,170 | | | | — | | Stock Options (h) (e) | | | 14,288,823 | | | | 2,859,300 | | | | 2,875,205 | | | | 2,299,548 | | | | 2,674,809 | | | Restricted Stock (h) (f) | | | 21,701,455 | | | | 3,008,410 | | | | 4,323,855 | | | | 3,249,530 | | | | 2,576,506 | | | Stock Options (e) (h) | | | | 23,351,475 | | | | 4,810,871 | | | | 5,066,053 | | | | 5,021,569 | | | | 4,606,089 | | Restricted Stock (f) (h) | | | | 19,539,274 | | | | 4,019,044 | | | | 4,088,140 | | | | 3,888,372 | | | | 3,183,508 | | PRSUs (g) (h) | | | 14,566,517 | | | | 2,851,842 | | | | 2,864,900 | | | | 2,544,972 | | | | 1,593,914 | | | | 22,104,708 | | | | 4,392,683 | | | | 4,433,619 | | | | 4,044,249 | | | | 2,838,992 | | Total | | $ | 51,057,863 | | | $ | 8,719,552 | | | $ | 10,391,004 | | | $ | 8,468,228 | | | $ | 6,845,229 | | | | $ 65,523,646 | | | | $13,222,598 | | | | $13,922,949 | | | | $13,344,576 | | | | $10,939,420 | | | | Change in Control, with Qualifying Termination | | | | | | | | | | | | | | | | | | | | | Annual Incentive (i) | | $ | 4,850,000 | | | $ | 900,000 | | | $ | 1,020,000 | | | $ | 995,000 | | | $ | 850,000 | | | | $ 5,150,000 | | | | $ 1,200,000 | | | | $ 1,400,000 | | | | $ 1,400,000 | | | | $ 1,250,000 | | Severance (j) | | | 19,240,650 | | | | 4,813,900 | | | | 5,307,250 | | | | 5,232,500 | | | | 4,709,250 | | | | 20,137,650 | | | | 5,890,300 | | | | 6,518,200 | | | | 6,518,200 | | | | 6,069,700 | | Life, medical, dental and long-term disability benefits (k) | | | 59,845 | | | | 61,138 | | | | 77,601 | | | | 78,880 | | | | 85,654 | | | | 58,364 | | | | 63,092 | | | | 79,572 | | | | 80,942 | | | | 89,298 | | Retiree life, medical and dental benefits (l) | | | 411,542 | | | | — | | | | 238,454 | | | | 310,026 | | | | — | | | | 440,120 | | | | — | | | | 260,458 | | | | 318,816 | | | | 293,289 | | Outplacement services (m) | | | 15,000 | | | | 15,000 | | | | 15,000 | | | | 15,000 | | | | 15,000 | | | | 10,000 | | | | 10,000 | | | | 10,000 | | | | 10,000 | | | | 10,000 | | Financial counseling and tax planning services (n) | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | Supplemental retirement benefit (o) | | | 121,235 | | | | 68,033 | | | | 71,654 | | | | 71,097 | | | | — | | | | 122,233 | | | | 71,238 | | | | 74,040 | | | | 74,040 | | | | — | | Stock Options (p) | | | 20,716,790 | | | | 4,233,014 | | | | 4,429,255 | | | | 4,392,813 | | | | 4,036,111 | | | | 32,428,743 | | | | 6,760,422 | | | | 7,168,595 | | | | 7,101,671 | | | | 6,505,709 | | Restricted Stock (p) | | | 22,052,135 | | | | 3,080,254 | | | | 4,400,240 | | | | 3,323,705 | | | | 2,640,835 | | | | 19,961,497 | | | | 4,109,690 | | | | 4,181,915 | | | | 3,981,517 | | | | 3,270,459 | | PRSUs (p) | | | 19,104,286 | | | | 3,785,574 | | | | 3,854,238 | | | | 3,524,378 | | | | 2,490,092 | | | | 26,654,815 | | | | 5,409,944 | | | | 5,484,062 | | | | 5,088,696 | | | | 3,822,461 | | Total | | $ | 86,601,483 | | | $ | 16,986,913 | | | $ | 19,443,692 | | | $ | 17,973,399 | | | $ | 14,856,942 | | | | $104,993,422 | | | | $23,544,686 | | | | $25,206,842 | | | | $24,603,882 | | | | $21,340,916 | |
| (a) | Assumes the executive elects the maximum oftwo-times-pay coverage at retirement. The estimated cost is calculated using the assumptions made for financial reporting purposes for valuing post-retirement life insurance at December 31, 2016.2017. The life insurance benefit is further described on page 40 of this Proxy Statement under “Compensation Discussion and Analysis – Other Retiree Benefits.” |
| (b) | The estimated cost for this coverage is based on the difference between the COBRA rate that the executive would pay and the higher expense we must recognize for financial reporting purposes. We provide retiree medical and dental coverage only until an executive reaches age 65. |
| (c) | In situations where an executive has completed a full calendar year of service to the company, for certain termination scenarios not involving a change in control, the executive may remain eligible for an annual incentive for performance during the year, though whether a bonus is paid in the future, and the amount, if any, would be subject to Compensation Committee approval. No future bonus payment is guaranteed and the amount of any bonus would be determined as described in the Compensation Discussion and Analysis section. The named executive officerofficers may also be eligible for $2 million of proceeds under accidental death and dismemberment insurance, depending upon the circumstances. |
| (d) | Under the terms of the Equity Compensation Plan, unvested stock options held by the executive would be treated as if the executive remained employed with General Dynamics throughout the option term. The options would be exercisable by the executive’s estate in accordance with the terms of the original option grant. Restricted stock held by the executive would be transferred to the estate and released at the end of the restriction period. PRSUs granted in 2014 and 2015 and held by |
58 General Dynamics 2017 Proxy Statement
| the executive would be transferred to the estate and released immediately. PRSUs granted in 20152016 and 2016 |
General Dynamics 2018 Proxy Statement 51
Executive Compensation | 2017 would be evaluated for achievement relative to goals and if earned, a pro rata amount (determined as set forth in the respective award agreements) will vest and be released within two andone-half months following the respective scheduled vesting date. For the 2015, 2016 and 20162017 grants, the unvested stock options vest immediately and the restricted stock held by the executive would be transferred to the estate and released at the time of death. |
| (e) | The present value of the unvested options reflected in the table represents the difference between the closing share price of $172.66$203.45 on December 31, 2016,29, 2017, and the option grant price, multiplied by the number of retained unvested options, and applying a discount factor to account for the option exercise dates. In the case of death, the present value of the unvested options for shares granted in 2015, 2016 and 20162017 does not apply a discount factor to account for the option exercise dates due to immediate vesting. |
| (f) | The present value of the restricted stock represents the number of restricted shares held on December 31, 2016,2017, multiplied by the closing share price of $172.66$203.45 on the same date,December 29, 2017, and applying a discount factor to account for the restriction periods. |
| (g) | The present value of the PRSUs represents the number of earned units as of December 31, 2016,2017, multiplied by the closing share price of $172.66$203.45 on the same date.December 29, 2017. |
| (h) | Under the terms of the Equity Compensation Plan, most participants qualify for retirement treatment after reaching age 55 with at least five years of continuous service with the company. For participants who are elected officers of the company and who have reached age 55, the plan provides for retirement treatment with the consent of the company’s chief executive officer or, in the case of the chief executive officer, the Compensation Committee. For purposes of this Proxy Statement, we assume that any required consents for retirement treatment have been obtained. Since Ms. Novakovic and Messrs. Casey, Roualet and Johnson are eligible to retire, they would forfeit a portion of their unvested stock option awards based on days of service during the three-year period beginning on January 1 of the year of grant.grant for options granted before 2017 and as of the grant date for options granted in 2017. The retained options would be exercisable in accordance with the terms of the original grant. The restricted stock would be released at the end of the original restriction period. The PRSUs would be prorated (as set forth in the respective award agreements) and will be released within two and one halfone-half months following their respective scheduled vesting date, if earned based on the applicable performance goals. Because Mr. Aiken was not eligible to retire at December 31, 2016,2017, the equity values in these scenarios would apply only in the case of disability. |
| (i) | Any annual incentive amount paid in a change in control situation would be determined in accordance with the terms of the applicable change in control agreement. Since we assume that a change in control and triggering event had occurred on December 31, 2016,2017, the change in control scenarios identify the March 2016 annual incentive2017 bonus amounts. |
| (j) | Calculated in accordance with the applicable change in control agreement. For the named executive officers, this amount equals 2.99 times their annual salary and annual incentive. |
| (k) | Represents an additional 36 months of life, medical, dental and long-term disability benefits. These costs reflect an amount equal to three times the 20162017 annual employer premiums for these benefits. |
| (l) | The costs of Ms. Novakovic’s, Mr.Messrs. Casey’s, Roualet’s, and Mr. Roualet’sJohnson’s retiree benefits are reduced in this scenario because the 36 months of continued active coverage described in noteNote (k) defers the commencement date of this coverage. |
| (m) | Represents the estimated outplacement services costs, obtained from an outplacement vendor, for 12 months for a senior executive. |
| (n) | Represents financial counseling and tax planning services for 36 months following the termination date, at a total cost not to exceed $30,000 for each named executive officer. |
| (o) | Represents a supplemental retirement benefit payable in cash equal to company contributions to each defined-contribution plan in which the executive participates. |
| (p) | Our Equity Compensation Plan and the applicable award agreements contain a “double-trigger”“double trigger” mechanism for all participants, including the named executive officers. This mechanism provides that if, within two years following a change in control, a participant’s employment is terminated by the company for any reason other than for Cause (as defined in the plan) or by the executive for Good Reason (as defined in the plan), then all outstanding awards that have not vested will immediately vest and become exercisable and all restrictions on awards will immediately lapse. |
52 General Dynamics 20172018 Proxy Statement 59
PAY RATIO RESULTS The chief executive officer pay ratio figures below are a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K under the Exchange Act. We determined that as of October 1, 2017, our total number of U.S. employees was approximately 85,968 and our total number ofnon-U.S. employees was approximately 12,560. We excluded from this employee population a total of 4,727 employees from: Mexico (1,919), United Kingdom (1,484), Germany (458), Austria (189), United Arab Emirates (187), Saudi Arabia (141), Turkey (120), Italy (109), Estonia (79), India (33), China (5) and Czechia (3) as the total number of employees from thesenon-U.S. jurisdictions was less than 5 percent of our total employee population. We also excluded employees from our 2017 acquisition of SC3 LLC (500). To determine our median employee pay, we chose base salary as our consistently applied compensation measure. We then calculated an annual base salary for each employee, annualizing pay for those employees who commenced work during 2017 and any employees who were on leave for a portion of 2017. For hourly employees, we used a reasonable estimate of hours worked to determine annual base pay. We used a clustered sampling methodology to identify the median base salary within this employee population. Total annual compensation for the median employee was valued at $98,563 and total annual compensation for the chief executive officer was valued at $21,501,429, resulting in a ratio of median employee total annual compensation to chief executive officer total annual compensation of 1:218. Total annual compensation for the median employee and the chief executive officer is calculated according to the disclosure requirements of the Summary Compensation Table and includes base salary, annual incentive, equity awards, change in pension values and other compensation such as perquisites. COMPENSATION COMMITTEE REPORT The following Compensation Committee Report 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 or the Exchange Act, and shall not otherwise be deemed filed under such acts. COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the following report. The following sixfour directors serve on the Compensation Committee: William A. Osborn (Chair), Mary T. Barra, James S. Crown, Rudy F. deLeon William P. Fricks and Laura J. Schumacher. None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange. The Compensation Committee is governed by a written charter approved by the Board. In accordance with that charter, the Compensation Committee is responsible for evaluating the performance of the chief executive officer and other General Dynamics officers as well as reviewing and approving their compensation. The Committee also establishes and monitors company-wide compensation programs and policies, including the incentive compensation plans. The Committee’s processes and procedures for the consideration and determination of executive compensation are explained in greater detail in the Compensation Discussion and Analysis section of this Proxy Statement. The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement in accordance with Item 407(e) of RegulationS-K. This report is submitted by the Compensation Committee. William A. Osborn (Chair) Mary T. Barra
James S. Crown Rudy F. deLeon William P. Fricks
Laura J. Schumacher February 28, 2017March 6, 2018
60 General Dynamics 20172018 Proxy Statement 53
SECURITY OWNERSHIPOF MANAGEMENT The following table provides information as of March 6, 2017,8, 2018, on the beneficial ownership of Common Stock by (1) each of our directors and nominees for director, (2) each of the named executive officers and (3) all of our directors and executive officers as a group. The following table also shows Common Stock held by these individuals through company-sponsored benefits programs. Except as otherwise noted, the persons listed below have the sole voting and investment power for all shares held by them, except for such power that may be shared with a spouse. | NAMEOF BENEFICIAL OWNER | | COMMON STOCK BENEFICIALLY OWNED (a) | | | COMMON STOCK
EQUIVALENTS BENEFICIALLY OWNED
(c) | | | TOTAL COMMON STOCKAND EQUIVALENTS | | | COMMON STOCK BENEFICIALLY OWNED(a) | | | COMMON STOCK
EQUIVALENTS BENEFICIALLY OWNED
(b) | | | TOTAL COMMON
STOCKAND
EQUIVALENTS | | | | SHARES OWNED (b) | | | PERCENTAGE OF CLASS | | | | SHARES OWNED | | | OPTIONS EXERCISABLE
WITHIN 60 DAYS | | | PERCENTAGE OF CLASS | | | Directors and Nominees | | | | | | | | | Directors and Nominees | | Mary T. Barra | | | 28,746 | | | | | * | | | 0 | | | | 28,746 | | | Nicholas D. Chabraja | | | 660,165 | | | | | * | | | 0 | | | | 660,165 | | | | 636,328 | | | | 20,060 | | | | | * | | | 0 | | | | 656,388 | | James S. Crown (d) | | | 16,039,599 | | | | 5.3 | % | | | 2,938 | | | | 16,042,537 | | | James S. Crown (c) | | | | 15,606,501 | | | | 20,060 | | | | 5.2 | % | | | 2,988 | | | | 15,629,549 | | Rudy F. deLeon | | | 3,253 | | | | | * | | | 0 | | | | 3,253 | | | | 2,516 | | | | 4,180 | | | | | * | | | 0 | | | | 6,696 | | William P. Fricks | | | 56,085 | | | | | * | | | 0 | | | | 56,085 | | | John M. Keane | | | 32,580 | | | | | * | | | 0 | | | | 32,580 | | | | 14,380 | | | | 20,060 | | | | | * | | | 0 | | | | 34,440 | | Lester L. Lyles | | | 32,207 | | | | | * | | | 0 | | | | 32,207 | | | | 7,662 | | | | 20,060 | | | | | * | | | 0 | | | | 27,722 | | Mark M. Malcolm | | | 1,120 | | | | | * | | | 0 | | | | 1,120 | | | | 1,455 | | | | 2,215 | | | | | * | | | 0 | | | | 3,670 | | Phebe N. Novakovic | | | 1,725,998 | | | | | * | | | 0 | | | | 1,725,998 | | | | 424,592 | | | | 1,608,340 | | | | | * | | | 0 | | | | 2,032,932 | | C. Howard Nye | | | | 0 | | | | 0 | | | | | * | | | 0 | | | | 0 | | William A. Osborn | | | 42,605 | | | | | * | | | 0 | | | | 42,605 | | | | 25,775 | | | | 20,060 | | | | | * | | | 0 | | | | 45,835 | | Catherine B. Reynolds | | | 0 | | | | | * | | | 0 | | | | 0 | | | | 844 | | | | 0 | | | | | * | | | 0 | | | | 844 | | Laura J. Schumacher | | | 9,113 | | | | | * | | | 0 | | | | 9,113 | | | | 4,058 | | | | 8,580 | | | | | * | | | 0 | | | | 12,638 | | Peter A. Wall | | | 590 | | | | | * | | | 0 | | | | 590 | | | | 1,226 | | | | 0 | | | | | * | | | 0 | | | | 1,226 | | | | | | | | | | | | | | | | | | | | | | Other Named Executive Officers | Other Named Executive Officers | | Other Named Executive Officers | | Jason W. Aiken | | | 205,057 | | | | | * | | | 0 | | | | 205,057 | | | | 67,531 | | | | 172,710 | | | | | * | | | 0 | | | | 240,241 | | John P. Casey | | | 247,035 | | | | | * | | | 0 | | | | 247,035 | | | | 96,055 | | | | 174,830 | | | | | * | | | 0 | | | | 270,885 | | Mark C. Roualet | | | 323,721 | | | | | * | | | 0 | | | | 323,721 | | | | 121,982 | | | | 224,570 | | | | | * | | | 0 | | | | 346,552 | | S. Daniel Johnson | | | 87,418 | | | | | * | | | 0 | | | | 87,418 | | | | 70,296 | | | | 77,810 | | | | | * | | | 0 | | | | 148,106 | | | | | | | | | | | | | | | | | | | | | | Directors and Executive Officers as a Group | Directors and Executive Officers as a Group | | Directors and Executive Officers as a Group | | (24 individuals) | | | 20,623,691 | | | | 6.7 | % | | | 2,938 | | | | 20,626,629 | | | (25 individuals) | | | | 17,506,616 | | | | 3,168,115 | | | | 6.9 | % | | | 2,988 | | | | 20,677,719 | |
| (a) | Includes shares in the 401(k) Plan voted by the executive officers and shares of Common Stock subject to resale restrictions, for which restrictions have not expired. |
| (b) | Includes shares subject to options that are either currently exercisable or exercisable within 60 days of March 6, 2017, as follows: (i) Ms. Novakovic – 1,378,015 shares; Mr. Aiken – 164,985 shares; Mr. Casey – 149,015 shares; Mr. Roualet – 227,350 shares; and Mr. Johnson – 22,420 shares; (ii) other directors of the company – 136,555 shares; and (iii) other executive officers of the company – 775,770 shares.
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(c) | Reflects phantom stock units that were received on December 1, 1999, upon termination of benefits under the former retirement plan for directors and additional phantom stock units resulting from the reinvestment of dividend equivalents on the phantom stock units. |
(d)(c) | Based solely on information provided on behalf of Mr. Crown. Of the 16,042,53715,606,501 shares of Common Stock shown as beneficially owned by Mr. Crown, (i) he disclaims beneficial ownership as to 15,945,14815,528,880 shares, except to the extent of his beneficial interest in entities that own these shares; and (ii) a total of 504,800501,892 shares held indirectly by entities in which Mr. Crown holds interests are pledged as collateral for bank borrowings (and for which Mr. Crown disclaims beneficial ownership). |
54 General Dynamics 20172018 Proxy Statement 61
SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS Except as otherwise noted, the following table provides information as of March 6, 2017,8, 2018, with respect to the number of shares of Common Stock owned by each person known by General Dynamics to be the beneficial owner of more than 5 percent of our Common Stock. | | | | COMMON STOCK BENEFICIALLY OWNED (a) | | | COMMON STOCK BENEFICIALLY OWNED (a) | NAMEOF BENEFICIAL OWNER | | SHARES OWNED | | | PERCENTAGE OF CLASS | | | SHARES OWNED | | PERCENTAGE OF CLASS | | Longview Asset Management, LLC (b) 222 North LaSalle Street Chicago, Illinois 60601 | | | 33,387,811 | | | | 11.0 | % | | | 32,678,651 | | | | 11.0 | % | | Evercore Trust Company, N.A. (c) 55 East 52nd Street, 36th Floor New York, New York 10055 | | | 22,134,047 | | | | 7.3 | % | | Newport Trust Company (c) 570 Lexington Avenue, Suite 1903
New York, New York 10022 | | | | 20,956,808 | | | | 7.0 | % | | The Vanguard Group (d) 100 Vanguard Blvd. Malvern, Pennsylvania 19355 | | | 18,905,640 | | | | 6.2 | % | | | 20,420,815 | | | | 6.9 | % | | Capital Research Global Investors (e) 333 South Hope Street Los Angeles, California 90071 | | | 16,086,509 | | | | 5.3 | % | | | 18,202,422 | | | | 6.1 | % | | BlackRock, Inc. (f) 55 East 52nd Street New York, New York 10055 | | | 15,509,208 | | | | 5.1 | % | | | 16,670,214 | | | | 5.6 | % |
| (a) | Share information for The Vanguard Group, Capital Research Global Investors and BlackRock, Inc. is as of December 31, 2016.2017. |
| (b) | This information is based solely on information provided by Longview Asset Management, LLC (Longview). Longview manages investment portfolios for clients who own Common Stock, which include accounts of clients related to Mr. Crown. Pursuant to its investment advisory agreements, Longview has voting and dispositive power over the Common Stock held in its clients’ accounts and is deemed to beneficially own 33,387,81132,678,651 shares of Common Stock, including the 15,945,14815,528,880 shares included in Mr. Crown’s beneficial ownership amount for which he disclaims beneficial ownership. Clients of Longview disclaim that they are a group for purposes of Section 13(d) of the Exchange Act, and disclaim that any one of them is the beneficial owner of shares owned by any other person or entity. |
| (c) | EvercoreNewport Trust Company N.A. (Evercore)(Newport) is the independent fiduciary and investment manager for the assets of the General Dynamics Stock Fund under the General Dynamics Corporation 401(k) Plan Master Trust. EvercoreNewport has shared voting power over the shares held in the General Dynamics Stock Fund. Share information for EvercoreNewport is based solely on information provided on behalf of Evercore.Newport.
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| (d) | This information is based solely on information contained in a Schedule 13G filed by The Vanguard Group with the SEC on February 13, 2017.9, 2018. |
| (e) | This information is based solely on information contained in a Schedule 13G filed by Capital Research Global Investors with the SEC on February 13, 2017.14, 2018. |
| (f) | This information is based solely on information contained in a Schedule 13G filed by BlackRock, Inc. with the SEC on January 24, 2017.25, 2018. |
EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2016,2017, regarding Common Stock that may be issued under our equity compensation plans. | | | | (A) | | | (B) | | | (C) | | | (A) | | | (B) | | | (C) | | PLANCATEGORY | | NUMBER OF SECURITIES TO BE ISSUEDUPONTHEEXERCISE OFOUTSTANDINGOPTIONS, WARRANTSANDRIGHTS | | | WEIGHTED-AVERAGE EXERCISEPRICEOF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | | | NUMBEROFSECURITIESREMAINING AVAILABLEFORFUTUREISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (A)) | | | NUMBER OF SECURITIES TO BE
ISSUEDUPONTHEEXERCISE
OFOUTSTANDINGOPTIONS,
WARRANTSANDRIGHTS | | | WEIGHTED-AVERAGE
EXERCISEPRICEOF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS | | | NUMBER OF SECURITIES REMAINING
AVAILABLEFORFUTUREISSUANCE
UNDER EQUITY COMPENSATION PLANS
(EXCLUDING SECURITIES REFLECTED IN
COLUMN (A)) | Equity compensation plans approved by shareholders | | | 10,934,621 | | | | $108.23 | | | | 7,729,290 | | | | 10,620,389 | | | $ | 126.08 | | | 5,678,577 | Equity compensation plans not approved by shareholders | | | — | | | | — | | | | — | | | | — | | | | — | | | — | Total | | | 10,934,621 | | | | $108.23 | | | | 7,729,290 | | | | 10,620,389 | | | $ | 126.08 | | | 5,678,577 |
62 General Dynamics 20172018 Proxy Statement 55
ASPPROVALOFTHE
GENERAL DYNAMICS CORPORATION AMENDEDAND RESTATED
2012 EQUITY COMPENSATIONHAREHOLDER PLANROPOSAL – SPECIAL SHAREHOLDER MEETINGS
(PROPOSAL 5)4) TheWe have been advised by John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, owner of at least 100 shares of Common Stock, that he intends to present the following shareholder proposal at the Annual Meeting. We are not responsible for the accuracy or content of the proposal and supporting statement, presented below, as received from the proponent. Our reasons for opposing the proposal are also presented below.
PROPOSALAND SUPPORTING STATEMENT Proposal 4 – Special Shareholder Meeting Improvement Resolved, Shareowners ask our board to take the steps necessary (unilaterally if possible) to amend our bylaws and each appropriate governing document to give holders in the aggregate of 10% of our outstanding common stock the power to call a special shareowner meeting. This proposal does not impact our board’s current power to call a special meeting. Scores of Fortune 500 companies allow a more reasonable 10% of shares to call a special meeting compared to General Dynamics. General Dynamics Corporation 2012 Equity Compensation Plan (the 2012 Plan), providesshareholders do not have the company withfull right to call a critical means of attracting, retainingspecial meeting that is available under Delaware law. Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. This proposal topic won more than 70%-support at Edwards Lifesciences and motivating executives, key employees andnon-employee directors through the issuance of equity compensation awards. Equity compensation awards provide participants with incentives to enhance the long-term growth and profitability of General Dynamics and align management’s interests with the interestsSunEdison in 2013. A more user-friendly ability of shareholders consistent withto call a special meeting could give shareholders greater standing to improve the fundamental philosophymakeup of our compensation program. This alignmentboard of directors after the 2018 annual meeting. For instance, James Crown was Lead Director in spite of30-years long-tenure. Long-tenure can impair the independence of a director no matter how well qualified. Independence is anall-important qualification for a Lead Director. A Lead Director needs to be more independent than any other director. Other directors with shareholders is further enhanced by our rigorous stock ownership guidelines for executives. We strongly believe that equity compensation awards under the 2012 Plan are an essential part of our executive compensation program, and that our executive compensation program, together with our emphasis on executive stock ownership, contributes to the superior performance of our company. In May 2012, shareholders originally approved the adoption of the 2012 Plan. The 2012 Plan has not been amended since it received shareholder approval. The 2012 Plan is the only currently active equity compensation plan at the company. We have prudently and responsibly used shares available under the 2012 Plan and, as of March 6, 2017, there were 5,197,476 shares remaining available for issuance under the 2012 Plan. On March 1, 2017, the Board of Directors approved, subject to shareholder approval at the 2017 Annual Meeting, an amendment and restatement of the 2012 Plan, and the amended and restated 2012 Plan is now being submitted to shareholders to request approval of the following changes:long-tenure were:
• | | Request to Add to Share Reserve.To avoid exhausting the reserve of remaining shares of Common Stock available for issuance under the 2012 Plan and to ensure a sufficient number of shares of Common Stock remains available for issuance for the company’s future equity compensation needs, we propose to increase the existing share reserve under the 2012 Plan by 24,000,000 shares of Common Stock. If shareholders approve the increase in the share reserve, a total of 42,250,000 shares would be authorized under the amended and restated 2012 Plan, of which 29,197,476 would be available for future issuance. The size of the share request is based on an analysis of historical equity compensation usage at both the company and its peer companies. The size of the request and the historic usage of shares are well with industry norms. The Compensation Committee has taken several actions in recent years to manage dilution levels. As detailed on page 48 of this Proxy Statement, as a result of these efforts, dilution and the one- and three-year burn rates have steadily decreased since 2013. We expect future dilution and grant rate levels to remain within industry norms.
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• | | Extension of the Term of the 2012 Plan.We propose to extend the term of the 2012 Plan to May 3, 2027 (the tenth anniversary of the 2017 Annual Meeting).
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• | | Adoption of an Annual Cap on Equity Awards toNon-Employee Directors.We propose to implement an annual grant date fair value limit of $400,000on the annual value of equity awards granted tonon-employee directors under the 2012 Plan. This limit is below both the median and average limits at Fortune 500 companies who have included director-specific annual dollar-based limits in their equity compensation plans.
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• | | Re-Approval of the Section 162(m) Performance Goals and Annual Grant Limitations.We propose there-approval of the material terms of the performance goals (including the annual per participant grant limitations) under the 2012 Plan for purposes of preserving the ability to grant awards to Section 162(m) covered executives under the 2012 Plan that are intended to qualify as performance-based compensation that is deductible under Section 162(m) of the Internal Revenue Code. Under Section 162(m) of the Internal Revenue Code, we must seek shareholder approval of the performance goals (including the annual per participant grant limitations) under the 2012 Plan every five years in order to preserve eligibility to qualify for the performance-based compensation exception under Section 162(m) of the Internal Revenue Code.
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We are not seeking to make any other material changes to the 2012 Plan that would require shareholder approval. The Board of Directors has also adopted other modifications to the 2012 Plan, as amended and restated, which do not require shareholder approval, to reflect best market practices. These modifications include:
Compensation Recoupment Policy.An express compensation recoupment, or clawback, provision that provides that a participant’s rights with respect to awards are subject to any right that the company has under its existing compensation recoupment policy or under any applicable securities regulation or exchange listing rule.
General Dynamics 2017 Proxy Statement 63
• | | Two-Year Minimum Vesting Period for Stock Options and Stock Appreciation Rights.An increase in the minimum vesting period for stock options and stock appreciation rights from one year to two years.
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If the requisite shareholder approval of the amended and restated 2012 Plan is not obtained, the amended and restated 2012 Plan will not take effect to the extent shareholder approval is required, but the company may continue to grant awards under the 2012 Plan in accordance with the current terms and conditions of the 2012 Plan, including the terms and conditions approved by the Board on March 1, 2017, that do not require shareholder approval.
KEY COMPENSATION GOVERNANCE FEATURES
Importantly, the amended and restated 2012 Plan will continue to contain the following important compensation governance features that were included prior to its amendment and restatement:
✓ | No repricing of stock options or stock appreciation rights.Repricing of stock options and stock appreciation rights is prohibited unless shareholder approval is obtained.
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✓ | No discounted stock options or stock appreciation rights.Stock options and stock appreciation rights must be granted with an exercise price that is not less than 100 percent of the fair market value on the date of grant.
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✓ | No reloads of options or stock appreciation rights.The ability to automatically receive a grant of additional options or stock appreciation rights in connection with any exercise of the original stock options or stock appreciation rights (so-called “stock option reloading”) is not permitted.
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✓ | No liberal share recycling.The reuse of shares to satisfy the exercise price or tax withholding requirements of an award is not permitted.
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✓ | Minimum vesting periods for awards.Subject to limited exceptions, awards of restricted stock and participation units have a minimum vesting period of three years and awards of stock options and stock appreciation rights have a minimum vesting period of two years.
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✓ | Double-trigger change in control provisions.A “double-trigger” change in control mechanism is activated only when (1) a change in control is consummated and (2) a participant’s employment is terminated by the company or its successor without cause or by the participant for good reason within two years following the change in control.
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CONTINUED CLOSE MONITORINGOF DILUTIONAND BURN RATE
The Compensation Committee remains focused on using equity to compensate executives in a manner that links executive and shareholder interests while focusing on the overall dilutive effect of equity compensation. As displayed in the table below, dilution and grant rate levels have steadily decreased since 2013. The Compensation Committee achieves this balance by (1) maintaining terms and conditions of equity awards that have the result of reducing dilution levels and (2) actively managing reasonable levels of equity dilution and annual share usage (burn rate or grant rate) when granting equity awards.
Since 2014, the Compensation Committee has taken the following actions to enhance the role of equity compensation as a longer-term valuation creation tool and to manage dilution levels.
| | | | | Compensation Committee Actions Taken
Nicholas Chabraja | | Resulting Reduction in Dilution Levels
23-years | | | Increased exercise period on options from a term of7-years to10-years
John Keane | | Option value increases result in fewer options granted to each participant
13-years | | | Decreased leverage on performance shares from 2 times target to 1.5 times targetLester Lyles
| | In the event of strong company performance, payout can only result in 50% higher share usage
13-years |
These long-tenured directors also had oversized influence with 6 seats on our most important board committees – including a majority of the nomination committee members. Plus we had 3 directors who came from the same culture that emphasizes following orders. It could be like if General Motors decided to have 3 directors come from a company that bought 100,000 GM cars a year for their daily rental fleet. Such directors could be a powerful faction on the board that voted in lockstep. This may not be good for board diversity. Such directors might better serve shareholders as consultants instead of directors. Please vote to improve management accountability to shareholders: Special Shareholder Meeting Improvement – Proposal 4 6456 General Dynamics 20172018 Proxy Statement
Equity Compensation PlanShareholder Proposal
STATEMENTBYYOUR BOARDOF DIRECTORS AGAINSTTHE SHAREHOLDER PROPOSAL This proposal seeks to amend our company’s current special shareholder meeting right. Our current bylaws provide that your Board will call a special meeting upon the written request of a single shareholder holding 10 percent of our company’s outstanding common stock, or one or more shareholders holding 25 percent of our company’s outstanding stock, without any material restrictions. Given the company’s current shareholder base, shareholders have the ability to call a special meeting at both thresholds. The table below shows the dilution and one- and three-year burn rate for 2014, 2015 and 2016: | | | | | | | | | | | | | | | | 2014 | | | 2015 | | | 2016 | | Actual Dilution | | | 5.12 | % | | | 4.80 | % | | | 4.54 | % | 1-Yr Grant Rate | | | 1.67 | % | | | 0.82 | % | | | 1.06 | % | 3-Yr Average Grant Rate | | | 1.97 | % | | | 1.63 | % | | | 1.19 | % |
Additional information regardingproposal requests that your Board of Directors amend the company’s calculationgoverning documents to give shareholders of dilution rate10 percent of the outstanding common stock the power to call special shareholder meetings. Your Board of Directors has considered this proposal and burn ratebelieves its adoption is availableunnecessary because the existing special meeting bylaw strikes an appropriate balance between the right of shareholders to call a special meeting and the interests of our company and shareholders in promoting the appropriate use of corporate funds and resources.
Special meetings are expensive, time-consuming and require significant management attention and should occur only in extraordinary circumstances. Accordingly, your Board believes that the expenditure of corporate funds and resources associated with a special meeting should only be incurred when shareholders meet an appropriate threshold of ownership interest in our company. The special meeting bylaw already contains an ownership threshold that ensures this is the case. While the proponent mentions two examples where special shareholder meeting proposals at other companies received greater than 70 percent support, he fails to mention the more than 30 occurrences among the S&P 500 since 2012 where similar proposals have failed to receive majority support. Based upon public filings, in 2017 alone, similar proposals failed at five companies in the S&P 500 and passed at none. Additionally, the Board has considered current practice among S&P 500 companies, noting that for companies with a special meeting right in place the most prevalent ownership threshold for calling a special meeting is 25 percent. Our company’s current special shareholder meeting provision not only matches the prevalent practice, but goes further by granting a single 10 percent shareholder the right to call a special meeting. Rather than acknowledge the meaningful existing right by our company’s shareholders to call a special meeting, the proponent focuses on page 48unrelated topics with which your Board vehemently disagrees. First, your Board objects to the proponent’s suggestion that the independence of certain board members may be impaired merely because of length of service. We believe that the tenure of these directors demonstrates their strong commitment to our company and its shareholders and that these directors provide your Board with valuable insight into the long-term business cycles and the complex operations of our company. Also, your Board reviews the independence of each director annually to confirm compliance with the company’s director independence guidelines and the independence rules of the New York Stock Exchange. Your Board rejects the notion that directors who have been duly elected by the shareholders and who show a long-term commitment to our company somehow lack independence. Furthermore, our longest-serving director, James Crown, is also affiliated with our largest shareholder and serves as our independent lead director, providing an important, shareholder-aligned voice on our Board. Additionally, the proponent’s last paragraph, in which we assume his reference to “the same culture” means prior military service, suggests that he takes objection to anyone with a military background serving as a director. This assertion, and the wholly irrelevant example he proffers, is misplaced, erroneous and offensive to dedicated members of our Board with distinguished prior military service. This prior military service gives these directors an unparalleled understanding of the requirements and priorities of several of the company’s key customers. With the U.S. Government representing on average 60 percent of our revenues over the past several years, intimacy with our customer’s priorities and demands is critical. Our directors with prior military service play an irreplaceable role in advising our businesses on how to ensure that our products and services remain effective and responsive to our customers in supporting national security and defense programs. Furthermore, these directors are actively engaged in the Board’s deliberations and each exercises his own independent judgment in fulfilling fiduciary duties and maximizing shareholder value. Together with the other directors, our Board continues to reflect a diverse and extremely well-qualified group of business leaders, aerospace and defense industry experts and strategic advisors. The skills and experience of each of our director nominees, as well as our key corporate governance practices, are discussed in the Election of the Board of Directors of the Company and Governance of the Company sections of this Proxy Statement. As of March 6, 2017, there were:
5,197,476 shares remaining available for issuance underFor the 2012 Plan, of which 1,722,663 may be issued as full value awards;
12,102,349 options outstanding in aggregate under the General Dynamics Corporation 2009 Equity Compensation Plan (the 2009 Plan) and the 2012 Plan with a weighted-average exercise price of $121.91 and a weighted-average remaining term of 6.3 years; and
1,983,171 full value awards outstanding and unvested in aggregate under all equity compensation plans of the company.
Since approval of the 2012 Plan at the 2012 Annual Meeting, no further grants were made under the 2009 Plan, but awards under the 2009 Plan remain outstanding and will, among other things, continue to vest and/or become exercisable in accordance with their original terms and conditions.
SUMMARYOFTHE PLAN
The principal features of the amended and restated 2012 Plan are summarized below. This summary does not contain all the information that may be important to you. The summary is qualified in its entirety by reference to the complete text of the amended and restated 2012 Plan, which is set forth in Appendix A to this Proxy Statement.
Plan Administration. Subject to the terms of the 2012 Plan, the Compensation Committee has the authority to interpret and administer the 2012 Plan. The Compensation Committee has the authority to, among other things, determine which individuals will participate in the 2012 Plan and to establish the amounts, types and terms of awards under the 2012 Plan.
Eligibility. Any officer or employee of the company or any of its subsidiaries and any member of the Board of Directors who is not an employee of the company or any of its subsidiaries (anon-employee director) is eligible for selection by the Compensation Committee to receive an award under the 2012 Plan. Awards tonon-employee directors must be approved by the Board of Directors. As of the date of this Proxy Statement, there are 27 officers and approximately 99,000 employees (excluding officers) of the company and its subsidiaries and there are 11non-employee directors of the company.
Shares Subject to the Plan. The 2012 Plan provides that an aggregate maximum of 42,250,000 shares of Common Stock will be available for issuance in connection with awards under the 2012 Plan and for the payment of dividend equivalents that are settled in shares of Common Stock. From that aggregate maximum, (1) the maximum number of shares available for grants of incentive stock options (ISOs) under the 2012 Plan is 42,250,000 shares of Common Stock, (2) the maximum aggregate number of shares available for grants ofnon-statutory stock options (NSOs) and stock appreciation rights (SARs) under the plan is 42,250,000 shares of Common Stock, and (3) the maximum aggregate number of shares available for grants of restricted stock, Common Stock awards, participation units and performance-based awards (other than performance-based awards that are ISOs, NSOs and SARs), and shares paid in settlement of dividend equivalents pursuant to the plan is 8,000,000 shares of Common Stock. If any award under the 2012 Plan or the 2009 Plan expires, is forfeited or cancelled, or terminates for any reason without the issuance of shares (including, without limitation, upon cash settlement), the shares relating to the award will again be available for issuance pursuant to awards under the 2012 Plan. However, if shares are tendered or withheld in payment of all or part of the exercise price of an award or in satisfaction of tax withholding obligations with respect to an award, the shares will not be available again for issuance pursuant to awards under the 2012 Plan. With respect to any SAR granted under the plan, the number of shares of Common Stock counted against the share limits describedreasons stated above, shall be either the full number of shares subject to the SAR, if it is settled in shares, or zero shares, if it is settled in cash.
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Award Types. The 2012 Plan permits grants of unrestricted shares of Common Stock (Common Stock awards), NSOs, SARs, restricted stock, participation units, cash awards, performance-based awards or any combination thereof, to officers, employees andnon-employee directors and grants of ISOs to officers and employees.
Common Stock Awards. The Compensation Committee may grant Common Stock awards under the 2012 Plan on such terms and conditions, not inconsistent with the plan, as the Compensation Committee may determine. In addition, anon-employee director may elect to have all or part of his or her annual retainer paid in Common Stock under the 2012 Plan upon such terms and conditions as the Compensation Committee may establish from time to time.
Stock Options and SARs. The 2012 Plan provides for the grant of (1) ISOs, which are stock options that are designated by the Compensation Committee as incentive stock options and which meet the applicable requirements for incentive stock options pursuant to Section 422 of the Internal Revenue Code, (2) NSOs, which are stock options that do not qualify as ISOs or that are designated as NSOs notwithstanding that they may otherwise qualify as ISOs, and (3) SARs, which are rights to receive an amount of cash or shares of Common Stock with a fair market value equal to the increase in the fair market value of a specified number of shares between the date on which the SAR is granted and the date on which it is exercised. References in this summary to “stock options” will mean both ISOs and NSOs, unless otherwise specified.
Pursuant to the terms of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the 2012 Plan, of any award of stock options or SARs. The 2012 Plan provides that awards of stock options and SARs are subject to the following restrictions: (1) the exercise price per share for stock options or SARs may not be less than 100 percent of the fair market value of a share of Common Stock on the grant date (with fair market value determined by taking the average of the highest and lowest quoted selling price per share of Common Stock on the national securities exchange on which the Common Stock is principally traded on the grant date), (2) stock options and SARs may not have a term of more than 10 years, (3) no stock option or SAR may entitle the participant to receive an automatic grant of additional stock options or SARs in connection with any exercise of the original stock option or SAR, (4) except in connection with a corporate transaction involving the company, shareholder approval is required to reprice any stock options or SARs after their grant date or to exchange them for cash, other awards, or stock options or SARs with lower exercise prices, and (5) stock options and SARs generally may not vest sooner than two years from the original grant date, except in certain circumstances following a change in control or where the Compensation Committee provides for a shorter vesting period in connection with a corporate divestiture or acquisition or in other special circumstances as determined by the Compensation Committee. In addition, the exercise price of shares purchased upon the exercise of any stock option may be paid in cash, Common Stock or both, by cashless exercise or in any other manner as may be permitted by the Compensation Committee.
Restricted Stock. The 2012 Plan provides for the grant of restricted stock, which is Common Stock that may not be sold, transferred, pledged, assigned or otherwise alienated except upon the passage of time, or upon satisfaction of performance goals or other conditions. Pursuant to the terms of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the plan, of any award of restricted stock. The 2012 Plan provides that (1) a participant holding restricted stock may vote the shares awarded and will be entitled to the payment of dividends and other distributions on the shares from the date the award is made, subject to such restrictions or conditions as the Compensation Committee may determine, except that no dividend shall be paid in respect of performance-based awards prior to the vesting of such awards; and (2) restricted stock awards generally have a minimum vesting period of three years (other than shares of restricted stock granted as an adjustment pursuant to a performance-based formula), except in certain circumstances following a change in control or where the Compensation Committee provides for a shorter vesting period in connection with a corporate divestiture or acquisition or in other special circumstances as determined by the Compensation Committee.
Participation Units. The 2012 Plan provides for the grant of participation units, which are awards of unfunded obligations of the company that have a value derived from or related to the value of Common Stock, including for example, phantom stock units or restricted stock units, and are payable in cash, Common Stock or any combination thereof. Pursuant to the terms of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the 2012 Plan and in compliance with Section 409A of the Internal Revenue Code and the rules and regulations thereunder, of any award of participation units. The 2012 Plan provides that participation unit awards generally may not vest sooner than three years from the original grant date (other than participation units granted as an adjustment to a performance-based formula), except in certain circumstances following a change in control or where the Compensation Committee provides for a shorter vesting period in connection with a corporate divestiture or acquisition or in other special circumstances as determined by the Compensation Committee. A participant holding participation units
66 General Dynamics 2017 Proxy Statement
will not be entitled to any rights as a shareholder until shares are delivered upon settlement of the participation units, but a participant may be entitled to contractual dividend equivalents, subject to such restrictions or conditions as the Compensation Committee may determine, except that no dividend equivalents shall be paid in respect of performance-based awards prior to the vesting of such awards.
Cash Awards. The 2012 Plan provides for the grant of cash awards (referred to in the 2012 Plan as Other Awards), which are awards payable in cash. Pursuant to the terms of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the 2012 Plan and in compliance with Section 409A of the Internal Revenue Code, of any cash awards.
AnnualNon-Employee Director Award Limitation. The 2012 Plan provideswe believe that the aggregate grant date fair value of all awards (excludingcompany’s current Bylaw provision granting shareholders the issuance of shares of Common Stock asability to call a result of a voluntary election to receive Common Stock in lieu of cash retainers) granted underspecial meeting provides the plan to individualnon-employee directors in any calendar year will not exceed $400,000.
Performance-Based Awards. The Compensation Committee may grant performance-based awards under the 2012 Plan. Performance-based awards are awards of Common Stock, stock options, SARs, restricted stock, participation units, cash awards, or any combination thereof, payment of which is contingent upon the attainment of one or more performance goals. A performance goal (1) may relate to the performance of the participant, the company or any of its subsidiaries, any business group, any business unit or other subdivision of the company or any of its subsidiaries, or any combination of the foregoing, as the Compensation Committee may deem appropriate and (2) may be expressed as an amount, as an increase or decrease over a specified period, as a relative comparison to the performance of a group of comparator companies or a published or special index, or any other external measure of the selected performance criteria, as the Compensation Committee, in its sole discretion, deems appropriate.
For performance-based awards granted to Section 162(m) covered executives of the company that are intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code, performance goals shall be determined by reference to one or more of the following criteria selected by the Compensation Committee in its sole discretion (as determined in accordance with generally accepted accounting principles, as applicable): (1) market price of Common Stock, (2) earnings per share of Common Stock, (3) net income or profit (before or after taxes), (4) return on total stockholders’ equity, (5) return of stockholders’ equity, (6) return on invested capital, (7) cash flow, (8) cumulative return on net assets employed, (9) earnings before interest and taxes, (10) earnings before interest, taxes, depreciation and amortization, (11) earnings from continuing operations, (12) sales or revenues, (13) return on assets, capital or investment, (14) market share, (15) cost reduction goals, (16) budget comparisons, (17) implementation or completion of specified projects or processes, (18) the formation of joint ventures, research or development collaborations, or the completion of other transactions, and/or (19) any combination of any of the foregoing. For all performance-based awards granted under the 2012 Plan that are not intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code, performance goals may be based on one or more of the foregoing criteria or any other criteria that the Compensation Committee deems appropriate.
The Compensation Committee will establish performance goals within 90 days after the beginning of the performance period for a performance-based award and in any case before 25 percent of the performance period has elapsed. The Compensation Committee may provide at the time it establishes a performance goal that the measurement of the performance goal shall exclude the impact of unusual,non-recurring or extraordinary items, charges for restructurings, discontinued operations, the cumulative effect of changes in accounting treatment and any other items, each determined in accordance with generally accepted accounting principles (to the extent applicable) and as identified in the company’s audited financial statements, including the notes thereto.
The 2012 Plan provides that the minimum vesting period for any performance-based award will not be less than the minimum vesting period for the form of award in which the performance-based award is granted.
The maximum number of shares of Common Stock (or in the case of a cash award, the maximum dollar amount) that may be subject to awards intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code granted under the 2012 Plan to any individual participant in any calendar year is: (1) 1,000,000 shares of Common Stock pursuant to a Common Stock award, (2) 1,000,000 shares of Common Stock pursuant to a stock option or SAR, (3) 200,000 shares of Common Stock for restricted stock awards, (4) participation units with a value equal to 200,000 shares of Common Stock, and (5) $5,000,000 for cash awards.
Amendment and Termination. The Compensation Committee may at any time suspend the operation of, terminate or amend the 2012 Plan or any award, provided that no suspension, termination or amendment may adversely impair the rights of any participant
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under any outstanding award without such participant’s consent, except that the Compensation Committee may take such actions as it deems appropriateright to ensure that the 2012 Plan and any awards comply with any tax, securities or other applicable law.
Adjustments and Reorganizations. The maximum number of shares of Common Stock available for issuance under the 2012 Plan and the individual and aggregate limits described above will be equitably adjusted upon certain events affecting the capitalization of the company such asshareholders have a recapitalization or stock split. In the event of an increase or decrease in the number of issued shares of Common Stock without receipt or payment of consideration by the company, the Compensation Committee may adjust the number of shares subjectmeaningful avenue to each outstanding award and the exercise price per share of each such award. Upon the occurrence of certain extraordinary corporate transactions, such as a dissolution, sale or merger of the company, the Compensation Committee has discretion to make certain adjustments, cancel, or provide for the exchange of outstanding awards.
Transferability. Except as provided by the Compensation Committee, an award under the 2012 Plan is not transferrable other than by the participant’s last will and testament or by applicable laws of descent and distribution.
Effect of a Change in Control.The change in control provision in the 2012 Plan contains a “double-trigger” mechanism that is activated only when (1) a change in control is consummated and (2) a participant’s employment is terminated by the company or its successor without cause or by the participant for good reason within two years following the change in control. If both of these triggers are satisfied then all of the participant’s outstanding awards under the 2012 Plan will immediately vest and become exercisable and all restrictionsvote on the awards will lapse.
Company Recoupment of Awards. The 2012 Plan provides that a participant’s rights with respect to any Award under the plan is subject to (1) any right that the company may have under its compensation recoupment policy or other agreement with a participant and (2) any right or obligation that the company may have under Section 10D of the Exchange Act and any applicable rules and regulations of the SEC.
SUMMARYOF FEDERAL INCOME TAX CONSEQUENCESOF AWARDS
The following is a brief summary of the United States federal income tax consequences of the issuance and exercise of awards under the 2012 Plan to the company and to the participants. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign tax consequences.
Cash Awards and Common Stock Awards.A participant generally will not recognize income at the time a cash award or a Common Stock award subject to vesting conditions is granted to the participant. When cash is paid to the participant pursuant to a cash award or shares vest pursuant to a Common Stock award, the participant generally will recognize ordinary income equal to the amount of cash paid or the fair market value of the shares that vest. When a Common Stock award that is not subject to vesting conditions is granted to the participant, the participant generally will recognize ordinary income at the time of grant in an amount equal to the fair market value of the shares subject to the award. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a tax deduction at the same time and in the same amount as the participant recognizes ordinary income.
Restricted Stock Awards and Participation Units.A participant generally will not recognize income at the time a restricted stock award is granted. When the restrictions lapse with regard to any installment of restricted stock, the participant generally will recognize ordinary income in an amount equal to the fair market value of the shares with respect to which the restrictions lapse, unless the participant elects to recognize ordinary income in the year the award is granted in an amount equal to the fair market value of the restricted stock awarded at the time of grant, determined without regard to the restrictions. The participant generally will recognize ordinary income at the time of payment of a dividend with respect to restricted stock (unless the participant has elected to recognize ordinary income in the year the restricted stock award is granted in an amount equal to the fair market value of the restricted stock awarded, in which case, any such dividend may be treated as dividend income) in an amount equal to the dividend paid, in the case of a cash dividend, or the fair market value of the shares delivered, in the case of a stock dividend. A participant generally will not recognize income at the time an award of participation units is granted or at the time that the participant is credited with a dividend equivalent with respect to such award. The participant generally will recognize ordinary income at the time the participation units or dividend equivalents are paid, in an amount equal to the cash paid or to be paid or the fair market value of the shares delivered or to be delivered. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
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Performance-Based Awards.A participant generally will not recognize income at the time of grant of a performance-based award. The participant generally will recognize ordinary income at the time the performance-based award is paid in an amount equal to the dollar amount, or the fair market value of the shares of Common Stock, paid or delivered. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
NSOs and SARs.A participant who is granted an NSO or SAR generally does not recognize income at the time of grant, but will recognize ordinary income upon exercise of the NSO or SAR in an amount equal to the excess of the aggregate fair market value of the shares subject to the award on the exercise date over the aggregate exercise price of such shares. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
ISOs.A participant who is awarded an ISO generally does not recognize taxable income at the time of award or upon exercise of the ISO, but the excess of the fair market value of the shares acquired on the exercise date over the exercise price is included in the participant’s income for alternative minimum tax purposes. The grant of an ISO generally does not entitle the company to a deduction. A participant who acquires shares by exercise of an ISO generally recognizes income on a sale or other disposition of those shares in an amount equal to the difference between the amount received on the sale or disposition of the shares and the exercise price previously paid by the participant. If the participant holds the shares issuable upon exercise of an ISO for the later of two years after the ISO grant date and one year from the date of exercise, income on the sale of such shares generally will be taxed to the participant at long-term capital gain rates. In such case, the company generally is not entitled to a deduction. If the participant sells the shares issuable upon exercise of an ISO prior to the end of the applicable holding periods, the participant generally will recognize ordinary income in the year of the sale equal to the excess, if any, of the lesser of (1) the fair market value of the shares on the date of exercise and (2) the amount received for the shares over the exercise price previously paid by the participant. The balance of the gain or the loss, if any, generally will be a long-term or short-term capital gain or loss, depending on how long the shares were held by the participant prior to the sale. The amount of ordinary income recognized by the participant in this circumstance generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
Certain Other Tax Issues and Related Matters.In addition to the matters described above, (1) any entitlement to a tax deduction on the part of the company is subject to applicable federal tax rules (including, without limitation, Section 162(m) of the Internal Revenue Code regarding the $1,000,000 limitation on deductible compensation), (2) the exercise of an ISO may have implications in the computation of alternative minimum taxable income, (3) certain awards under the 2012 Plan may be subject to the requirements of Section 409A of the Internal Revenue Code (regarding nonqualified deferred compensation), and (4) if the exercisability or vesting of any option is accelerated because of a change in control, such option (or a portion thereof), either alone or together with certain other payments, may constitute parachute payments under Section 280G of the Internal Revenue Code, which excess amounts may be subject to excise taxes and deduction limitations. Officers and directors of the company subject to Section 16(b) of the Exchange Act may be subject to special tax rules regarding the income tax consequences concerning their options. The 2012 Plan is not subject to any of the requirements of the Employee Retirement Income Security Act of 1974, as amended. The 2012 Plan is not, nor is it intended to be, qualified under Section 401(a) of the Internal Revenue Code.
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GRANTSAND AWARDSUNDERTHE 2012 PLAN
As of March 6, 2017, the following outstanding awards have been granted under the 2012 Plan to each of the executive officers named below, all current executive officers as a group, allnon-employee directors as a group, and all other employees, respectively:
| | | | | | | | | | | | | | Name | | NUMBER OF SHARES
UNDERLYING
OPTIONS/SARS | | | WEIGHTED
AVERAGE EXERCISE
PRICEOF
OPTIONS/SARS | | | NUMBEROF
SHARES
UNDERLYING
RESTRICTED STOCK
AWARDS/STOCK
UNIT AWARDS* | | Phebe N. Novakovic | | | 1,980,090 | | | $ | 111.19 | | | | 227,475 | | Jason W. Aiken | | | 284,400 | | | $ | 131.30 | | | | 46,455 | | John P. Casey | | | 295,585 | | | $ | 129.96 | | | | 47,170 | | Mark C. Roualet | | | 372,930 | | | $ | 115.53 | | | | 44,266 | | S. Daniel Johnson | | | 157,920 | | | $ | 152.79 | | | | 34,626 | | All Executive Officers as a Group (13 people) | | | 4,300,995 | | | $ | 119.12 | | | | 568,187 | | AllNon-Employee Directors as a Group (11 people) | | | 159,430 | | | $ | 122.00 | | | | 18,900 | | All Other Employees | | | 6,693,406 | | | $ | 130.76 | | | | 1,396,084 | |
* | Includes performance restricted stock units (PRSUs) at target payout. The exact number of PRSUs that may be earned is determined by performance metrics set by the Compensation Committee.
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Future Benefits.No awards have been granted, and no shares have been issued, on the basis of the proposed 24,000,000 share increase under the 2012 Plan. Future grants under the 2012 Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable. In addition, the value of the awards granted under the 2012 Plan will depend on a number of factors, including the fair market value of the Common Stock on future dates and the exercise decisions made by the participants. Consequently, it is not possible at this time to determine the benefits that might be received by participants receiving discretionary grants under the 2012 Plan in the future.
As of March 6, 2017, the closing price on the New York Stock Exchange of the Common Stock was $190.94 per share.important matters.
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORAGAINSTTHISSHAREHOLDERPROPOSAL. 70 General Dynamics 20172018 Proxy Statement 57
INFORMATION REGARDINGTHE ANNUAL MEETINGAND VOTING All shareholders of record at the close of business on March 6, 2017,8, 2018, are entitled to vote their shares of Common Stock at the Annual Meeting. On the record date, General Dynamics had 303,370,701298,077,831 shares of Common Stock issued and outstanding. Following are questions and answers about the annual meeting and voting. ANNUAL MEETING ATTENDANCE Will I need to provide documentation to attend the Annual Meeting?Yes. All shareholders will need an admission ticket and personal photo identification for admission. You may print your own admission ticket and you must bring it to the meeting. Tickets can be printed by accessing Shareholder Meeting Registration at www.ProxyVote.com and following the instructions provided. If you are unable to print your tickets, please call Broadridge Financial Solutions, Inc. (Broadridge) at1-855-449-0994844-318-0137 toll-free or925-331-6070 international toll for assistance. How many shares must be present to hold the Annual Meeting?A quorum of shares must be present to hold the Annual Meeting. A quorum is the presence, in person or by proxy, of holders of a majority of the issued and outstanding shares of Common Stock as of the record date. If you submit a properly completed proxy in accordance with one of the voting procedures described below or appear at the Annual Meeting to vote in person, your shares of Common Stock will be considered present. For purposes of determining whether a quorum exists, abstentions and brokernon-votes (as described below) will be counted as present. Once a quorum is present, voting on specific proposals may proceed. In the absence of a quorum, the Annual Meeting may be adjourned. How are proxy materials being distributed for the Annual Meeting?As permitted by the rules of the Securities and Exchange Commission, (SEC), we are providing the proxy materials for our 20172018 Annual Meeting via the Internet to most of our shareholders. Use of the Internet will expedite receipt of the 20172018 proxy materials by many of our shareholders and help to keep mailing costs for our Annual Meeting as low as possible. For shareholders who are participants in our 401(k) plans we are required generally to deliver proxy materials in hard copy. On March 23,22, we initiated delivery of proxy materials to our shareholders of record in one of two ways: (1) a notice containing instructions on how to access proxy materials via the Internet or (2) a printed copy of those materials. If you received a notice in lieu of a printed copy of the proxy materials, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the notice provides instructions on how to access the proxy materials on the Internet and how to vote online or by telephone. If you received such a notice and would also like to receive a printed copy of the proxy materials, the notice includes instructions on how you may request a printed copy. VOTING Who is entitled to vote at the Annual Meeting? You must be a shareholder of record on the record date, which is March 6, 2017,8, 2018, to vote your shares at the Annual Meeting. How do I vote my shares?How you vote your shares will depend on whether you are a shareholder of record or a beneficial owner of your shares. Shareholders of record.Each shareholder of record is entitled to one vote on all matters presented at the Annual Meeting for each share of Common Stock held. You are considered a shareholder of record if your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., as of the record date. If you are a shareholder of record, Broadridge provides proxy materials to you on our behalf. If your shares are registered in different names or held in more than one account, you may receive more than one proxy card or set of voting instructions. In that case, you will need to vote separately for each set of shares in accordance with the following voting procedures. Shareholders of record may cast their vote in one of the following ways: | | | | | | YOU MAY CAST YOUR VOTE: | | | By Internet: | | access www.ProxyVote.com and follow the instructions | | | By Telephone: | | call1-800-690-6903 and follow the instructions | | | By Mail: | | sign and date each proxy card received and return each card using the prepaid postage envelope | | | In Person: | | attend the Annual Meeting and vote by ballot | | |
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Annual Meeting Information
The telephone and Internet voting systems are available 24 hours a day. They will close at 11:59 p.m. eastern time on May 2, 2017.Please note the voting deadline differs for participants in our 401(k) plans, as described below.All shares represented by properly executed, completed and unrevoked proxies that are received on time will be voted at the Annual Meeting in accordance with the specifications made in the proxy card.
| | | | | IF YOU RETURN A SIGNED PROXY CARD BUT DO NOT SPECIFICALLY DIRECT THE VOTING
OF SHARES, YOUR PROXY WILL BE VOTED AS FOLLOWS:
| | | FOR the election of directors as described in this Proxy Statement
| | | FOR the selection, on an advisory basis, of KPMG LLP as the independent auditors of the company
| | | FOR the approval, on an advisory basis, of the compensation of the named executive officers
| | | On an advisory basis, to hold future executive compensation advisory votesEVERY YEAR
| | | FORthe approval of the General Dynamics Corporation Amended and Restated 2012 Equity Compensation Plan
| | | IN ACCORDANCE WITH the judgment of the proxy holders for other matters that properly come before the Annual Meeting
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Beneficial Owners.If your shares are held by a bank, broker or other holder of record (sometimes referred to as holding shares in “street name”), the bank, broker or other holder is the shareholder of record and you are the beneficial owner of those shares. Your bank, broker or other holder of record will forward the proxy materials to you. As the beneficial owner, you have the right to direct the voting of your shares by following the voting instructions provided with these proxy materials. Please refer to the proxy materials forwarded by your bank, broker or other holder of record to see which voting options are available to you.
401(k) Plan Participants.Fidelity Management Trust Company (Fidelity), as trustee, is the holder of record of the shares of Common Stock held in our 401(k) plans – the General Dynamics Corporation 401(k) Plan and the General Dynamics Corporation 401(k) Plan for Represented Employees. If you are a participant in one of these plans and in the fund that invests in shares of Common Stock, you are the beneficial owner of the shares of Common Stock credited to your plan account. As beneficial owner and named fiduciary, you have the right to instruct Fidelity, as plan trustee, how to vote your shares. If you do not provide Fidelity with timely voting instructions then, consistent with the terms of the plans, Evercore Trust Company, N.A. (Evercore), will direct Fidelity, in Evercore’s discretion, how to vote the shares. Evercore serves as the independent fiduciary and investment manager for the General Dynamics Stock Fund of the 401(k) plans.
Broadridge provides proxy materials to participants in these plans on behalf of Fidelity. If you are a plan participant and also a shareholder of record, Broadridge may combine the shares registered directly in your name and the shares credited to your 401(k) plan account onto one proxy card. If Broadridge does not combine your shares, you will receive more than one set of proxy materials. In that case, you will need to submit a vote for each set of shares. The vote you submit via proxy card or the telephone or Internet voting systems will serve as your voting instructions to Fidelity.To allow sufficient time for Fidelity to vote your 401(k) plan shares, your vote, or anyre-vote, must be received by 9 a.m. eastern time on May 1, 2017.
Can I change or revoke my proxy vote? A shareholder of record may change or revoke a proxy at any time before it is voted at the Annual Meeting by:
| | | | | A PROXY MAY BE REVOKED BY: | | | Sending written notice of revocation to our Corporate Secretary
| | | Submitting another proxy card that is dated later than the original proxy card
| | | Re-voting by using the telephone or Internet voting systems, or
| | | Attending the Annual Meeting and voting by ballot (attendance at the Annual Meeting alone will not act to revoke a prior proxy).
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Our Corporate Secretary must receive notice of revocation, or a subsequent proxy card, before the vote at the Annual Meeting for a revocation to be valid. Except as described above for participants in our 401(k) plans, are-vote by the telephone or Internet voting systems must occur before 11:59 p.m. eastern time on May 2, 2017. If you are a beneficial owner, you must revoke your proxy through the appropriate bank, broker or other holder of record.
72 General Dynamics 20172018 Proxy Statement
Annual Meeting Information The telephone and Internet voting systems are available 24 hours a day. They will close at 11:59 p.m. eastern time on May 1, 2018.Please note the voting deadline differs for participants in our 401(k) plans, as described below.All shares represented by properly executed, completed and unrevoked proxies that are received on time will be voted at the Annual Meeting in accordance with the specifications made in the proxy card. | | | | | IF YOU RETURN A SIGNED PROXY CARD BUT DO NOT SPECIFICALLY DIRECT THE VOTING
OF SHARES, YOUR PROXY WILL BE VOTED AS FOLLOWS: | | | FOR the election of directors as described in this Proxy Statement | | | FOR the selection, on an advisory basis, of KPMG LLP as the independent auditors of the company | | | FOR the approval, on an advisory basis, of the compensation of the named executive officers | | | AGAINST the shareholder proposal | | | IN ACCORDANCE WITH the judgment of the proxy holders for other matters that properly come before the Annual Meeting |
Beneficial Owners.If your shares are held by a bank, broker or other holder of record (sometimes referred to as holding shares in “street name”), the bank, broker or other holder is the shareholder of record and you are the beneficial owner of those shares. Your bank, broker or other holder of record will forward the proxy materials to you. As the beneficial owner, you have the right to direct the voting of your shares by following the voting instructions provided with these proxy materials. Please refer to the proxy materials forwarded by your bank, broker or other holder of record to see which voting options are available to you. 401(k) Plan Participants.Fidelity Management Trust Company (Fidelity), as trustee, is the holder of record of the shares of Common Stock held in our 401(k) plans – the General Dynamics Corporation 401(k) Plan and the General Dynamics Corporation 401(k) Plan for Represented Employees. If you are a participant in one of these plans and in the fund that invests in shares of Common Stock, you are the beneficial owner of the shares of Common Stock credited to your plan account. As beneficial owner and named fiduciary, you have the right to instruct Fidelity, as plan trustee, how to vote your shares. If you do not provide Fidelity with timely voting instructions then, consistent with the terms of the plans, Newport Trust Company, (Newport), will direct Fidelity, in Newport’s discretion, how to vote the shares. Newport serves as the independent fiduciary and investment manager for the General Dynamics Stock Fund of the 401(k) plans. Broadridge provides proxy materials to participants in these plans on behalf of Fidelity. If you are a plan participant and also a shareholder of record, Broadridge may combine the shares registered directly in your name and the shares credited to your 401(k) plan account onto one proxy card. If Broadridge does not combine your shares, you will receive more than one set of proxy materials. In that case, you will need to submit a vote for each set of shares. The vote you submit via proxy card or the telephone or Internet voting systems will serve as your voting instructions to Fidelity.To allow sufficient time for Fidelity to vote your 401(k) plan shares, your vote, or anyre-vote, must be received by 9 a.m. eastern time on April 30, 2018. Can I change or revoke my proxy vote? A shareholder of record may change or revoke a proxy at any time before it is voted at the Annual Meeting by: | | | | | A PROXY MAY BE REVOKED BY: | | | Sending written notice of revocation to our Corporate Secretary | | | Submitting another proxy card that is dated later than the original proxy card | | | Re-voting by using the telephone or Internet voting systems, or | | | Attending the Annual Meeting and voting by ballot (attendance at the Annual Meeting alone will not act to revoke a prior proxy) |
Our Corporate Secretary must receive notice of revocation, or a subsequent proxy card, before the vote at the Annual Meeting for a revocation to be valid. Except as described above for participants in our 401(k) plans, are-vote by the telephone or Internet voting systems must occur before 11:59 p.m. eastern time on May 1, 2018. If you are a beneficial owner, you must revoke your proxy through the appropriate bank, broker or other holder of record. General Dynamics 2018 Proxy Statement 59
Annual Meeting Information VOTE REQUIRED What is a brokernon-vote? A brokernon-vote occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner. Banks, brokers and other holders of record have discretionary authority to vote shares without instructions from beneficial owners only on matters considered “routine” by the New York Stock Exchange, such as the advisory vote on the selection of the independent auditors. Onnon-routine matters, such as the election of directors, and executive compensation matters and the shareholder proposal, these banks, brokers and other holders of record do not have discretion to vote uninstructed shares and thus are not “entitled to vote” on such proposals, resulting in a brokernon-vote for those shares. We encourage all shareholders that hold shares through a bank, broker or other holder of record to provide voting instructions to those holders to ensure that their shares are voted at the Annual Meeting. What is the vote required for each proposal, and what is the effect of an abstention or brokernon-vote on the voting? | | | | | | | | | VOTE REQUIREMENTS AND
THE EFFECT OF ABSTENTIONS OR BROKER NON-VOTES | | | | PROPOSAL | | VOTING STANDARD | | | | EFFECTOF ABSTENTIONSAND BROKERNON-VOTES | | | | | | | | Proposal 1: Election of the Board of Directors of the Company | | Directors will be elected by a majority of the votes cast and entitled to vote at the Annual Meeting. A “majority of the votes cast” means the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election. You may vote for, vote against or abstain from voting for any or all nominees. | | | | Abstentions and brokernon-votes will not be counted as a vote cast “for” or “against” a director’s election. | | | | | | | | Proposal 2: Advisory Vote on the Selection of Independent Auditors | | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | | | Abstentions will have the effect of a vote against this proposal. Brokernon-votes do not occur for this proposal because banks, brokers and other holders of record have authority under the New York Stock Exchange rules to vote in their discretion on the selection of independent auditors. | | | | | | | | Proposal 3: Advisory Vote to Approve Executive Compensation | | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | | | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. | | | | | | | | Proposal 4: Advisory Vote on the Frequency of Future
Executive Compensation
Advisory Votes
| | For this proposal, you may choose to express a preference for holding future advisory votes on executive compensation every year, every two years or every three years. For any particular frequency to be approved, it must receive an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. You may choose instead to abstain from voting on this matter.
| | Abstentions will have the effect of a vote against each choice. Brokernon-votes will have no effect on this proposal.
| | | | Shareholder Proposal 5: Approval of the General
Dynamics Corporation
Amended and Restated
2012 Equity Compensation
Plan
| | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | | | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. | | |
Who will count the votes? Representatives of American Election Services, LLC, will tabulate the vote at the Annual Meeting. Who is soliciting votes for the Annual Meeting? The Board of Directors is soliciting proxies from shareholders. Directors, officers and other employees of General Dynamics may solicit proxies from our shareholders by mail,e-mail, telephone, facsimile or in person. In addition, Innisfree M&A Incorporated (Innisfree), 501 Madison Avenue, New York, New York, is soliciting brokerage firms, dealers, banks, voting trustees and their nominees. General Dynamics 2017 Proxy Statement 73
Annual Meeting Information
We will pay Innisfree approximately $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 theirout-of-pocket expenses in forwarding proxy materials to the beneficial owners of Common Stock. We will not provide compensation, other than their usual compensation, to our directors, officers and other employees who solicit proxies. 60 General Dynamics 2018 Proxy Statement
OTHER INFORMATION ADDITIONAL SHAREHOLDER MATTERS If any other matters properly come before the Annual Meeting, the individuals named in the proxy card will have discretionary authority to vote the shares they represent on those matters, except to the extent their discretion may be limited under Rule14a-4(c) of the Exchange Act. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires our officers and directors, as well as anyone who is a beneficial owner of more than 10 percent of a registered class of our stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SECSecurities and Exchange Commission and the New York Stock Exchange, and to furnish us with copies of these forms. To our knowledge, based solely on a review of the copies of Forms 3, 4 and 5 submitted to us, all of our executive officers and directors complied with all filing requirements imposed by Section 16(a) of the Exchange Act during 2016.2017, other than Ms. Reynolds who filed a late Form 4 relating to an equity grant due to administrative error. SHAREHOLDER PROPOSALSFOR 20182019 ANNUAL MEETINGOF SHAREHOLDERS If you wish to submit a proposal for inclusion in our proxy materials to be distributed in connection with the 20182019 annual meeting, your written proposal must comply with the rules of the SECSecurities and Exchange Commission and be received by us no later than November 23, 2017.22, 2018. The proposal should be sent to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church, Virginia 22042. If you intend to present a proposal at the 20182019 annual meeting that is not to be included in our proxy materials, including director nominations, you must comply with the various requirements established in our Bylaws. Among other things, the Bylaws require that a shareholder submit a written notice to our Corporate Secretary at the address in the preceding paragraph no earlier than January 3, 2018,2, 2019, and no later than February 2, 2018.1, 2019. In addition, our Bylaws permit a shareholder or a group of up to 20 shareholders who have owned 3 percent or more of our outstanding shares of capital stock continuously for three years to submit director nominees for inclusion in our proxy statement if the shareholder(s) and nominee(s) satisfy the requirements specified in our Bylaws. These requirements can be found in Article II, Section 10 of our Bylaws, and include the requirement that the applicable notice be received by the company no earlier than October 24, 2017,23, 2018, and no later than November 23, 2017.22, 2018. ANNUAL REPORTON FORM10-K The Annual Report, which includes our Form10-K and accompanies this Proxy Statement, is not considered a part of the proxy solicitation material. We will furnish to any shareholder, without charge, a copy of our 20162017 Annual Report, as filed with the SEC.Securities and Exchange Commission. A request for the report can be made verbally or in writing to Investor Relations, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church, Virginia 22042, (703)876-3000 or through our website. The Form10-K and other public filings are also available through the SEC’s website at www.sec.gov and on our website at www.gd.com/SECFilings. DELIVERYOF DOCUMENTSTO SHAREHOLDERS SHARINGAN ADDRESS We will deliver only one Annual Report and Proxy Statement to shareholders who share a single address unless we have received contrary instructions from any shareholder at the address. In that case, we will deliver promptly a separate copy of the Annual Report and Proxy Statement. For future deliveries, shareholders who share a single address can request a separate copy of our Annual Report and Proxy Statement. Similarly, if multiple copies of the Annual Report and Proxy Statement are being delivered to a single address, shareholders can request a single copy of the Annual Report and Proxy Statement for future deliveries. To make a request, please call703-876-3000 or write to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church, Virginia 22042. 74 General Dynamics 20172018 Proxy Statement 61
APPENDIX A GENERAL DYNAMICS CORPORATION AMENDED AND RESTATED
2012 EQUITY COMPENSATION PLAN
(as amended and restated on March 1, 2017)
The purpose of the Plan is to provide the Company with an effective means of attracting, retaining and motivating directors, officers and key employees, and to provide them with incentives to enhance the growth and profitability of the Company.
2. | Effective Date and Duration of the Plan.
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The Plan was originally adopted by the Board on March 7, 2012, subject to approval by the stockholders of the Parent, which occurred on May 2, 2012. The amended and restated version of the Plan was adopted by the Board on March 1, 2017, subject to approval by the stockholders of the Parent at the Parent’s 2017 Annual Meeting of Shareholders. The Plan becomes effective upon the first date that the stockholders of the Parent approve the Plan in a manner that satisfies the requirements of the DGCL and the rules of the New York Stock Exchange. Awards may be made pursuant to the Plan through and including the 10 year anniversary of the date of the latest stockholder approval of the Plan, including without limitation any stockholder approval of any amendment to the Plan to increase the share award capacity hereunder.
3. | Definitions; Rules of Construction.
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| (a) | Defined terms. The terms defined in this Section shall have the following meanings for purposes of this Plan:
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| (i) | Award shall mean a grant under the Plan in any form permitted hereunder.
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| (ii) | Award Agreement shall mean a written or electronic agreement, in a form determined by the Committee from time to time, entered into by each Participant and the Company, evidencing the grant of an Award under the Plan. The Committee may provide for the use of electronic, Internet or other non-paper Award Agreements, and the use of electronic, Internet or other non-paper means for the acceptance thereof and actions thereunder by a Participant.
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| (iii) | Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. “Beneficial Ownership” shall have a correlative meaning.
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| (iv) | Board shall mean the Board of Directors of the Parent.
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| (v) | Cause for the termination of the Participant’s employment with the Company will be deemed to exist if the Participant has been convicted of a felony or if the Company determines in good faith that the Participant has (A) intentionally and continually failed to perform in all material respects the Participant’s reasonably assigned duties with the Company (other than a failure resulting from the Participant’s incapacity due to physical or mental disability or illness) or (B) intentionally engaged in conduct which is demonstrably and materially injurious to the Company; provided, however, that if the Participant has entered into an individual employment agreement or severance protection agreement between the Participant and the Company, and the agreement defines the term “Cause,” then Cause shall have the meaning assigned to such term in such agreement.
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| (vi) | Change in Control shall have the meaning set forth in Section 16 of the Plan.
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| (vii) | Code shall mean the Internal Revenue Code of 1986, as amended from time to time, including any regulations promulgated thereunder.
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| (viii) | Committee shall mean the Compensation Committee of the Board and any successor committee thereto.
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General Dynamics 2017 ProxyStatement A-1
| (ix) | Common Stock shall mean the common stock of the Parent.
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| (x) | Common Stock Award shall mean an Award of unrestricted Common Stock.
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| (xi) | Company shall mean collectively the Parent and its Subsidiaries.
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| (xii) | Covered Award shall mean an Award made to a Covered Employee that is intended to meet the requirements of “qualified performance-based compensation” under Section 162(m) of the Code.
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| (xiii) | Covered Employee shall mean a Participant who is an executive officer of the Parent or any Subsidiary within the meaning of Rule 3b-7 promulgated under the Exchange Act.
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| (xiv) | DGCL shall mean the Delaware General Corporation Law, as in effect from time to time.
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| (xv) | Dividend Equivalent shall mean an amount, payable either in shares of Common Stock or in cash, that is equal to the cash dividend that would be paid on each share of Common Stock underlying an Award if the share were duly issued and outstanding on the record date for the dividend.
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| (xvi) | Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time, including any regulations promulgated thereunder.
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| (xvii) | Excluded Person shall have the meaning set forth in Section 16 of the Plan.
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| (xviii) | Fair Market Value shall mean, as of the date of determination, (A) the average of the highest and lowest quoted selling price per share of Common Stock on the national securities exchange or such other market on which such stock is principally traded, as determined by the Committee, or (B) if the shares of Common Stock are not listed or admitted to trading on any such exchange or market, the average of the highest and lowest selling price as reported by an over-the-counter market; provided that if no sales occur as of the date of determination, then the date of determination shall be the last day on which a sale was reported; further provided that if the shares of Common Stock are not then listed on a national securities exchange or market or traded in an over-the-counter market, such value shall be determined by the Committee in good faith. In no event shall the Fair Market Value of any share of Common Stock be less than the par value per share of Common Stock.
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| (xix) | Good Reason shall mean either (A) a material reduction in the Participant’s base salary (other than a reduction that applies across the board to similarly-situated employees) or (B) the imposition of a requirement that the Participant be based at any place outside a 50-mile radius from the Participant’s principal place of employment immediately prior to a Change in Control; provided, that, in each case, the Participant shall not have Good Reason to terminate service unless the Participant provides the Company with written notice of the occurrence of the action constituting Good Reason within 30 days following the occurrence of such action, the Participant provides the Company with a minimum of 30 days following delivery of the written notice to cure such action, and the Participant terminates service within 90 days following the occurrence of such action. Notwithstanding the foregoing, if the Participant has entered into an individual employment agreement or severance protection agreement with the Company, and the agreement defines the term “Good Reason,” then Good Reason shall have the meaning assigned to such term in such agreement.
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| (xx) | Grant Date shall mean the date designated by the Committee and specified in the Award Agreement as the date the Award is granted.
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| (xxi) | Incumbent Board shall have the meaning set forth in Section 16 of the Plan.
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| (xxii) | ISO shall mean any Option, or portion thereof, awarded to a Participant pursuant to the Plan which is designated by the Committee as an incentive stock option and also meets the applicable requirements of an incentive stock option pursuant to Section 422 of the Code.
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A-2 General Dynamics 2017 Proxy Statement
| (xxiii) | Non-Control Transaction shall have the meaning set forth in Section 16 of the Plan.
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| (xxiv) | Non-Employee Director shall mean a member of the Board who is not an employee of the Company.
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| (xxv) | Non-Statutory Stock Option shall mean any Option awarded under the Plan that does not qualify as an ISO or that is designated as a Non-Statutory Stock Option notwithstanding that it may otherwise qualify as an ISO.
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| (xxvi) | Option shall mean an Award in the form of an option to purchase Common Stock granted pursuant to the Plan.
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| (xxvii) | Other Award shall mean an Award payable only in cash.
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| (xxviii) | Parent shall mean General Dynamics Corporation (and any successor thereto).
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| (xxix) | Participant shall mean any individual who has an outstanding Award pursuant to the Plan.
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| (xxx) | Participation Unit shall mean an Award that has a value derived from or related to the value of Common Stock, including but not limited to a phantom stock unit or restricted stock unit, that is payable in cash or Common Stock, or any combination thereof, as specified in the Award Agreement.
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| (xxxi) | Performance-Based Award shall mean an Award granted under Section 7 of the Plan, the payment of which is conditioned upon the attainment of one or more Performance Goals.
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| (xxxii) | Performance Goal shall mean a measure of performance established by the Committee, based on one or more of the criteria set forth in Section 7, that must be met during the Performance Period under a Performance-Based Award.
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| (xxxiii) | Performance Period shall mean, with respect to any Performance-Based Award, the period over which the attainment of the applicable Performance Goal is measured. Performance Periods may be overlapping.
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| (xxxiv) | Person for purposes of Section 16 only shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, and will include any “group” as such term is used in such sections.
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| (xxxv) | Plan shall mean the General Dynamics Corporation Amended and Restated 2012 Equity Compensation Plan as set forth herein and as may be amended or amended and restated from time to time.
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| (xxxvi) | Purchase Price shall mean the price per share (A) for which a share of Common Stock may be purchased pursuant to an Option or (B) by reference to which the amount of any payment pursuant to a Stock Appreciation Right is determined, in each case as established by the Committee, provided that such price will not be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the Grant Date.
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| (xxxvii) | Restricted Stock shall mean an Award consisting of shares of Common Stock granted to a Participant pursuant to the Plan that may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated except upon passage of time, or upon satisfaction of Performance Goals or other conditions, or a combination thereof, in every case pursuant to such terms and conditions as may be determined by the Committee in its sole discretion.
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| (xxxviii) | Securities Act shall mean the Securities Act of 1933, as amended from time to time, including any regulations promulgated thereunder.
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| (xxxix) | Stock Appreciation Right shall mean an Award in the form of a right to receive an amount of cash, or shares of Common Stock with a Fair Market Value, equal to the increase in the Fair Market Value of a specified number of shares of Common Stock between the Grant Date of the right and the date on which it is exercised.
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General Dynamics 2017 Proxy Statement A-3
| (xl) | Subject Person shall have the meaning set forth in Section 16 of the Plan.
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| (xli) | Subsidiary shall mean any “subsidiary” of the Parent within the meaning of Rule 405 under the Securities Act.
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| (xlii) | Surviving Corporation shall have the meaning set forth in Section 16 of the Plan.
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| (xliii) | 13G Filer shall have the meaning set forth in Section 16 of the Plan.
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| (b) | Construction. Unless otherwise expressly provided or the context otherwise requires, the terms defined in this Plan include the plural and the singular, and pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms.
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Any officer or employee of the Company is eligible for selection by the Committee for an Award under this Plan. Awards to Non-Employee Directors may be granted pursuant to Section 13 of the Plan.
The Committee shall determine the amounts and types of the Awards and the terms and conditions of such Awards, consistent with the terms of this Plan. Awards may be made in Common Stock Awards, Options, Stock Appreciation Rights, Restricted Stock, Participation Units, Other Awards, Performance-Based Awards or in any combination thereof. If any Award is settled in cash that is to be paid on a deferred basis, the Participant may be entitled at the Committee’s discretion and on terms and conditions as the Committee may determine, to be paid interest on the unpaid amount.
6. | Common Stock Available for Awards Pursuant to the Plan. |
| (a) | Shares Available. Subject to adjustment pursuant to Section 15 of the Plan, the maximum aggregate number of shares of Common Stock available for issuance pursuant to Awards (including Common Stock Awards, Options, Stock Appreciation Rights, Restricted Stock, Participation Units and Performance-Based Awards) under the Plan and for the payment of Dividend Equivalents that are settled in shares of Common Stock is 42,250,000. From that aggregate limit:
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| (i) | no more than 42,250,000 shares may be issued in the form of ISOs;
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| (ii) | no more than an aggregate of 42,250,000 shares may be issued in the form of Non-Statutory Stock Options and Stock Appreciation Rights; and
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| (iii) | no more than an aggregate of 8,000,000 shares may be issued in the form of Restricted Stock, Common Stock Awards, Participation Units, and Performance-Based Awards (excluding Performance-Based Awards that are Options or Stock Appreciation Rights and Other Awards that are by definition only payable in cash) and paid in settlement of Dividend Equivalents.
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The shares of Common Stock issued pursuant to the Plan may come from authorized and unissued shares, treasury shares or shares purchased by the Company in the open market.
| (i) | Share Recycling. The following categories of shares of Common Stock shall again be available for grant pursuant to Awards under the Plan, in addition to the shares described in Section 6(a): (A) shares related to Awards that expire, are forfeited or cancelled or terminate for any reason without the issuance of shares (including, without limitation, upon cash settlement), and (B) shares related to awards granted under the General Dynamics Corporation 2009 Equity Compensation Plan that expire, are forfeited or cancelled or terminate for any reason without the issuance of shares (including, without limitation, upon cash settlement).
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A-4 General Dynamics 2017 Proxy Statement
| For purposes of clarity, (x) shares of Common Stock that are tendered or withheld in payment of all or part of the Purchase Price of an Option or other exercise price of an Award or in satisfaction of tax withholding obligations in respect of any type of Award shall not be included in or added to the number of shares available for issuance under the Plan, (y) with respect to a Stock Appreciation Right granted hereunder, the number of shares of Common Stock counted against the share limits set forth in Section 6(a) shall be either (A) the full number of shares subject to the Stock Appreciation Right if the Stock Appreciation Right is settled in shares or (B) zero shares if the Stock Appreciation Right is settled in cash, and (z) shares of Common Stock repurchased in the open market using the Purchase Price or other exercise price paid in respect of an Option or other Award shall not be included in or added to the number of shares of Common Stock available for issuance under the Plan.
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| (ii) | Assumption, Replacement, Conversion and Adjustment. The Committee may grant Awards pursuant to the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards in the context of a corporate acquisition or merger (within the meaning of Section 303A.08 of the New York Stock Exchange Listed Company Manual). Common Stock covered by Awards granted pursuant to this Section 6(b)(ii) shall not count against the number of shares available for issuance pursuant to Section 6(a).
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| (c) | Annual Non-Employee Director Award Limitation. The aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all Awards granted under the Plan to any individual Non-Employee Director in any calendar year of the Company (excluding Awards made pursuant to the issuance of shares of Common Stock as a result of a Non-Employee Director’s voluntary election to receive shares of Common Stock in lieu of all or a portion of cash retainers) shall not exceed $400,000.
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7. | Performance-Based Awards. |
| (a) | General. The Committee may grant Performance-Based Awards in the form of Common Stock Awards, Options, Stock Appreciation Rights, Restricted Stock, Participation Units, or Other Awards. The minimum vesting period for any Performance-Based Award shall not be less than the minimum vesting period for the form of Award in which the Performance-Based Award is granted, as set forth herein.
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| (b) | Performance Goals. A Performance Goal (i) may relate to the performance of the Participant, the Parent, a Subsidiary, any business group, any business unit or other subdivision of the Parent or any Subsidiary, or any combination of the foregoing, as the Committee may deem appropriate, (ii) may be expressed as an amount, as an increase or decrease over a specified period, as a relative comparison to the performance of a group of comparator companies or a published or special index, or any other external measure of the selected performance criteria, as the Committee, in its sole discretion, deems appropriate, and (iii) shall be based on one or more of the following criteria selected by the Committee in its sole discretion (as determined in accordance with generally accepted accounting principles, as applicable):
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| (A) | market price of Common Stock; earnings per share of Common Stock; net income or profit (before or after taxes); return on total stockholders’ equity; return of stockholders’ equity; return on invested capital; cash flow; cumulative return on net assets employed; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings from continuing operations; sales or revenues; return on assets, capital or investment; market share; cost reduction goals; budget comparisons; implementation or completion of specified projects or processes; the formation of joint ventures, research or development collaborations, or the completion of other transactions; and/or any combination of any of the foregoing; and
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| (B) | with respect to any Award that is not a Covered Award, any other criteria that the Committee deems appropriate.
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Within 90 days after the beginning of a Performance Period, and in any case before 25 percent of the Performance Period has elapsed, the Committee shall establish the Performance Goals for such Performance Period. The Committee may provide at the time it establishes the Performance Goal for any Performance Period that the measurement of the
General Dynamics 2017 Proxy Statement A-5
Performance Goal shall exclude the impact of items that are considered unusual in nature or that occur infrequently pursuant to Accounting Standards Codification Topic 225, charges for restructurings, discontinued operations, the cumulative effect of changes in accounting treatment and any other items, each determined in accordance with generally accepted accounting principles (to the extent applicable) and as identified in the Company’s audited financial statements, including the notes thereto.
| (c) | Individual Limits. Notwithstanding any other provision of the Plan, to the extent necessary for a Covered Award to satisfy the requirements of “qualified performance-based compensation” pursuant to Section 162(m) of the Code, the maximum number of shares of Common Stock (or in the case of an Other Award, the maximum dollar amount) that may be subject to Covered Awards granted under the Plan to any individual employee, in any calendar year, shall be:
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| (i) | 1,000,000 shares of Common Stock pursuant to a Common Stock Award;
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| (ii) | 1,000,000 shares of Common Stock pursuant to an Option or Stock Appreciation Right;
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| (iii) | 200,000 shares of Restricted Stock;
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| (iv) | Participation Units with a value equal to 200,000 shares of Common Stock; and
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| (v) | $5,000,000 of Other Awards.
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The limitations set forth in this Section 7(c) shall be subject to adjustment as provided in Section 15, but only to the extent such adjustment would not prevent a Covered Award from meeting the requirements of “qualified performance-based compensation” pursuant to Section 162(m) of the Code.
| (d) | Effect of a Termination of Employment or Service. The consequences with respect to a Performance-Based Award of the termination of employment, or service as a Non-Employee Director, of the Participant holding the Performance-Based Award shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
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| (e) | Dividends and Dividend Equivalents. The Committee may provide in its discretion that a Performance-Based Award shall accrue dividends or Dividend Equivalents, as applicable, provided such dividends or Dividend Equivalents shall be subject to the same terms and conditions as, and shall in no event be paid prior to the vesting of, the Performance-Based Award to which they relate.
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8. | Common Stock Awards. The Committee may grant Common Stock Awards on such terms and conditions, not inconsistent with this Plan, as the Committee may determine.
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9. | Restricted Stock Awards. |
| (a) | General. The Committee may grant Restricted Stock, on such terms and conditions, not inconsistent with this Plan, as the Committee may determine.
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| (b) | Terms and Conditions. Restricted Stock Awards shall have a minimum vesting period of three years (other than shares of Restricted Stock granted as an adjustment pursuant to a performance-based formula), provided that Restricted Stock may vest earlier in accordance with Section 16 and the Committee may provide for a shorter vesting period (i) in connection with any corporate divestiture or acquisition affecting a Participant’s employment with, or provision of services to, the Company, (ii) in the case of any special agreement, award, or situation with respect to any individual Participant, or (iii) in connection with such other events or circumstances as the Committee may determine from time to time. Subject to the restrictions set forth in this Section 9, each Participant who receives Restricted Stock shall have all rights as a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions thereon, except as may be provided in the applicable Award Agreement. Restricted Stock shares may be held by the Company until all restrictions lapse and shall be subject to a legend describing applicable restrictions as provided by the Committee from time to time.
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| (c) | Effect of a Termination of Employment or Service. The consequences with respect to an Award of Restricted Stock of the termination of employment, or service as a Non-Employee Director, of the Participant holding the Restricted Stock shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
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10. | Option and Stock Appreciation Right Awards. The Committee may grant Options and Stock Appreciation Rights on such terms and conditions, not inconsistent with the Plan, as the Committee may determine, subject to the following provisions:
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| (a) | Type of Options. The Committee may grant Options in the form of ISOs, Non-Statutory Stock Options, or any combination thereof. Each Option Award Agreement shall identify whether the Options are intended to be ISOs or Non-Statutory Stock Options. If an Award is not designated as either ISOs or Non-Statutory Stock Options, then such Award shall be deemed to be Non-Statutory Stock Options.
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| (b) | ISO Limitations. For ISOs granted under the Plan, the aggregate Fair Market Value (determined as of the Grant Date) of the number of shares with respect to which ISOs are exercisable for the first time by any Participant during any calendar year under all plans of the Company shall not exceed $100,000, or such other maximum amount then applicable under Section 422 of the Code. Any Option or a portion thereof that is designated as an ISO that for any reason fails to meet the requirements of an ISO shall be treated hereunder as a Non-Statutory Stock Option. No ISO may be granted to an individual who, at the time of the proposed grant, owns (or is deemed to own under the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of common stock of the Company unless (i) the exercise price of such ISO is at least one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock at the time such ISO is granted and (ii) such ISO is not exercisable after the expiration of five years from the date it is granted.
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| (c) | Terms and Conditions. The Committee shall determine all terms and conditions of the Options and Stock Appreciation Rights, provided that the following terms and conditions shall apply to all Options and Stock Appreciation Rights:
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| (i) | Options and Stock Appreciation Rights shall have a minimum vesting period of two years, provided that Options and Stock Appreciation Rights may vest earlier in accordance with Section 16 and the Committee may provide for a shorter vesting period (A) in connection with any corporate divestiture or acquisition affecting a Participant’s employment with, or provision of services to, the Company, (B) in the case of any special agreement, award, or situation with respect to any individual Participant, or (C) in connection with such other events or circumstances as the Committee may determine from time to time.
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| (ii) | The term during which an Option or Stock Appreciation Right may be exercised shall not exceed ten years from the Grant Date.
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| (iii) | The Purchase Price of an Option or Stock Appreciation Right shall in no event be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the Grant Date.
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| (iv) | The consequences with respect to an Award of Options or Stock Appreciation Rights of the termination of employment, or service as a Non-Employee Director, of the Participant holding the Options or Stock Appreciation Rights shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
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| (v) | Options and Stock Appreciation Rights shall not contain any provision entitling a Participant to the automatic grant of additional Options or Stock Appreciation Rights in connection with any exercise of the original Options or Stock Appreciation Rights.
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| (vi) | Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Options and Stock Appreciation Rights may not be amended to reduce the Purchase Price of outstanding Options or Stock Appreciation Rights or cancel, exchange, buyout, replace or surrender outstanding Options or Stock
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General Dynamics 2017 Proxy Statement A-7
| Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with a Purchase Price that is less than the exercise price of the original Options or Stock Appreciation Rights without approval of the Parent’s shareholders.
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| (vii) | Exercise and Settlement. During the lifetime of the Participant, an Option or Stock Appreciation Right may be exercised only by the Participant or his or her personal representative.
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| (A) | Options. The Purchase Price of shares purchased upon the exercise of any Option shall be paid (i) in full in cash (including check or wire transfer), (ii) in whole or in part (in combination with cash) in full shares of unrestricted Common Stock owned by the Participant and valued at their Fair Market Value on the date of exercise, (iii) by cashless exercise in any manner as may be permitted by the Committee from time to time, or (iv) such other method as may be permitted by the Committee from time to time.
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| (B) | Stock Appreciation Rights. Upon the exercise of a Stock Appreciation Right, the Participant shall be entitled to a number of shares of Common Stock with a Fair Market Value, or an amount in cash, equal to the difference between the aggregate Fair Market Value of the shares of Common Stock underlying the Stock Appreciation Right on the Grant Date and the aggregate Fair Market Value of such shares on the date of exercise.
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| (a) | General. The Committee may grant Participation Units, on such terms and conditions, not inconsistent with the Plan and in compliance with Section 409A of the Code, as the Committee may determine in its discretion and set forth in the applicable Award Agreement.
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| (b) | Terms and Conditions. Participation Units shall have a minimum vesting period of three years (other than Participation Units granted as an adjustment pursuant to a performance-based formula), provided that Participation Units may vest earlier in accordance with Section 16 and the Committee may provide for a shorter vesting period (i) in connection with any corporate divestiture or acquisition affecting a Participant’s employment with, or provision of services to, the Company, (ii) in the case of any special agreement, award, or situation with respect to any individual Participant, or (iii) in connection with such other events or circumstances as the Committee may determine from time to time.
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12. | Other Awards. The Committee may grant Other Awards on such terms and conditions, not inconsistent with the Plan and in compliance with Section 409A of the Code, as the Committee may determine in its discretion, provided that an Other Award shall be payable only in cash.
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13. | Awards to Non-Employee Directors. |
| (a) | Awards. Awards to Non-Employee Directors may be made at the recommendation of the Committee, subject to final approval of the Board, in such amounts as the Committee shall determine in Common Stock Awards, Non-Statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Participation Units, Performance-Based Awards or any combination thereof.
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| (b) | Retainers and Fees. Upon terms and conditions as may be established by the Committee from time to time, each Non-Employee Director may elect to have all or part of his or her annual retainer paid in Common Stock under the Plan.
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| (a) | Committee. The Plan shall be administered by the Committee. The Committee shall have the authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or as it deems necessary or advisable in administration of the Plan, including without limitation, (i) the authority to grant Awards; (ii) to determine the individuals
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A-8 General Dynamics 2017 Proxy Statement
| to whom and the time or times at which Awards shall be granted; (iii) to determine the type and number of Awards to be granted, the number of shares of Common Stock to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Award; (iv) to determine whether, to what extent, and under what circumstances and the manner in which an Award may be settled, cancelled, forfeited, exchanged or surrendered; (v) to construe and interpret the Plan and any Award Agreement; (vi) to prescribe, amend, and rescind rules and regulations relating to the Plan, including but not limited to, rules and regulations relating to leaves of absence and changes from an employee to a service provider or consultant; (vii) to determine whether an Award Agreement would be appropriate with respect to any Award, and if so, to determine the form of such Award Agreement; (viii) to determine whether an Award will be credited with Dividend Equivalents and the terms and conditions of any such Dividend Equivalents; and (ix) to make all other determinations deemed necessary or advisable for the administration and implementation of the Plan. For purposes of clarity, the Committee may exercise its discretion in a non-uniform manner among Participants. The determination of the Committee on these matters shall be final and conclusive and binding on the Company and all Participants. Any authority, power or right of the Committee pursuant to the Plan may also be exercised by the Board.
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| (b) | Delegation. Except to the extent prohibited by applicable law, including Section 157(c) of the DGCL, the applicable rules of the national securities exchange or such other market on which the Common Stock is principally traded or Section 162(m) of the Code with respect to Covered Awards, the Committee has the authority to delegate any of its powers under the Plan (including, without limitation, its power to administer claims and appeals) to one or more members of the Committee or one or more officers of the Parent. Any delegation shall include the same sole discretionary and final authority that the Committee has hereunder, and any decisions, actions or interpretations made by any delegate shall have the same ultimate binding effect as if made by the Committee. Any such allocation or delegation may be limited or revoked by the Committee at any time.
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| (i) | Except as otherwise provided by the Committee, and to the extent permitted pursuant to applicable law, the applicable rules of the national securities exchange or such other market on which Common Stock is principally traded and the Committee charter, the chairperson of the Committee may make Awards on behalf of the Committee to any Participant, except that the chairperson of the Committee may not (A) make an Award to a Participant who is subject to the reporting requirements of Section 16(a) of the Exchange Act or (B) make a Covered Award to a Covered Employee.
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15. | Adjustments Upon Certain Changes. Subject to any action by the shareholders of the Parent required by law, applicable tax rules or the rules of any exchange on which shares of Common Stock are listed for trading:
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| (a) | Shares Available for Grants. In the event of any change in the number of shares of Common Stock outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum aggregate number of shares of Common Stock available for grant pursuant to Awards under the Plan as set forth in Section 6 and the maximum number of shares of Common Stock with respect to which the Committee may grant Covered Awards to any individual Covered Employee in any calendar year as set forth in Section 7(c) shall be appropriately adjusted by the Committee. In the event of any change in the number of shares of Common Stock outstanding by reason of any other event or transaction, the Committee may, to the extent deemed appropriate by the Committee, make such adjustments in the number and class of shares of Common Stock with respect to which Awards may be granted.
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| (b) | Increase or Decrease in Issued Shares Without Consideration. In the event of any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares of Common Stock or the payment of a stock dividend (but only on the shares of Common Stock), or any other increase or decrease in the number of such shares affected without receipt or payment of consideration by the Company, the Committee shall, to the extent deemed appropriate by the Committee, adjust the number of shares of Common Stock subject to each outstanding Award and the Purchase Price or exercise price per share of Common Stock of each such Award.
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| (c) | Certain Mergers. In the event of any merger, consolidation or similar transaction as a result of which the holders of shares of Common Stock receive consideration consisting exclusively of securities of the surviving corporation in such transaction, the Committee may, to the extent deemed appropriate by the Committee, adjust each Award outstanding
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General Dynamics 2017 Proxy Statement A-9
| on the date of such merger or consolidation so that it pertains and applies to the securities which a holder of the number of shares of Common Stock subject to such Award would have received in such merger or consolidation.
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| (d) | Certain Other Transactions. In the event of (i) a dissolution or liquidation of the Parent, (ii) a sale of all or substantially all of the Company’s assets (on a consolidated basis), (iii) a merger, consolidation or similar transaction involving the Parent in which the holders of shares of Common Stock receive securities and/or other property, including cash, other than shares of the surviving corporation in such transaction, the Committee shall, in its sole discretion, have the power to:
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| (A) | cancel, effective immediately prior to the occurrence of such event, each Award (whether or not then exercisable or vested), and, in full consideration of such cancellation, pay to the Participant to whom such Award was granted an amount in cash, for each share of Common Stock subject to such Award equal to the value, as determined by the Committee in its reasonable discretion, of such Award, provided that with respect to any outstanding Option or Stock Appreciation Right such value shall be equal to the excess (if any, or if none, zero) of (i) the value, as determined by the Committee in its reasonable discretion, of the property (including cash) received by the holder of a share of Common Stock as a result of such event over (ii) the Purchase Price of such Option or Stock Appreciation Right; or
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| (B) | provide for the exchange of each Award (whether or not then exercisable or vested) for an Award with respect to some or all of the property which a holder of the number of shares of Common Stock subject to such Award would have received in such transaction and, incident thereto, make an equitable adjustment as determined by the Committee in its reasonable discretion in the Purchase Price or exercise price of the Award, or the number of shares or amount of property subject to the Award or provide for a payment (in cash or other property) to the Participant to whom such Award was granted in partial consideration for the exchange of the Award.
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| (e) | Other Changes. In the event of any change in the capitalization of the Parent or corporate change other than those specifically referred to in paragraphs (b), (c) or (d), the Committee may make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in such other terms of such Awards as the Committee may consider appropriate, provided that if any such Award is a Covered Award such adjustments are consistent with the requirements of Section 162(m) of the Code.
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| (f) | Other Awards. In the event of any transaction or event described in this Section 15, including without limitation any corporate change referred to in paragraph (e) hereof, the Committee may, in its sole discretion, make such adjustments in any Performance Goal and in any other terms of any Other Awards, as the Committee may consider appropriate in respect of such transaction or event, provided that if such Other Award is a Covered Award, such adjustments are consistent with the requirements of Section 162(m) of the Code.
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| (g) | No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger or consolidation of the Parent or any other corporation. Except as expressly provided in the Plan, no issuance by the Parent of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares or amount of other property subject to, or the terms related to, any Award.
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| (h) | Savings Clause. No provision of this Section 15 shall be given effect to the extent that such provision would cause any tax to become due under Section 409A of the Code.
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| (a) | In the event that, within two years following a Change in Control, the Participant’s service with the Company and its affiliates is terminated (i) by the Company or any of its affiliates for any reason other than for Cause or (ii) by the Participant for Good Reason, all outstanding Awards granted to a Participant which have not theretofore vested shall immediately vest and become exercisable and all restrictions on such Awards shall immediately lapse.
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| (b) | Except to the extent that it may give rise to a tax under Section 409A of the Code with respect to any Award, the Committee may also accord to any Participant a right to refuse to have any of the actions that the Committee may take otherwise as described in (a) above, whether pursuant to the Award or otherwise, in such circumstances as the Committee may approve.
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| (c) | “Change in Control” means any of the following events:
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| (i) | An acquisition by any Person of Beneficial Ownership (other than a direct or indirect acquisition from the Parent) of forty percent (40%) or more of the combined voting power of the Parent’s then-outstanding voting securities; provided that, in determining whether a Change in Control has occurred, an acquisition by any of the following Persons will not constitute a Change in Control:
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| (A) | an employee benefit plan (or a trust forming a part thereof) maintained by the Parent or any Subsidiary of the Parent,
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| (B) | the Parent or any Subsidiary of the Parent,
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| (C) | any Person that, pursuant to Rule 13d-1 promulgated under the Act, is permitted to, and actually does, report its Beneficial Ownership of voting securities of the Parent on Schedule 13G (or any successor schedule) (a “13G Filer”); provided that, a Person shall no longer be considered a 13G Filer if it subsequently becomes required to or does report its Beneficial Ownership of voting securities of the Parent on Schedule 13D (or any successor schedule) and for purposes of this Section 16 such Person shall be deemed to have first acquired, on the first date on which such Person does so file a Schedule 13D, Beneficial Ownership of all voting securities of the Parent Beneficially Owned by it on such date, (each of (A), (B), and (C) an “Excluded Person”),
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| (D) | any Person in connection with a Non-Control Transaction (as hereinafter defined), or
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| (E) | an underwriter temporarily holding securities of the Parent pursuant to an offering of such securities.
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Notwithstanding the foregoing provisions of this Section 16, a Change in Control will not be deemed to occur solely because any Person (a “Subject Person”) acquires Beneficial Ownership of forty percent (40%) or more of the combined voting power of the Parent’s then-outstanding voting securities as a result of the acquisition of voting securities by the Parent 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 in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, then a Change in Control shall be deemed to occur on the date 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.
| (A) | a merger, consolidation or reorganization involving the Parent, or any direct or indirect Subsidiary of the Parent, unless:
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| (i) | the stockholders of the Parent immediately before such merger, consolidation or reorganization will own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation or reorganization (the “Surviving Corporation”) or any parent thereof in substantially the same proportion as their ownership of the voting securities of the Parent immediately before such merger, consolidation or reorganization;
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General Dynamics 2017 Proxy Statement A-11
| (ii) | 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 (or parent thereof); and
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| (iii) | no Person (other than an Excluded Person, the Surviving Corporation, any Subsidiary or parent of the Surviving Corporation, or any Person who, immediately prior to such merger, consolidation or reorganization, was the Beneficial Owner of forty percent (40%) or more of the then-outstanding voting securities of the Parent) is the Beneficial Owner of forty percent (40%) or more of the combined voting power of the Surviving Corporation’s outstanding voting securities immediately after the merger, consolidation or reorganization. A transaction described in clauses (i) through (iii) above is referred to herein as a “Non-Control Transaction.”
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| (B) | a sale or other disposition of all or substantially all of the assets of the Parent to an entity (other than to an entity (i) at least fifty percent (50%) of the combined voting power of the outstanding voting securities of which is owned, directly or indirectly, by stockholders of the Parent in substantially the same proportion as their ownership of the voting securities of the Parent, (ii) a majority of the board of directors of which consists of the individuals who were members of the Board immediately prior to the execution of the agreement providing for such sale or disposition, and (iii) of which no Person (other than an Excluded Person or any Person who, immediately prior to such sale or disposition, was the Beneficial Owner of forty percent (40%) or more of the combined voting power of the then-outstanding voting securities of the Parent) has Beneficial Ownership of forty percent (40%) or more of the combined voting power of the entity’s outstanding voting securities).
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| (iii) | Individuals who, as of the date of adoption of the Plan, constitute the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the adoption of the Plan whose election, or nomination for election, by Parent stockholders was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, unless any such individual’s initial assumption of office occurs as a result of either an actual or threatened election contest (including, but not limited to, a consent solicitation).
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| (iv) | The stockholders of the Company approve a plan of complete liquidation of the Company.
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With respect to Awards that are subject to Section 409A of the Code, the foregoing provisions of this Section 16 shall be interpreted in a manner that is consistent with the U.S. Department of Treasury Regulations promulgated pursuant to Section 409A of the Code so that only such transactions or events that could qualify as a “change in control event” within the meaning of Treasury Regulation § 1.409A-3(i)(5)(i) will be deemed to be a Change in Control for purposes of such Awards.
17. | Nontransferability of Awards.
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| (a) | Except as provided by the Committee for transfers without consideration, an Award shall not be transferable other than (i) by the Participant’s last will and testament or (ii) by the applicable laws of descent and distribution.
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| (b) | Any Award transferred pursuant to Section 17(a) shall be subject to all of the same original terms and conditions as provided in the Plan and the applicable Award Agreement. The Participant’s estate will remain liable for any withholding tax that may be imposed by any Federal, state or local tax authority.
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In connection with the vesting of Awards or issuance of Common Stock under the Plan, the Parent may require the recipient to remit to the Company an amount sufficient to satisfy any Federal, state or local (including foreign jurisdictions) tax withholding requirements
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prior to the delivery of such Common Stock, or, in the discretion of the Committee, the Parent may withhold from the shares to be delivered shares sufficient to satisfy all or a portion of the minimum statutorily required tax withholding requirements (or such greater amount of shares as may be permitted without causing adverse accounting consequences to the Company under the applicable accounting rules). The Committee may determine the manner in which such tax withholding may be satisfied, and may permit a Participant to deliver unrestricted shares of Common Stock to be used to satisfy minimum statutorily required tax withholding based on the Fair Market Value of any such shares of Common Stock on the date the amount of tax to be withheld is determined. Any cash paid pursuant to the Plan is subject to all applicable tax withholding.
The expenses of administering the Plan shall be borne by the Company.
20. | Termination, Amendment and Changes to Outstanding Awards.
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The Committee may at any time suspend the operation of, terminate or amend the Plan or any Award thereunder, provided that no suspension, termination, or amendment shall adversely impair the rights of any Participant pursuant to an outstanding Award without the consent of the Participant. Notwithstanding the foregoing, the Committee may take such actions as it deems appropriate to ensure that the Plan and any Awards may comply with any tax, securities or other applicable law. Nothing herein shall restrict the Committee’s ability to exercise its discretionary authority as provided in the Plan.
Nothing contained in the Plan shall be deemed to preclude other compensation plans which may be in effect from time to time or be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Parent (a) to award options to acquire shares of Common Stock otherwise than under the Plan to an employee or other person, firm, corporation, or association, or (b) to award options to acquire shares of Common Stock, 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.
22. | Foreign Jurisdictions.
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The Committee may adopt, amend, and terminate such arrangements, not inconsistent with the intent of the Plan, as it may deem necessary or desirable to make available tax or other benefits of the laws of any foreign jurisdiction, to Participants who are subject to such laws and who receive Awards under the Plan.
The validity, construction, interpretation, administration and effect of the Plan, and its rules and regulations, and rights relating to the Plan and to Awards granted pursuant to the Plan, shall be governed by the substantive laws of the State of Delaware, without giving effect to its principles of conflict of laws.
24. | Section 409A of the Code.
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| (a) | To the extent applicable, it is intended that the Plan comply with or be exempt from the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. Accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith and if any provision of this Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition will be interpreted and deemed amended so as to avoid this conflict. Any reservation of rights or discretion by the Company or the Committee hereunder affecting the timing of payment of any Award subject to Section 409A of the Code will only be as broad as is permitted by Section 409A of the Code and any regulations thereunder.
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| (b) | Notwithstanding anything herein or in any Award Agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable
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General Dynamics 2017 Proxy Statement A-13
| and benefits that would otherwise be provided to a Participant during the six-month period immediately following the Participant’s separation from service (within the meaning of Section 409A of the Code) shall instead be paid on the first business day after the date that is six months following the Participant’s separation from service (or death, if earlier).
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| (a) | Limitation of Participant rights. No Participant shall have any right to an Award or a benefit under the Plan except in accordance with the terms of the Plan, the applicable Award Agreement, and any related documents. Establishment of the Plan and/or receipt of an Award shall not be construed to give any Participant the right to be retained in the service of the Company. No holder of an Option will have any rights to dividends or other rights as a stockholder with respect to the shares subject thereto prior to the purchase of such shares upon exercise of the Option pursuant to the terms thereof. Participation Unit Award holders shall have no rights to dividends or any other rights as a stockholder prior to the acquisition of shares upon the vesting and settlement of such Award pursuant to the terms thereof.
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| (b) | Limitation of liability. Notwithstanding any provision of the Plan to the contrary, none of the Company, the Board, the Committee or any individual acting as an employee or agent of the Company shall be liable to any Participant, former Participant, or any other person for any claim, loss, liability or expense incurred in connection with the Plan and any Award hereunder.
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| (c) | Treatment for other compensation purposes. Payments and other benefits received by a Participant pursuant to an Award shall not be deemed part of a Participant’s regular, recurring compensation for purposes of any termination, indemnity or severance pay laws and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided by the Company, unless expressly so provided by such other plan, contract or arrangement.
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| (d) | Distribution only in compliance with applicable law. Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act), and the applicable requirements of any securities exchange or similar entity.
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| (e) | Share issuance on a non-certificate basis. To the extent that the Committee provides for the issuance of shares of Common Stock or Restricted Stock, the issuance may be affected on a non-certificated basis, subject to applicable law or the applicable rules of any stock exchange.
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| (f) | Fractional shares. Any fractional shares underlying an Award shall be rounded down to the nearest whole number (without any payment in respect of any rounding down).
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| (g) | Termination of Employment. The employment of a Participant with the Company shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to an entity that is a Subsidiary of the Company and such entity ceases to be a Subsidiary of the Company, unless the Committee determines otherwise, including in order to maintain compliance with Section 409A of the Code.
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| (h) | Company Recoupment of Awards. A Participant’s rights with respect to any Award hereunder shall in all events be subject to (i) any right that the Company may have under any Company compensation recoupment policy or other agreement or arrangement with a Participant, and (ii) any right or obligation that the Company may have regarding the recoupment of “incentive-based compensation” under Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission.
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A-14 General Dynamics 2017 Proxy Statement
All notices to the Parent regarding the Plan shall be in writing, effective as of actual receipt by the Parent, and shall be sent to:
General Dynamics Corporation
2941 Fairview Park Drive, Suite 100
Falls Church, Virginia 22042
Attention: Corporate Secretary
The Committee may change the address to which notices under the Plan are sent provided such address is communicated to Participants.
General Dynamics 2017 Proxy Statement A-15
APPENDIX B
USE OFNON-GAAP FINANCIAL MEASURES (DOLLARSINMILLIONS) This Proxy Statement containsnon-GAAP financial measures, as defined by Regulation G of the Securities and Exchange Commission. We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow and ROIC to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, other GAAP measures. Free Cash Flow.We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities: | Year Ended December 31 | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2017 | | | | 2016 | | | | 2015 | | Net cash provided by operating activities | | $ | 2,198 | | | $ | 2,607 | | | $ | 3,828 | | | $ | 3,159 | | | $ | 3,879 | | | $ | 2,198 | | | $ | 2,607 | | Capital expenditures | | | (392 | ) | | | (569 | ) | | | (521 | ) | | | (436 | ) | | | (428 | ) | | | (392 | ) | | | (569 | ) | Free cash flow from operations | | $ | 1,806 | | | $ | 2,038 | | | $ | 3,307 | | | $ | 2,723 | | | $ | 3,451 | | | $ | 1,806 | | | $ | 2,038 | |
Return on Invested Capital.We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as earnings from continuing operations plusafter-tax interest and amortization expense. Average invested capital is defined as the sum of the average debt and shareholders’ equity for the year. ROIC excludes accumulated other comprehensive income (AOCI), goodwill impairments andnon-economic accounting changes.changes as they are not reflective of company performance. ROIC is calculated as follows: | Year Ended December 31 | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2017 | | | | 2016 | | | | 2015 | | Earnings from continuing operations | | $ | 3,062 | | | $ | 2,965 | | | $ | 2,673 | | | $ | 2,486 | | | $ | 2,912 | | | $ | 2,679 | | | $ | 3,036 | | After-tax interest expense | | | 64 | | | | 64 | | | | 67 | | | | 67 | | | | 76 | | | | 64 | | | | 64 | | After-tax amortization expense | | | 57 | | | | 75 | | | | 79 | | | | 93 | | | | 51 | | | | 57 | | | | 75 | | Net operating profit after taxes | | $ | 3,183 | | | $ | 3,104 | | | $ | 2,819 | | | $ | 2,646 | | | $ | 3,039 | | | $ | 2,800 | | | $ | 3,175 | | Average invested capital | | $ | 17,619 | | | $ | 17,858 | | | $ | 18,673 | | | $ | 18,741 | | | $ | 18,099 | | | $ | 17,168 | | | $ | 17,579 | | Return on invested capital | | | 18.1 | % | | | 17.4 | % | | | 15.1 | % | | | 14.1 | % | | | 16.8 | % | | | 16.3 | % | | | 18.1 | % |
AdjustedNon-GAAP Earnings from Continuing Operations. This measure excludes the impact of tax reform enacted in December 2017, the Tax Cuts and Jobs Act (TCJA). This impact is considered by management aone-time,non-cash event. Therefore, management developed thisnon-GAAP measure for 2017 results, which is used to evaluate performance. Management believes the measure is also useful supplemental information for investors to understand the company’s results. The GAAP measure comparable to adjustednon-GAAP earnings from continuing operations is earnings from continuing operations. The following table reconciles the 2017 adjustednon-GAAP earnings from continuing operations to earnings from continuing operations. | | | | | Year Ended December 31 | | | 2017 | | Earnings from continuing operations | | $ | 2,912 | | Adjustment for change in tax law | | | 119 | | Adjustednon-GAAP earnings from continuing operations | | $ | 3,031 | |
B-1 General Dynamics 20172018 Proxy Statement A-1
GENERAL DYNAMICS CORPORATION 2941 FAIRVIEW PARK DRIVE FALLS CHURCH, VA 22042 VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before thecut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically viae-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until11:until 11:59 P.M. Eastern Time the day before thecut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. SHAREHOLDER MEETING REGISTRATION To vote and/or attend the meeting, go to the “Register for Meeting” link atwww.proxyvote.com. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E17891-TBD E39052-P03067-Z71842 KEEP THIS PORTION FOR YOUR RECORDS
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | | | | | | | | | | | | | | | | | | | | | | | | | GENERAL DYNAMICS CORPORATION | | | | | | | | | | | | | | | | | | | | | | | | The Board of Directors recommends you vote FOR the following proposal: | | | | | | | | | | | | | | | | | | | | | | | | 1. Election of Directors | | | | | | | | | | | | | | | | | | | | | | | | Nominees: | | For | | Against | | Abstain | | | | | | | | | | | | | | | | | | | | 1a. Nicholas D. Chabraja 1b. James S. Crown
1c.1b. Rudy F. deLeon
1d. John M. Keane
1e.1c. Lester L. Lyles
1f.1d. Mark M. Malcolm
1g.1e. Phebe N. Novakovic
1h.1f. C. Howard Nye
1g. William A. Osborn 1i.1h. Catherine B. Reynolds
1j.1i. Laura J. Schumacher
1k.1j. Peter A. Wall
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| | | | The Board of Directors recommends you vote FOR the following proposals: 2. Advisory Vote on the Selection of Independent Auditors 3. Advisory Vote to approve Executive Compensation The Board of Directors recommends you vote 1 year onAGAINST the following proposal: 4. Advisory Vote onShareholder Proposal to reduce the Frequency of Future Executive Compensation Advisory Votes The Board of Directors recommends you vote FOR the following proposal:
5. Approval of the General Dynamics Corporation Amended and Restated 2012 Equity Compensation Planownership threshold required to call a special shareholder meeting
NOTE:Such other business as may properly come before the meeting or any adjournment thereof. | | 1 Year
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| | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Jointsuch.Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | | | | | Signature (Joint Owners) | | Date | | | | | | | | |
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DIRECT DEPOSIT NOTICE General Dynamics Corporation and Computershare remind you of the opportunity to have your quarterly dividends electronically deposited into your checking or savings account. The main benefit of direct deposit to you is knowing that your dividends are in your account on the payable date. Telephone inquiries regarding stock, including registration for direct deposit of dividends, should be made to Computershare’s automated Toll-Free Telephone Response Center at1-800-519-3111. General Dynamics Corporation encourages you to take advantage of one of the convenient ways by which you can vote these shares for matters to be covered at the 20172018 Annual Meeting of Shareholders. You can vote these shares electronically through the Internet or by telephone, either of which eliminates the need to return the proxy card. If you do not wish to vote through the Internet or by telephone, you can vote by mail by following the instructions on the proxy card on the reverse side. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com. — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — E17892-TBDE39053-P03067-Z71842
| | | | | | | | Proxy — GENERAL DYNAMICS CORPORATION PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 3, 20172, 2018 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION The undersigned hereby appoints PHEBE N. NOVAKOVIC, JASON W. AIKEN and GREGORY S. GALLOPOULOS, and each of them, as proxy or proxies, with full power of substitution, to vote all shares of common stock, par value $1.00 per share, ofGENERAL DYNAMICS CORPORATION, a Delaware corporation, that the undersigned is entitled to vote at the 2017Annual2018Annual Meeting of Shareholders, and at any adjournment or postponement thereof, upon the matters set forth on the reverse side and upon such other matters as may properly come before the annual meeting, all as more fully described in the Proxy Statement for the 20172018 Annual Meeting of Shareholders. THIS PROXY WHEN PROPERLY EXECUTED AND TIMELY RETURNED 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 ABOVE, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF THIS PROXY IS PROPERLY EXECUTED AND TIMELY RETURNED BUT NO DIRECTION IS MADE HEREON, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND 5 AND FOR EVERY YEAR FORAGAINST PROPOSAL 4. If you are a participant in the Company’s 401(k) plans, this proxy card constitutes your instructions to Fidelity, the trustee of the plans, as to the vote of the shares of Company common stock in your plan accounts. If you do not submit valid and timely voting instructions, EvercoreNewport Trust Company, N.A., the independent fiduciary and investment manager for the Company common stock in your plan accounts, will direct the vote of your plan shares in its discretion. PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE PROVIDED PROVIDED. | | |
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