SCHEDULE 14A
(Rule 14A-101)
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
[ ] Confidential, For Use of the Commission Only (as Permitted by Rule
14a-6(e)(2))
GRC INTERNATIONAL, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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[OBJECT OMITTED]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on
Thursday, November 5, 1998
The Annual Meeting of Shareholders of GRC International, Inc. will be held at
the offices of the Company located at 1900 Gallows Road, Vienna, Virginia 22182,
on Thursday, November 5, 1998, at 1:30 p.m. local time for the following
purposes:
1. To elect 2 directors for a 3-year term ending in 2001, or until their
successors are elected and qualify.
2. To ratify the selection of Deloitte & Touche as independent public
accountants for the fiscal year ending June 30, 1999.
3. To consider and act upon a shareholder proposal to declassify the Board of
Directors.
4. To consider and act upon a shareholder proposal to terminate the
Shareholder Rights Plan.
5. To consider and act upon any other matters which may properly come before
the meeting, or any adjournments thereof.
The Board of Directors has fixed the close of business on September 18, 1998, as
the record date for the determination of shareholders entitled to notice of, and
to vote at, the Annual Meeting, or any adjournments thereof.
By Order of the Board of Directors
/s/ Thomas E. McCabe
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THOMAS E. McCABE
Senior Vice President, General Counsel & Secretary
October 6, 1998
1900 Gallows Road
Vienna, Virginia 22182
TABLE OF CONTENTS
Page
----
ELECTION OF DIRECTORS 2
RATIFICATION OF ACCOUNTANTS 5
OTHER MATTERS 5
OTHER INFORMATION 6
Operation of Board and Committees 6
Executive Officers 7
Summary Compensation Table 8
Option Grants in Last Fiscal Year 9
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values 10
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements 11
Compensation Committee Report on Executive Compensation 12
Performance Graph 15
Compensation of Directors 16
Certain Relationships and Related Transactions 16
Compensation Committee Interlocks and Insider Participation 17
Section 16(a) Beneficial Ownership Reporting Compliance 17
Security Ownership of Principal Shareholders and Management 18
SHAREHOLDER PROPOSAL TO DECLASSIFY THE BOARD OF DIRECTORS 20
SHAREHOLDER PROPOSAL TO TERMINATE THE SHAREHOLDER RIGHTS PLAN 22
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS 24
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors ("Board") of GRC International, Inc. ("GRC
International", "GRCI" or "Company") for use at the Annual Meeting of
Shareholders at the Company's offices, 1900 Gallows Road, Vienna, Virginia
22182, on Thursday, November 5, 1998, at 1:30 p.m., and any adjournments
thereof. This Proxy Statement and the accompanying proxy are first being sent or
given to shareholders on or about October 6, 1998.
Unless revoked prior to exercise, all proxies representing shares entitled to
vote which are delivered pursuant to this solicitation will be voted at the
meeting. Where the shareholder's choice has been specified on the proxy, the
proxy will be voted accordingly. If a choice is not indicated, the proxy will be
voted in the manner recommended by the Board. If the enclosed proxy is executed
and returned, it may nevertheless be revoked at any time prior to the voting
thereof (i) by filing with the Secretary of the Company a written notice of
revocation thereof or a duly executed proxy bearing a later date, (ii) by giving
written notice to the Company of death or incapacity of the shareholder, or
(iii) as to any matter presented at the meeting, by the shareholder's voting in
person upon such matter. The execution of the enclosed proxy will not affect a
shareholder's right to vote in person at the meeting should the shareholder
later find it convenient to attend the meeting and desire to vote in person.
Only the holders of record of the Company's $0.10 par value Common Stock
("Stock") at the close of business on September 18, 1998, will be entitled to
vote at the meeting. On that date the Company had 10,216,563 shares of Stock
outstanding. Holders of the Stock are entitled to one vote per share on all
business of the meeting. The presence, in person or by proxy, of a majority of
the outstanding shares of Stock will constitute a quorum for the meeting.
A nominee will be elected as a director if he receives a plurality of votes, and
other matters will be approved if a majority of the shares present at the
meeting in person or by proxy and entitled to vote on the subject matter are
voted in favor of approval of such item. In the election of directors, votes may
be cast in favor or withheld; votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on any item
other than the election of directors and will be counted as present for purposes
of the matter for which the abstention is noted. Accordingly, an abstention will
operate to prevent approval of any such matter to the same extent as a vote
against approval of such matter.
Under the rules of the New York Stock Exchange ("NYSE"), brokers who hold shares
in street name for customers have the authority to vote on certain items when
they have not received instructions from beneficial owners, but are not
permitted to vote on certain other matters in the absence of such instructions.
The withholding of a vote on a matter by a broker who has not received such
instructions and is not otherwise permitted to vote on such matter is known as a
"broker non-vote." A "broker non-vote" with respect to any matter to be
considered at the Annual Meeting of Shareholders will have no effect on the
outcome of the vote on such matter.
YOUR VOTE IS IMPORTANT! Please sign and date the enclosed proxy card and return
it promptly in the enclosed postage-paid envelope. The prompt return of your
proxy will ensure that your vote is counted and will enable us to reduce
expenses associated with follow-up mailings. In the event you attend the
meeting, the proxy will not be used if you revoke it or vote in person on a
given item.
ELECTION OF DIRECTORS
On September 17, 1998, your Board adopted a restructuring plan, which reduces
the size of the Board to 7 directors. The Board adopted this restructuring plan
because it believes that 7 is a more appropriate number of directors for the
Company than the current size of the Board, which is 12.
The restructuring will become effective at the 1998 Annual Meeting of
Shareholders. The Board will continue to consist of 3 classes, two classes with
2 directors and one class with 3 directors. The class of directors whose terms
expire at the 1998 Annual Meeting of Shareholders is the third class. The
nominees for the third class are Frank J.A. Cilluffo and Leslie B. Disharoon.
The nominees and continuing directors are listed in the table on the following
page. The terms of office of the nominees will commence upon election and will
continue until the end of their 3-year terms or until their successors are
elected and qualify.
Members of the first and second classes will be elected for 3-year terms at the
1999 and 2000 annual meetings, respectively. Any vacancy or newly created
directorships in any class may be filled by the Board, and any director so
elected will serve for the remainder of the term of the class to which he has
been elected by the Board.
In the election of directors, each shareholder has the right to vote his shares
cumulatively; i.e., to cast as many votes as there are directors to be elected,
multiplied by the number of shares registered in his name on the record date,
and to cast all such votes for one nominee, or distribute such votes among the
nominees in accordance with his choice. A shareholder wishing to designate the
allocation of his vote among the nominees may do so by indication on the
enclosed proxy card or by personal vote at the Annual Meeting. Unless otherwise
directed on the proxy card, management proxy holders will be authorized, in
their discretion, to cumulate votes, so that, for example, they may vote proxies
for the largest number of the 2 nominees proposed by management which can be
elected by cumulative vote.
Management has no reason to believe that any nominee will not be available to
serve; but, if any nominee should become unable to serve, the shares represented
by management proxies may be voted instead for the election of another person
recommended by the Board.
The table that follows sets forth (i) the name, age and principal occupation of
each nominee and continuing director, (ii) the year in which each nominee's or
continuing director's term of office will expire, and (iii) the year in which
each nominee or director was first elected or appointed to the Board of the
Company. Unless otherwise noted, service on the Board has been without
interruption. Following the table, additional information is provided regarding
all nominees and continuing directors.
VOTE REQUIRED
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The vote required for election of a director is a plurality of the votes of the
shares present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors.
The Board recommends a vote "FOR" the nominees.
NOMINEES, DIRECTORS TERM FIRST
AND PRINCIPAL OCCUPATIONS AGE EXPIRES ELECTED
------------------------- --- ------- -------
NOMINEES:
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FRANK J.A. CILLUFFO
Managing General Partner, Cilluffo Associates, L.P. 55 2001 1996
LESLIE B. DISHAROON
Corporate Director................................................ 66 2001 1992
DIRECTORS WITH CONTINUING TERMS:
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H. FURLONG BALDWIN
Chairman & Chief Executive Officer,
Mercantile Bankshares Corporation................................ 66 1999 1981
GARY L. DENMAN
President & CEO, GRC International, Inc........................... 59 1999 1998
JOSEPH R. WRIGHT, Jr.
Chairman, GRC International, Inc.
Chairman & CEO, AmTec, Inc. ...................................... 60 1999 1994
PETER A. COHEN
Principal, Ramius Capital Group.................................. 51 2000 1997
CHARLES H.P. DUELL
President, Middleton Place Foundation
and Middleton Inn Company....................................... 60 2000 1993
H. FURLONG BALDWIN, 66, has been Chief Executive Officer of Mercantile
Bankshares Corporation since 1976, and Chairman since 1984. He has been Chairman
and Chief Executive Officer of Mercantile-Safe Deposit & Trust Company since
1976. He is a director of Mercantile-Safe Deposit & Trust Company; Mercantile
Bankshares Corporation; Baltimore Gas & Electric Company; Constellation
Holdings, Inc.; CSX Corporation; Offitbank; Wills Group; and The St. Paul
Companies. He is a Trustee and Past Chairman of Johns Hopkins Hospital and Johns
Hopkins Health System, and a Trustee of Johns Hopkins University.
FRANK J.A. CILLUFFO, 55, has been managing general partner of Cilluffo
Associates, L.P., an investment firm, since he founded it in 1979. He is also a
director of Stone & Webster, Inc.
PETER A. COHEN, 51, is a principal of Ramius Capital Group ("Ramius"), a
privately-held, specialized investment firm. He became Vice Chairman of GRC
International in 1997. From 1971 to 1990 he held various positions within
Shearson Lehman Brothers and its predecessors, culminating in his serving as
Chairman of the Board and Chief Executive Officer from 1987 to 1990. Subsequent
to his departure from Shearson Lehman, he became Chairman of Republic New York
Securities Corporation. He was also Vice Chairman of Republic New York
Corporation and a member of its Management Executive Committee. He is a Director
of Presidential Life Corporation, Olivetti SpA and Andover Togs Inc. He is also
a Trustee of Mt. Sinai Hospital, a board member of The Ohio State University
Foundation, Co-Chairman of the New York Holocaust Memorial Commission and a
Director of the Museum of Jewish Heritage. He has served as a Director of the
New York Stock Exchange, American Express Company, Republic New York
Corporation, Societe General de Belgique S.A., Cofide and Cerus S.A., The New
York Federal Reserve Bank International Capital Markets Advisory Committee, The
Depository Trust Company and The New York City Opera.
GARY L. DENMAN, 59, has been President and Chief Executive Officer since July 1,
1998. He was President and Chief Operating Officer from March 1998 to June 1998.
From 1995 to 1998, he was Executive Vice President and Chief Operating Officer.
He joined the Company in 1995 as Senior Vice President for Strategic Planning.
From 1992 to 1995, he was Director of the Department of Defense Advanced
Research Projects Agency ("ARPA"), the premier Federal research and development
agency. He was Deputy Director of ARPA from 1990 to 1992. Prior to joining ARPA
he was Deputy Director of the U.S. Air Force's Wright Laboratories at Wright
Patterson Air Force Base from 1988 to 1990. From 1982 to 1988, he was Director
of the Air Force Materials Laboratory and Director of the Air Force
Manufacturing Technology Program.
LESLIE B. DISHAROON, 66, was Chairman, President and Chief Executive Officer of
Monumental Corporation from 1979 until his retirement in 1988. He is a director
of Aegon USA and Travelers Property Casualty Co. He is Chairman of MSD&T Funds,
Inc. and Chairman of the Board of the Johns Hopkins Health System Endowment.
CHARLES H.P. DUELL, 60, has been President of Middleton Place Foundation since
1974. Middleton Place Foundation is a non-profit educational trust that owns and
interprets the Middleton Place National Historic Landmark in Charleston, South
Carolina. He has also been President of the Middleton Inn Company since 1991.
His responsibilities include historic preservation, tourism, timber and land
management, and real estate development. He is also a director of Alliance
Capital Reserves; Alliance Government Reserves; and Alliance Tax-Exempt Reserves
(and associated funds). He is a Trustee Emeritus of the National Trust for
Historic Preservation, and a member of the Board of Architectural Review for the
City of Charleston.
JOSEPH R. WRIGHT, Jr., 60, was named Chairman of the Company in 1997. He has
also been Chairman and Chief Executive Officer of AmTec, Inc. since 1995. AmTec
is a public company engaged principally in developing telecommunications
networks in the People's Republic of China. He also serves as co-Chairman of
Baker & Taylor Holdings Inc., an international book and video distribution
Company. From 1989 to 1994, he served as Executive Vice President, Vice Chairman
and director of W.R. Grace & Co., an international specialty chemicals and
health care company. From 1988 to 1989, he was a member of the President's
Cabinet as Director of the White House Office of Management and Budget ("OMB").
He was Deputy Director of OMB from 1982 to 1988, Deputy Secretary of Commerce
from 1981 to 1982, President of Citicorp Retail Services and Retail Consumer
Services from 1976 to 1981, and a partner at Booz, Allen and Hamilton Inc. from
1966 to 1971. He is also a director of AmTec, Baker & Taylor, PanAmSat, RealMed
and Barington Capital Corporation.
RATIFICATION OF ACCOUNTANTS
The Board has selected Deloitte & Touche to serve as the Company's independent
public accountants for the fiscal year ending June 30, 1999. Deloitte & Touche
has offices near or convenient to most of the Company's operations. The Board is
satisfied as to the professional competence and standing of Deloitte & Touche.
Representatives of Deloitte & Touche are expected to be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so, as well as being available to respond to appropriate questions.
VOTE REQUIRED
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The vote required for ratification of the selection of Deloitte & Touche is the
affirmative vote of a majority of the shares present in person or represented by
proxy at the Annual Meeting and entitled to vote on the subject matter.
The Board recommends a vote "FOR" the proposal to ratify the selection of
Deloitte & Touche as independent public accountants.
OTHER MATTERS
Management does not intend to present to the meeting any matter not referred to
above, and, with the exception of the shareholder proposals described later in
this document, does not presently know of any matters that may be presented to
the meeting by others. If other matters properly come before the meeting, the
management proxy holders intend to vote the proxy in accordance with their
judgment. Proxies will be solicited for use at the meeting primarily by mail.
Proxies may also be solicited personally and by telephone by regular employees
of the Company, who will receive no additional compensation therefor. The
Company has engaged the proxy solicitation firm of Georgeson & Company to assist
in the solicitation of proxies at an estimated cost of $8,000 plus expenses. The
Company will reimburse the brokers and other persons holding the Company's
shares registered in their names, or in the names of their nominees, for their
expenses incurred in sending proxy materials to and obtaining proxies from the
beneficial owners of such shares. All expenses in connection with the
solicitation of proxies will be borne by the Company.
OTHER INFORMATION
OPERATION OF BOARD AND COMMITTEES
The Board of the Company has standing Audit, Compensation, Ethics and Executive
& Nominating Committees.
The Audit Committee reviews the results of, and suggestions provided in
connection with, the Company's annual audit by its independent public
accountants; reviews accounting procedures established by management; and
considers matters relating to non-audit services by the Company's independent
public accountants. During fiscal 1998, the Committee held 2 meetings. The
members of the Committee are Mr. Baldwin (Chairman), Mr. Disharoon and Mr.
Duell.
The Compensation Committee represents the full Board in matters of executive
compensation, and from time to time recommends to the full Board appropriate
methods and amounts of executive and director compensation. It also administers
the Company's employee and executive stock option plans. During fiscal 1998, the
Committee held 6 meetings. The members of the Committee are Mr. Disharoon
(Chairman), General Meyer and Dr. Packard.
The Ethics Committee oversees and reviews ethical compliance within the Company.
During fiscal 1998, the Committee held 3 meetings. The members of the Committee
are Dr. Rabin (Chairman), Mr. Cilluffo, Dr. Packard and Dr. Warren.
The Executive & Nominating Committee has the authority to exercise all of the
powers of the Board in the management of the business and affairs of the Company
between the meetings of the Board, except to the extent prohibited by applicable
law or regulation. It also reviews and makes recommendations in regard to the
election of officers and directors for the Company. During fiscal 1998, the
Committee held 3 meetings. The members of the Committee are Mr. Wright
(Chairman), Mr. Baldwin, Mr. Cohen, Mr. Disharoon, Dr. Denman (effective March
26, 1998), General Meyer and Mr. Roth.
The Chairman of the Board is an ex-officio member of all the standing committees
upon which he does not serve as a regular standing member. The President is an
ex-officio member of the Executive & Nominating Committee.
The Executive & Nominating Committee will consider recommendations submitted by
shareholders for nominees for director. Such recommendations should be in
writing and delivered or mailed to the Company c/o Thomas E. McCabe, Senior Vice
President, General Counsel & Secretary, 1900 Gallows Road, Vienna, Virginia
22182. In addition, nominations for the election of directors may be made by
shareholders in accordance with procedures set forth in the Company's
Certificate of Incorporation. Copies of such procedures may be obtained without
charge by contacting Mr. McCabe at the above address.
The Board held 7 meetings during fiscal 1998. No Board member attended fewer
than 75% of the meetings of the Board and Board Committees on which that
director served, except for George Packard, who attended 69% of such meetings.
EXECUTIVE OFFICERS
In addition to Dr. Denman, the following persons are executive officers of the
Company:
THOMAS E. McCABE, 43, joined the Company as Vice President-Legal and Secretary
in 1992. He was promoted to the additional offices of General Counsel in 1993
and Senior Vice President in 1995. He was a founding partner of the Washington
law firm of McCarthy & Burke from 1988 through 1991, and an attorney with its
predecessor McCarthy & Durrette from 1985 to 1988. He was an attorney with
Venable Baetjer & Howard from 1984 to 1985, and Reavis & McGrath from 1982 to
1984. He was law clerk to Judge Richey in the U.S. District Court for D.C. from
1981 to 1982.
JAMES L. SELSOR, 53, has been Senior Vice President since 1996 and Director of
GRCI's Information Systems Division ("ISD") since 1995. He is responsible for
the overall management and direction of ISD. Before being named Director of ISD,
he was Vice President and Director of ISD's Advanced Information Technology
Center where he held full management responsibility for several programs such as
the Reserve Component Automation System (RCAS), the Joint Computer Aided
Acquisition and Logistic Support (JCALS) program and many other information and
decision support systems contracts for the federal government and private
companies. Prior to joining GRCI, he managed the Missile Planning Division for
ANSER (Analytic Services, Inc.) from 1986 to 1989, where he was responsible for
operations research analysts, mathematicians, political scientists and
economists that identified, researched and analyzed national and international
defense issues. Prior to joining ANSER he was a career officer in the U.S. Army.
MICHAEL G. STOLARIK, 47, has been Senior Vice President, Strategic Planning, and
Acting Director of Decision Technologies Division since 1998. Prior to that he
was President and Chief Executive Officer at Space Applications Corporation from
1995 to 1997. From 1975 to 1995, he was at BDM International. He served as BDM's
Corporate Vice President from 1989 to 1995 with responsibility for the company's
operating group performing information technology and systems integration
projects. He was Vice President and General Manager of BDM's Communications and
Data Systems Division from 1987 to 1989, and Vice President of Information
Systems from 1985 to 1987. He also served as BDM's Chief Information Officer in
1994 and 1995.
SUMMARY COMPENSATION TABLE
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LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------
------------------------------------------ AWARDS
------
Name and Other Annual Securities All Other
Principal Position Year Salary 1 Bonus 1 Compensation 2/ Underlying Options 3/ Compensation 4/
- ------------------ ---- -------- ------- -------------- -------------------- --------------
James Roth 1998 $300,000 $229,200 NA 70,000 $12,638
President & CEO 1997 $296,250 5/ - 0 - $ 919 62,808 5/ $11,240
1996 $240,000 5/ - 0 - $43,224 53,535 5/ $10,317
Gary L. Denman 1998 $187,308 6/ $ 57,300 6/ $12,173 268,724 6/ $12,639
Executive Vice President, 1997 $180,000 6/ - 0 - $ 5,569 29,196 6/ $12,850
Chief Operating Officer 1996 $145,330 6/ - 0 - $27,296 22,207 6/ $ 7,957
James L. Selsor 1998 $140,616 $101,960 $ 1,758 10,000 $11,182
Senior VP, Director ISD 1997 $130,693 7/ $ 61,418 7/ $ 682 6,789 7/ $11,553
1996 $106,459 7/ $ 48,133 7/ $ 4,454 10,449 7/ $10,569
Thomas E. McCabe 1998 $181,569 $ 57,300 N/A 25,000 $11,033
Senior VP, General Counsel 1997 $148,698 8/ - 0 - $ 5,875 27,133 8/ $11.015
& Secretary 1996 $112,500 8/ - 0 - $25,836 17,179 8/ $12,750
Ronald B. Alexander 1998 $167,208 $ 57,300 $ 410 25,000 $13,461
Senior VP-Finance, Chief 1997 $158,000 9/ - 0 - $ 1,066 50,611 9/ $ 5,950
Financial Officer & Treasurer 1996 $ 26,667 9/ $ 40,000 N/A 50,000 N/A
- --------------------------------------------------
1/ Under the Cash Compensation Replacement Plan ("CCRP"), salary and bonus
replaced with options are not included in the "Salary" and "Bonus" columns,
but salary and bonus replaced with stock are included in those columns.
CCRP stock and option discounts are included in the "Other Annual
Compensation" column. CCRP options are also included in the "Securities
Underlying Options" column.
2/ Represents discounts on purchase of stock or options under the CCRP.
3/ The options shown in this column were awarded pursuant to conventional
employee stock option plans, except where footnotes indicate that the
executive has given up salary or bonus in exchange for options (at a
discount) under the CCRP.
4/ Company contributions to defined contribution plans.
5/ Under the CCRP, Mr. Roth gave up $3,750 of salary for 308 options in 1997,
and $60,000 of salary for 3,535 options in 1996.
6/ Under the CCRP, Dr. Denman gave up $20,812 of salary and $57,300 of bonus
for 18,724 options in 1998, $20,000 of salary for 4,196 options in 1997,
and $38,443 of salary for 2,207 options in 1996.
7/ Under the CCRP, Mr. Selsor gave up $3,119 of salary and $2,500 of bonus for
539 options in 1997, and $5,591 of salary and $1,867 of bonus for 449
options in 1996.
8/ Under the CCRP, Mr. McCabe gave up $20,053 of salary for 2,133 options in
1997, and $37,500 of salary for 2,099 options in 1996.
9/ Under the CCRP, Mr. Alexander gave up $2,000 of salary for 611 options in
1997. He joined the Company on April 29, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Number of % of Total
Securities Options Exercise Market
Underlying Granted to or Base Price at Grant
Options Employees Price Date of Expiration Date
Name Granted(#) in Fiscal Year ($/Sh) Grant Date Value 4/
---- ---------- -------------- ------ ----- ---- -------
James Roth 70,000 1/ 11.9% $5.50 $ 5.50 7/24/07 $ 254,100
Gary L. Denman 50,000 1/ 8.5% $5.50 $ 5.50 7/24/07 $ 181,500
200,000 1/ 34.0% $7.88 $ 7.88 5/28/08 $1,038,000
1,362 2/ 0.2% $1.54 2/ $ 6.97 2/ $ 8,458
1,361 2/ 0.2% $1.60 2/ $ 5.97 2/ $ 7,077
1,401 2/ 0.2% $1.57 2/ $ 5.72 2/ $ 6,963
1,106 2/ 0.2% $1.99 2/ $10.44 2/ $ 10,441
13,494 2/ 2.3% $1.77 2/ $ 4.69 2/ $ 56,000
James L. Selsor 10,000 1/ 1.7% $5.50 $ 5.50 7/24/07 $ 36,300
Thomas E. McCabe 25,000 1/ 4.2% $5.50 $ 5.50 7/24/07 $ 90,750
80 3/ 0.0% $8.16 $ 8.16 11/4/98 $ 91
Ronald B. Alexander 25,000 1/ 4.2% $5.50 $ 5.50 7/24/07 $ 90,750
- -------------------------------------------
1/ Options granted under 1994 Employee Option Plan or the 1996 Officers Stock
Option Plan. The options expire 10 years after grant. Mr. Roth's options
are exercisable 6 months after grant. The other options are 50% exercisable
2 years after grant, 25% exercisable 3 years after grant, and 25%
exercisable 4 years after grant, except for Dr. Denman's 200,000 share
grant, which is 50% exercisable 1 year after grant and 100% exercisable 2
years after grant.
2/ Options under the Cash Compensation Replacement Plan ("CCRP") are granted
at the end of each calendar quarter to executives who have elected to
forego cash compensation in exchange for options under the plan. Executives
may forego up to 25% of salary and 100% of bonus in exchange for the
options. The exercise price of the options is equal to 25% of the average
fair market value of the Stock during the quarter in which the cash
compensation would have been received. The number of options granted is
determined by dividing the foregone compensation by 80% of the option
"spread" at grant, which is the difference between (i) the average fair
market value of the Stock during the quarter and (ii) the exercise price of
the option. This formula gives the executive a 20% discount from the
"spread". This "spread" is less than the "grant date value" shown in the
table above, which is based on a different valuation method (described in
note 4). The options are 80% exercisable upon grant, 90% exercisable in 2
years, 95% exercisable in 3 years, and 100% exercisable in 4 years. The
options expire 3 years after employment terminates.
3/ Immediately exercisable options granted under the 1994 Employee Option Plan
in exchange for conversion of incentive stock options to non-qualified
stock - options.
4/ Grant date values were calculated using the Black-Scholes option pricing
model, assuming (i) 15-year term for options granted under the CCRP; (ii)
6% annual interest rate; (iii) 45% volatility; and (iv) no dividends. The
ultimate values of options, if any, will depend on the future market price
of the Stock, which cannot be predicted.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES
Number of Securities Value of
Underlying Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at FY-End(#) at FY-End 1/
on Value ----------- ------------
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------- ---------- ------------------------- -------------------------
James Roth 70,000 $185,916 172,941 4,063 $72,954 $ 3,684
Gary L. Denman - 0 - - 0 - 50,338 297,196 $73,331 $729,491
James L. Selsor - 0 - - 0 - 9,653 23,585 $ 2,547 $ 48,137
Thomas E. McCabe 7,272 $ 12,810 15,554 60,960 $ 859 $123,605
Ronald B. Alexander 488 $ 2,967 25,000 100,123 - 0 - $119,844
- ------------------------------------
1/ Option values calculated by subtracting (i) the weighted exercise price of
the named executives' options from (ii) $10.25, which was the closing
price of the Stock on June 30, 1998, then multiplying such amount by the
aggregate number of shares underlying the named executive's options. All
in-the-money options were granted under the Cash Compensation Replacement
Plan ("CCRP") under which executives forego cash compensation in exchange
for options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company had an employment agreement with Mr. Roth which expired June 30,
1998. It provided for an annual salary of $300,000, and an annual bonus equal to
2% of the Company's net income, without regard to extraordinary items. Because
of his relocation in 1992 from California to Virginia at the Company's request,
the Company will pay the cost of Mr. Roth's moving back to California (subject
to the limits of the then-current Company policy covering such situations and
subject to an aggregate limit of $100,000). The agreement also provides Mr. Roth
and his wife with lifetime medical, dental and vision insurance.
Effective July 1, 1998 upon his promotion to President & CEO, the Company and
Dr. Denman entered into a new agreement which provides for an annual salary of
$330,000, and an annual bonus equal to 2% of the Company's net income, without
regard to extraordinary items. The agreement is for a three-year term expiring
June 30, 2001, but is terminable immediately by the Company for cause. During
the 30 months following a change in control, if the Company terminated his
employment without cause or took certain other adverse actions, then he would
receive a lump-sum severance payment equal to 2 times his annual salary and 2
times his target bonus (2% of the Company's budgeted net income), and his
employee benefits would continue until the earlier of (A) such time as he
obtains new benefits coverage by reason of new employment, or (B) the 2 year
anniversary of his termination of employment. The agreement also provides Dr.
Denman and his wife with lifetime dental and vision insurance. It also provides
an annual financial and estate planning allowance of up to $10,000.
Prior to July 1, 1998, the Company had an employment agreement with Dr. Denman
which provided for an annual salary of $210,104. The agreement was terminable
immediately by the Company for cause, or by either party without cause on 6
months notice. During the 30 months following a change in control, if the
Company terminated his employment without cause or took certain other adverse
actions, then he would have received a lump-sum severance payment equal to 2
times his annual salary, and his employee benefits would have continued until
the earlier of (A) such time as he obtains new benefits coverage by reason of
new employment, or (B) the 2 year anniversary of his termination of employment.
This agreement is now expired, having been replaced by the new agreement
described above.
The Company has an employment agreement with Mr. McCabe which provides for an
annual salary of $199,000. The agreement may be terminated immediately by the
Company for cause, or by either party without cause on 6 months notice. During
the 30 months following a change in control, if the Company terminates his
employment without cause or takes certain other adverse actions, then he shall
receive a lump-sum severance payment equal to 2 times his annual salary, and his
employee benefits shall continue until the earlier of (A) such time as he
obtains new benefits coverage by reason of new employment, or (B) the 2 year
anniversary of his termination of employment. In addition, the Company must
reimburse him for any legal fees and expenses he incurs in successfully
enforcing these rights. The Company had a similar agreement with Mr. Alexander
(with an annual salary of $169,608) until his resignation in September 1998.
The Company has an employment agreement with Mr. Selsor which provides for an
annual salary of $165,000. The agreement may be terminated immediately by the
Company for cause, or by either party without cause on 6 months notice. During
the 30 months following a change in control, if the Company terminates his
employment without cause or takes certain other adverse actions, then he shall
receive a lump-sum severance payment equal to 1.5 times his annual salary, and
his employee benefits shall continue until the earlier of (A) such time as he
obtains new benefits coverage by reason of new employment, or (B) the 1.5 year
anniversary of his termination of
employment. In addition, the Company must reimburse him for any legal fees and
expenses he incurs in successfully enforcing these rights.
The Company also offered "stay-put" bonuses to Messrs. Roth, Denman, Selsor,
McCabe and Alexander during fiscal 1998. These bonuses were to be paid to the
named executives if they did not voluntarily leave the Company prior to any
change in control and for specified times thereafter. The maximum "stay-put"
bonus offered to each of the named executives was as follows: Mr. Roth,
$313,254; Dr. Denman, $165,770; Mr. Selsor, $63,076; Mr. McCabe, $121,307; and
Mr. Alexander, $84,804. The "stay-put" arrangements expired September 30, 1998,
and no "stay-put" payments were made.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
This report describes the philosophy underlying the cash and equity-based
components of GRCI's executive pay program. It also describes each element of
the program, as well as the rationale for compensation paid to GRCI's Chief
Executive Officer. So that the Company's executive compensation program will be
administered objectively, this Committee is comprised entirely of independent
directors. Further, Committee members have no "interlocking" relationships as
defined by the SEC. The Committee represents the full Board in matters of
executive compensation, and recommends to the Board appropriate methods and
amounts of executive compensation. It also administers the Company's stock
option plans.
Compensation Policy and Overall Objectives.
- ------------------------------------------
GRCI's executive compensation program is designed to link a significant part of
executive pay to Company performance, and to the interests of GRCI's
shareholders. In determining or approving the amount and composition of
executive compensation, the Committee's goal is to provide a compensation
package that will enable the Company to attract and retain talented executives,
reward outstanding performance, and encourage GRCI executives to focus on the
interests of shareholders. The Committee's overall focus is on total
compensation, although it also examines the individual elements of compensation.
The primary components of the Company's executive compensation package are
salary, bonus, and stock options.
Salaries.
- --------
The Committee's review of each executive officer's base salary takes into
consideration the duties of the position, the competitive market, the experience
and qualifications of the executive, the performance of the executive, and
equity issues relating to pay for other Company executives. In making or
approving salary decisions, the Committee exercises its discretion and judgment
based on these factors. No specific formula is applied to determine the weight
of each factor.
Bonuses.
- -------
Under the Company's Incentive Compensation Plan, executives may receive bonuses
based on performance. With the exception of the CEO's bonus, which is discussed
below, bonuses are discretionary, and not targeted to a fixed percentage of
salary; rather, they are based on several performance factors, including the
performance of the Company as a whole or the performance of the executive's
division, improvement of business base, quality of service and
product, control of costs, quality of personnel selection and training, and
conformity to general Company policies and directives. No specific weighting has
been assigned to these performance measures. Bonuses are typically determined
and paid after fiscal year end, in conjunction with a review of the Company's
performance for the year in question.
Stock Options.
- -------------
GRCI has two types of employee stock option plans. The first type is
conventional option plans, under which options are granted at fair market value
to key employees who are expected to contribute materially to the Company's
success. The Committee intends to continue using stock options as the primary
long-term incentive, because they provide rewards to executives only to the
extent the Stock price increases after the options are granted. This helps to
focus executives on increasing shareholder value over the long term.
The Company's officers are also eligible to participate in the Cash Compensation
Replacement Plan ("CCRP"), under which executives may elect quarterly to
exchange up to 25% of their salary and 100% of their bonus for stock or options.
The purpose of the CCRP is to permit and encourage executives to voluntarily
replace one form of compensation (cash) with another (Stock or options).
Participants purchase Stock or options at a discount. The formula under which
options are acquired under the CCRP is described in Note 2 to the Table on page
10 entitled "Option Grants in Last Fiscal Year". The Committee believes that the
CCRP is an appropriate means to encourage equity ownership among executives and
more closely align their interests with those of shareholders, while reducing
the Company's cash outlays for executive compensation.
Compensation of the Chief Executive Officer.
- -------------------------------------------
Effective July 1, 1994, Mr. Roth's base salary was increased to $300,000. His
previous salary of $250,000 was the same level of salary that had been paid to
the Company's CEO since 1989. Under the employment agreement described above
under "Employment Agreements", the current level of salary is payable to Mr.
Roth through fiscal 1998. The Committee believes that Mr. Roth's salary was
roughly at the median of market levels during his term as CEO, based on surveys
of CEO pay levels in the high-tech industry (which does not necessarily contain
the same companies as those contained in the peer group index in the performance
chart following this section).
Upon Dr. Denman's promotion to CEO on July 1, 1998, the Committee raised the
CEO's salary to $330,000. This amount was determined by the Committee to be a
reasonable increase in the CEO's salary which had been at the $300,000 level
since July 1, 1994. The Committee also believes the salary is roughly at the
median of current market levels.
To encourage the CEO to do his utmost to increase the Company's profitability,
his bonus is strictly based on a formula tied to net income. Specifically, the
CEO receives 2% of the Company's consolidated net income, without regard to any
extraordinary items of income or loss. The Committee believes this formula
provides the opportunity for payoffs commensurate with the Company's earnings.
The Committee also grants conventional stock options to the CEO in amounts
determined by the Committee as appropriate to align his compensation package
with shareholder interests and believed by the Committee to be consistent with
competitive market practice.
Deductibility of Compensation Under Section 162(m) of the Internal Revenue Code.
- -------------------------------------------------------------------------------
Because the salary and bonus levels of the Company's CEO and other executive
officers are well below the $1 million cap on deductible executive compensation
under Section 162(m) of the Internal Revenue Code, the Committee believes there
is no current need to qualify these salary and bonus components of the Company's
executive compensation program under that Section. The Committee has, however,
sought to ensure that compensation that may in the future be recognized by
executives under the Company's stock option programs will be fully deductible
under Section 162(m). Nevertheless, the Committee reserves the right to award
future compensation which would not (or potentially would not) comply, if it
determines this to be in the Company's best interest.
Change in Control Severance and Related Items.
- ---------------------------------------------
In July 1997, the Board of Directors, on recommendation of the Compensation
Committee, implemented certain changes in the Company's change in control
severance policy, to bring the policy more into line with current market
practices. An independent compensation consultant, Frederick W. Cook & Co.,
Inc., found that the Company's change in control severance was inferior to
current market practices, and recommended the adoption of the new policy
(including the "stay-put" bonuses), which was subsequently adopted by the Board.
The new policy, as currently implemented, is described above under "EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS." The
Compensation Committee believes that the new change in control severance policy
(including the "stay-put" bonuses) is in the best interests of the Company and
its shareholders, because it is designed to retain key executives in spite of
the uncertainties which may occur during any change in control. The loss of key
executives during a change in control would be disruptive to the Company's
business and detrimental to shareholder value.
Leslie B. Disharoon, Chairman, Compensation Committee
Edward C. Meyer
George R. Packard
CUMULATIVE TOTAL SHAREHOLDER RETURN 1/
PERFORMANCE CHART
[GRAPH OMITTED]
INDEXED RETURNS
Base Years
Period Ending
------ ------
Company/Index 1993 1994 1995 1996 1997 1998
------------- ---- ---- ---- ---- ---- ----
GRC International, Inc. 100 204 268 653 94 174
S&P 500 Index 100 101 128 161 217 282
S&P Technology-500 100 108 176 210 319 429
ANNUAL RETURN PERCENTAGES
Years
Ending
------
Company/Index 1994 1995 1996 1997 1998
------------- ---- ---- ---- ---- ----
GRC International, Inc. 104 31 144 (86) 86
S&P 500 Index 1 26 26 35 30
S&P Technology-500 8 63 19 52 34
1/ Graph and tables show cumulative total return through June 30, 1998 of $100
investment made on June 30, 1993, with dividends reinvested.
COMPENSATION OF DIRECTORS
Non-employee directors are paid an annual retainer of $12,000 and an additional
$1,000 for each Board meeting they attend, and $500 for each Committee meeting
they attend. Committee Chairmen are paid $800 for each Committee meeting they
attend. The Company also provides each director a $50,000 term life insurance
policy. During Mr. Wright's first year as Chairman (March 10, 1997 through March
9, 1998) he received the normal Board retainer and Board and Committee meeting
fees, but no special cash compensation as Chairman. Rather, he was granted an
option to purchase 150,000 shares of Stock at $4.125 per share, which was the
market price of the Stock at the time of his election as Chairman. The option
expires on March 10, 2007. Effective March 10, 1998, Mr. Wright no longer
receives any Board retainer or Board or Committee meeting fees, instead he
receives a Chairman's fee of $25,000 per quarter. During the time Mr. Cohen has
served as Vice Chairman (since September 25, 1997) he has received the normal
Board retainer and Board and Committee meeting fees, but no special cash
compensation as Vice Chairman. Rather, he was granted an option to purchase
75,000 shares of Stock at $7.125 per share, which was the market price of the
Stock at the time of his election as Vice Chairman. The option expires on
September 25, 2007.
Non-employee directors may elect to forego their cash compensation in exchange
for Stock, phantom Stock units having the same value as Stock, or stock options.
The exercise price of the options is equal to 25% of the average fair market
value of the Stock during the quarter in which the cash compensation would have
been received. The number of options granted is determined by dividing the
foregone compensation by the option "spread" at grant, which is the difference
between (i) the average fair market value of the Stock during the quarter, and
(ii) the exercise price of the option. This "spread" is less than the "grant
date value" of the option under the Black-Scholes option pricing model. The
options are immediately exercisable. They expire 3 years after a director leaves
the Board, and otherwise have no fixed expiration date.
The Company also has a retirement plan for non-employee directors. The plan
provides that after termination of service of an outside director for any
reason, such director will receive the annual retainer fee in effect at that
time for the lesser of 15 years or life (or the actuarial equivalent in a lump
sum or other format). Outside directors become 50% vested after 5 years of
service, with an additional 10% becoming vested each year thereafter, until full
vesting is achieved after 10 years of service. In the event of a change in
control, however, directors immediately become fully vested.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company loaned Mr. Roth $230,000 in connection with his relocation in 1992
from California to Virginia at the Company's request. The loan is secured by a
second deed of trust on Mr. Roth's Virginia residence, and, until July 1, 1998,
bore interest at the rate of 6% per year. Effective July 1, 1998, one-half of
the outstanding principal amount of the loan was forgiven, and the loan ceased
to bear interest. Subject to Mr. Roth's compliance with his various agreements
with the Company, the second half of the loan will be forgiven effective July 1,
1999. Until this year, Mr. Roth was obligated to make annual interest payments
on the loan. The loan was outstanding throughout fiscal 1998.
The Company entered into a consulting agreement with Mr. Roth effective July 1,
1998, at a rate of $1,600 per day plus expenses, with a guaranteed minimum of 10
days per month. The consulting agreement expires November 5, 1998.
Mercantile-Safe Deposit and Trust Company ("Mercantile"), of which Mr. Baldwin
is Chairman of the Board and Chief Executive Officer, has a revolving credit and
term loan agreement with the Company. The Company owed Mercantile $23.3 million
under this agreement as of June 30, 1998. In addition, in June 1996, the Company
completed a $7.5 million sale-leaseback of its furniture and equipment with
Mercantile, which is accounted for as a financing. The Company owed Mercantile
$1.0 million under this agreement as of June 30, 1998.
In January 1997, the Company arranged for up to $22 million in financing,
consisting of a $4 million 5% convertible debenture ("Debenture") with the
Halifax Fund, L.P. ("Halifax") and an $18 million equity line ("Equity Line")
with Cripple Creek Securities, LLC ("Cripple Creek") whereby Cripple Creek may
purchase up to $18 million in the Company's Common Stock over a 3 year period.
The investment manager for Halifax and the sole member of Cripple Creek is The
Palladin Group, L.P. ("Palladin"), of which Mr. Cohen was a special limited
partner until June 30, 1997. In addition, Mr. Cohen is the general partner of
Ramius Capital Group, L.P., which until June 30, 1997 was an affiliate of
Palladin. The Debenture was fully converted into 804,322 shares of Common Stock
during 1997 and 1998. The purchase price under the Equity Line is 94% of the low
trade price during the 3 trading days immediately preceding the purchase. If the
Company issues less than $5 million of Stock under the Equity Line, it must pay
up to $300,000 as liquidated damages. In connection with the convertible
debenture, Halifax received a 7-year warrant to purchase 320,000 shares of Stock
at $8.47 per share, and in connection with the Equity Line, Cripple Creek
received a 7-year warrant to purchase 125,000 shares of Stock at $8.47 per
share. The warrants became exercisable on July 31, 1998. If the Company sells
substantially all of its assets or enters into a merger or acquisition or other
similar transaction, the warrants are repriced at the lesser of (i) $8.47 per
share, or (ii) 80% of the transaction value. If the Company elects to issue more
than $5 million under the Equity Line, Cripple Creek will receive an additional
7-year warrant to purchase 75,000 shares at 140% of the Stock price at the time
the warrant is issued.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There is no "interlock" or "insider participation" (as those terms are defined
by the SEC) in the Compensation Committee of the Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of SEC Forms 3, 4 and 5 and amendments thereto furnished to
the Company with respect to fiscal 1998, all of such forms were filed on a
timely basis with respect to fiscal 1998.
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table sets forth the shares and percentages of Stock beneficially
owned by the Company's principal shareholders, directors, nominees, highest paid
executive officers, and by all directors and executive officers as a group, as
of July 31, 1998, unless another date is indicated. Unless otherwise indicated,
each person shown as the beneficial owner of shares possesses sole voting and
dispositive power with respect to such shares.
Number of Shares % of Class
---------------- ----------
Edward C. Meyer 1,733,329 (1) 17.0%
Frank J.A. Cilluffo 1,711,461 (2) 16.8%
Cilluffo Associates, L.P. 1,708,000 (3) 16.7%
Jim Roth 268,406 (4) 2.6%
Joseph R. Wright, Jr. 190,152 (5) 1.8%
Peter A. Cohen 118,160 (6) 1.2%
Gary L. Denman 71,880 (7) 0.7%
Ronald B. Alexander 50,162 (8) 0.5%
Thomas E. McCabe 30,938 (9) 0.3%
James L. Selsor 18,985 (10) 0.2%
Leslie B. Disharoon 15,000 0.1%
Charles H.P. Duell 11,071 (11) 0.1%
Michael G. Stolarik 10,691 0.1%
Herbert Rabin 7,916 (12) 0.1%
H. Furlong Baldwin 6,000 0.1%
George R. Packard 5,135 (13) 0.1%
E. Kirby Warren 1,500 0.0%
All Directors & Executive Officers (17 persons) 2,537,533 24.8%
(1) Includes 1,708,000 shares owned by Cilluffo Associates, L.P., of which
General Meyer is a managing general partner. General Meyer shares voting
and dispositive power as to these shares with Cilluffo Associates and its
other managing general partner. Also includes 25,329 shares, which may be
acquired by General Meyer in his own right upon exercise of options
exercisable within 60 days.
(2) Includes 1,708,000 shares owned by Cilluffo Associates, L.P., of which Mr.
Cilluffo is a managing general partner. Mr. Cilluffo shares voting and
dispositive power as to these shares with Cilluffo Associates and its other
managing general partner. Also includes 3,461 shares owned by Mr. Cilluffo
individually.
(3) Shares beneficially owned by Cilluffo Associates, L.P. and its managing
general partners, Frank J.A. Cilluffo and General Meyer. See note (1)
above.
(4) Includes 172,941 shares subject to options exercisable within 60 days,
89,113 shares with shared voting and dispositive power, 5,968 shares in the
Company's Employee Stock Purchase Plan, and 384 shares in the Company's
Deferred Income Plan.
(5) Includes 164,152 shares subject to options exercisable within 60 days and
1,000 shares owned by Mr. Wright's wife.
(6) Includes 75,000 shares subject to options exercisable within 60 days and
22,000 shares held by family members not in Mr. Cohen's household, for
which shares Mr. Cohen has investment discretion.
(7) Includes 67,838 shares subject to options exercisable within 60 days, 3,869
shares in the Company's Employee Stock Purchase Plan and 173 shares in the
Company's Deferred Income Plan.
(8) Includes 50,000 shares subject to options exercisable within 60 days and
162 shares in the Company's Deferred Income Plan.
(9) Includes 30,553 shares subject to options exercisable within 60 days, 1
share in the Company's Employee Stock Purchase Plan and 384 shares in the
Company's Deferred Income Plan.
(10) Includes 10,335 shares subject to options exercisable within 60 days.
(11) Includes 3,000 shares owned by a general partnership. Mr. Duell disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(12) Represents shares subject to options exercisable within 60 days.
(13) Includes 4,785 shares subject to options exercisable within 60 days.
SHAREHOLDER PROPOSAL REGARDING DECLASSIFICATION OF THE BOARD OF DIRECTORS
Leonard and Diane DeFrancisci, shareholders of the Company, have submitted the
following proposal and supporting statement for inclusion in this Proxy
Statement and stated their intention to present the same at the Annual Meeting.
In accordance with applicable regulations, the Company will provide the
proponents' address and number of securities held upon written or oral request
to any shareholder.
Proposal
RESOLVED, that the Board of Directors of the Company take the necessary action
in accordance with state law to amend the by-laws, and to recommend to
shareholders that the certificate of incorporation of the Company be amended to
delete provisions providing for a classified Board of Directors so that all
directors are elected annually, such unexpired terms of the directors elected
prior to the vote of the shareholders of the Company approving such
declassification.
Supporting Statement
We believe the election of directors is the primary means for shareholders to
influence corporate governance policies and to hold management accountable for
its actions. We also believe that the classification of the Board of Directors,
i.e., the election each year of a third of the Company's directors for a
three-year term, is primarily designed to protect directors from being removed
from office by anyone engaged in a proxy contest for control of the Board of
Directors.
At the last annual meeting of shareholders of the Company, the Company had 11
directors divided into three classes. Accordingly, a proxy contestant would need
to win at least two proxy contests in order to gain control of the Board of
Directors of the Company. Furthermore, since the Company also has cumulative
voting, it could take a proxy contestant at least three annual meetings to
obtain control of the Board of Directors if the Company's management can obtain
proxies for approximately 1/3 of the shares voted at each annual meeting.
The Board of Directors' recommendation is required by statute to eliminate the
Company's classified Board of cumulative voting. In addition, the Company's
certificate of incorporation requires the approval of such recommendation by
shareholders owning more than 80% (rather than the majority mandated by statute)
of the outstanding stock entitled to vote.
The amendment of the Company's certificate of incorporation to require a
classified Board of Directors, cumulative voting and an 80% vote of the
outstanding shares to delete the classified and cumulative voting was approved
by stockholders more than 15 years ago, at a time when, we believe, shareholders
were more favorably inclined to agree with management regarding the merits of a
classified Board. The two most common arguments by those supporting classified
boards, (1) ensured continuity of leadership and policy and (2) a potent defense
against a hostile suitor are no longer persuasive with regard to the Company.
Indeed, in light of the recent performance of management and the Company's stock
price, we find far more compelling the two following arguments: (1) the entire
Board of Directors should be accountable to the shareholders annually and (2)
unsolicited takeover attempts should not be discouraged by a classified Board
linked with cumulative voting.
RESPONSE OF YOUR BOARD
Your Board recommends a vote "AGAINST" the Proponents' resolution.
Since approved by the shareholders in 1974, the Board has been divided into
three classes. Under this system, each director serves a three-year term, each
class is as nearly equal as possible in size (subject to resignations and
retirement), and one of the three classes is elected each year. This staggered
election of directors is a common practice that has been approved by the
shareholders of many major corporations.
Although we respect the proponents' right to express contrary views, we remain
convinced that the election of directors by classes is in the best interest of
the Company and its shareholders and should not be changed for several reasons:
* First, we believe that the election of directors by classes assures
continuity and stability in the management of Company affairs, since, at
any given time, a majority of the Board generally will have had prior
experience as directors of the Company. This serves to provide solid
knowledge of the business and industry, informed oversight of corporate
policies, orderly development of strategies and operations, and long-term
strategic planning to enhance shareholder value. This also permits a more
orderly process for a change in the composition of the Board and Company
policies and strategies. In the Company's case, continuity and stability of
management are particularly vital because the vast majority of the
Company's work is for the Department of Defense. We believe that
potentially precipitous changes in the make-up of the Board could cause the
Company's government customers to consider future performance, national
security, and other issues in connection with the Company's present and
potential future government contracts. This could have a material negative
impact on the Company's revenues.
* Second, when directors are elected by classes, a change in the composition
of a majority of the Board normally requires at least two shareholder
meetings, instead of one. Therefore, we believe that the election of
directors by classes reduces the vulnerability of the Company to certain
potentially abusive takeover tactics and encourages potential acquirors to
initiate such actions through arm's length negotiations with both
management and experienced directors. The ability to resist abusive
takeover tactics allows the Board to consider, for example, how best to
preserve the Company's relationships with its government customers. Thus, a
classified board does not preclude unsolicited acquisition proposals but,
by eliminating the threat of imminent removal, positions your incumbent
board to act to maximize the long-term value of an acquisition for all
shareholders.
* Finally, we believe that directors elected for staggered terms are not any
less accountable or responsive to shareholders than they would be if
elected annually. The same standards of performance apply to all directors
regardless of the term of service. You, as shareholders, always retain the
ability to replace directors or propose and elect alternate nominees for
the class of directors to be elected each year. Thus, you continue to enjoy
a significant opportunity to express your views regarding the Board's
performance and to influence the Board's composition.
THE BOARD RECOMMENDS A VOTE "AGAINST" THE ADOPTION OF THE SHAREHOLDER PROPOSAL
TO DECLASSIFY THE COMPANY'S BOARD.
Approval of this shareholder proposal requires the affirmative vote of a
majority of the shares present in person or by proxy at the Annual Meeting and
entitled to vote on the subject matter. Unless otherwise directed, the persons
named in the enclosed proxy will vote the stock represented by all proxies
received prior to the Annual Meeting, and not properly revoked, excluding broker
non-votes, against this shareholder proposal.
Directors Frank J.A. Cilluffo and Edward C. Meyer dissent from the Board on this
issue and have notified the Company that they and Cilluffo Associates, L.P.
intend to vote their shares in favor of the proposal.
SHAREHOLDER PROPOSAL REGARDING TERMINATION OF SHAREHOLDER RIGHTS PLAN
David and Joyce Corcoran, shareholders of the Company, have submitted the
following proposal and supporting statement for inclusion in this Proxy
Statement and stated their intention to present the same at the Annual Meeting.
In accordance with applicable regulations, the Company will provide the
proponents' address and number of securities held upon written or oral request
to any shareholder.
Proposal
RESOLVED, that the Board of Directors of the Company terminate the Shareholder
Rights Plan adopted by it in 1985 and refrain from adopting any similar plan
unless the plan is approved by the affirmative vote of a majority of outstanding
shares entitled to vote at a meeting of shareholders that is held as soon as
practicable.
Supporting Statement
Our proposal is intended to help restore to shareholders the opportunity to act
on unsolicited tender offers that may provide the shareholders a substantial
premium over the current market value of the Company's common stock. We believe
that the Company's Shareholder Rights Plan deprives the shareholders from
realizing such a premium by limiting their ability to accept or even consider
the merits of an unsolicited tender offer to which the Board or management is
opposed. We also believe such defenses depress the market value of the Company's
common stock and serve to entrench management.
The Securities and Exchange Commission recognized the benefits of tender offers
in 1986 release, stating: `Tender offers can benefit shareholders by offering
them an opportunity to sell their shares at a premium and by guarding against
management entrenchment. However, because poison pills are intended to deter
non-negotiated tender offers, and because they have this potential effect
without shareholder consent, poison pill plans can effectively prevent
shareholders from even considering the merits of a takeover that is opposed by
the board.' SEC Release No. 34-23486 (July 21, 1986).
The Company's Shareholder Rights Plan is a type of `poison pill' because it is
designed to make it prohibitively expensive to acquire the Company where an
unsolicited tender offer is not approved by the Board of Directors.
We believe that the Company will defend shareholder rights plans as devices that
protect shareholders by enhancing the bargaining power of the Company when faced
with a hostile takeover. However, we strongly believe that any poison pill
insulates Company management from direct accountability to shareholders,
particularly when the Company has been performing poorly, and, accordingly, that
management should ask shareholders their opinion before seeking to `protect'
shareholders from an opportunity to sell their shares in a tender offer.
For these reasons, we are urging GRC shareholders to vote `For' our proposal.
RESPONSE OF YOUR BOARD
Your Board recommends a vote "AGAINST" the Proponent's resolution.
The Company's Shareholder Rights Plan (the "Rights Plan") is intended to protect
the interests of the Company and all shareholders. The Rights Plan is not
intended to prevent a bidder from making a tender offer or other takeover-type
transaction, nor will it impede any effort to replace the Board or propose and
elect alternate nominees for the class of directors to be elected each year. The
Rights Plan is, however, a fundamental negotiating tool that inhibits abusive
conduct and is designed to protect against practices that do not treat all
shareholders equally. The Rights Plan strengthens your Company's negotiating
power and positions the Board to negotiate the best price for shareholders when
the sale of the Company is in the best interests of the shareholders. The Rights
Plan creates an incentive for a potential acquiror to negotiate in good faith
with the Board. Of course, the Board can redeem the rights and, in deciding
whether to do so in connection with any unsolicited offer, the Board will be
bound by its fiduciary obligations to act in the best interests of the Company
and its shareholders.
Also, the Rights Plan, by providing the Board with an additional degree of
control in a takeover situation, enables the Board to calmly evaluate a
potential buyer from the vantage point of the Company's government customers -
many of whom may be sensitive to the effect of a change in ownership on the
successful performance of the Company's current contracts, national security
issues, and similar concerns. The Rights Plan also allows the Board to consider
the impact of a takeover proposal on its professional and technical employees,
many of whom are critical to the performance of contracts with government
customers. A material decline in the Company's government contract revenue,
either as a result of government action or the loss of key employees, could
cause a potential buyer to terminate its offer prior to completion of the
takeover and thus adversely affect shareholder value.
The Board originally adopted the Rights Plan for a term of 10 years in 1985. In
1995, following its review of comprehensive materials prepared for the Board by
a well-regarded independent investment banking firm and special outside legal
counsel and the respective advice of such firms, the Board concluded that
extending the Rights Plan for an additional 10 years (with minor changes) was in
the best interests of the Company and shareholders. At that time, over 1,600
public companies, including 120 of the Fortune 200 companies, had adopted rights
plans. Data presented to the Board also demonstrated that companies with rights
plans received takeover premiums higher than those received by companies not
protected by rights plans.
Under Delaware law, the Board has the responsibility to manage and direct the
Company's business and affairs. We believe that the adoption and extension of
the Rights Plan was a valid and proper exercise of that responsibility. We also
believe that the decision to redeem the rights should be made in the context of
a specific acquisition proposal. To do so in the absence of such a proposal at
this time would be to deny the Company's shareholders protection in the
event of an unsolicited offer and, in the Board's view, potentially reduce the
long-term value for all shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE ADOPTION OF THE
SHAREHOLDER PROPOSAL TO TERMINATE THE RIGHTS PLAN.
Approval of this shareholder proposal requires the affirmative vote of a
majority of the shares present in person or by proxy at the Annual Meeting and
entitled to vote on the subject matter. Unless otherwise directed, the persons
named in the enclosed proxy will vote the stock represented by all proxies
received prior to the Annual Meeting, and not properly revoked, excluding broker
non-votes, against this shareholder proposal.
Directors Frank J.A. Cilluffo and Edward C. Meyer dissent from the Board on this
issue and have notified the Company that they and Cilluffo Associates, L.P.
intend to vote their shares in favor of the proposal.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
To be considered at the 1999 Annual Meeting of Shareholders, any shareholder
proposal, whether submitted under Rule 14a-8 or otherwise, must be received by
the Secretary, GRC International, Inc., 1900 Gallows Road, Vienna, Virginia
22182, on or before June 8, 1999.
By Order of the Board of Directors
/s/ Thomas E. McCabe
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THOMAS E. McCABE
Senior Vice President, General Counsel & Secretary
Dated: October 6, 1998
PROXY GRC INTERNATIONAL, INC. PROXY
The undersigned hereby authorizes H. FURLONG BALDWIN, PETER A. COHEN, CHARLES H.P. DUELL and JOSEPH R. WRIGHT, and each of them,
with several powers of substitution, to vote and otherwise represent all shares of Common Stock of GRC INTERNATIONAL, INC.
("Company") owned or otherwise held by the undersigned at the Annual Meeting of Shareholders of the Company on November 5, 1998,
and at any and all adjournments thereof, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1-2.
1. ELECTION OF DIRECTORS
FOR all nominees NOMINEES: FRANK J.A. CILLUFFO and LESLIE B. DISHAROON. To withhold vote from an individual nominee, check
- --- here [__] and write name of nominee as to whom vote is withheld.
---------------------------------------------
WITHHOLD AUTHORITY to vote for all nominees
- ---
2. RATIFICATION OF DELOITTE & TOUCHE AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR AGAINST ABSTAIN
- --- --- ---
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEMS 3-4.
3. SHAREHOLDER PROPOSAL TO DECLASSIFY BOARD OF DIRECTORS
FOR AGAINST ABSTAIN
- --- --- ---
4. SHAREHOLDER PROPOSAL TO TERMINATE SHAREHOLDER RIGHTS PLAN
FOR AGAINST ABSTAIN
- --- --- ---
The shares represented by this proxy will be voted as directed or, if no direction is made, will be voted "FOR" items 1 and 2 and
"AGAINST" Items 3 and 4.
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS
(continued and to be signed on reverse side)
(continued from other side)
The undersigned confers upon the proxies hereby appointed authority to act upon all matters incident to the conduct of the meeting
and in their discretion upon such other matters as may properly come before the meeting. Management knows of no other matters to
be presented at the meeting.
All other proxies previously given by the undersigned to vote shares of Common Stock of the Company are hereby expressly revoked.
Please sign exactly as your name appears hereon. If you are signing for the shareholder, please sign the shareholder's name and
your own name, and state the capacity in which you are signing.
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Signature
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Additional Signature (if held jointly)
Date: , 1998
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